France’s Fonds de reserve pour les retraites (FRR) posted a net return of 6.95% in 2021, generated entirely by its performance portfolio.
Comprising equities, high yield bonds and unlisted assets, this portfolio returned 7.57%. Investments in the hedging portfolio fell by 0.53%. FRR’s total assets are split roughly equally between the hedging portfolio and the performance-seeking portfolio.
Taking into account FRR’s annual payment of €2.1bn to CADES, a social security debt amortisation fund, the public pension reserve fund’s total assets under management shrank by €315m to some €26bn.
Over the years FRR has returned €14.1bn more than the average cost of the CADES debt. It said its performance results would allow it to meet its liabilities by continuing to adopt the behaviour of a long-term investor.
In 2020, FRR’s liability profile changed significantly in connection with a government plan to address social security deficits resulting from the coronavirus pandemic.
FRR had been due to end annual payments to CADES in 2024, but it now faces further drawdowns, albeit of €1.45bn per year, from 2025 to 2033. The change also put paid to a planned transition to a new status and investment model.
Home plays, ESG advances
The pension reserve fund said it contributes significantly to the financing of the French economy as part of its investments. Since 2013, it said, it had committed €4.1bn to unlisted assets, 70% of which were in France. As at the end of 2021, €2.6bn had been called.
In the past year FRR committed a fresh €265m to French companies, across allocations to four closed-ended funds and a top-up of an existing mandate. Two of the funds were for growth equity for future tech leaders under the government’s “Tibi” initiative, and the other two were mezzanine funds.
FRR also said it had allocated €30m to innovative infrastructure supporting the energy transition.
FRR has been working to advance ESG investing since it became a founding member of the Principles for Responsible Investment.
In 2019 it became a member of the UN-convened Net Zero Asset Owner Alliance, and in the past year it has tightened its demands of asset managers with regard to decarbonisation and company engagement.
This was the case with €6bn worth of euro bond mandates, and it is also making similar demands for US dollar bond mandates of more than €3bn that are out for renewal.
FRR has also appointed Amundi, BNP Paribas and Candriam to run €4bn in Paris-aligned index strategies, which represent the latest evolution of its smart beta equity strategies.
FRR has cut the carbon footprint of its equity holdings by 53% since 2013. It has committed €485m to financing green infrastructure, representing 1.85% of the portfolio.