Fonds de Réserve pour les Retraites (FRR), the €20.4bn French pension reserve fund, is set to invest up to €200m in investment grade securitised assets.
Its supervisory board approved the allocation last month, with the public fund saying the investment was aimed at diversifying its portfolio and supporting the project of a single capital market in the EU.
It said the targeted assets, rated between AAA and BBB, would consist of portfolios of loans to the European real economy, especially residential mortgage loans, consumer credit, and business loans, including for SMEs.
The reserve fund said it aimed to take advantage of the additional return offered by the securitisations “all while ensuring a rigorous selection of top-tier assets and structures”.
“The goal is to gradually acquire specific expertise in this complex yet high-potential asset class, within a regulatory framework that has been strengthened since the 2008 crisis,” FRR said.
The move to gain exposure to securitisation comes as the reserve fund has once again approved a higher allocation to unhedged equities, this year upping it from 41.5% to 46% while decreasing its exposure to “intermediate risk” assets (including high yield bonds) to 36% and investment grade and domestic sovereign bonds to 18%.
It deemed this possible after posting returns net of fees of 6.46% in 2024.
EU reform
After years of being discussed as a way to boost the EU’s economy, securitisation is now high on the European Commission’s priority list. Last month, the EU executive put forward a package of reform proposals, its first legislative initiative under its Savings and Investments Union strategy.
Not many pension funds invest directly in securitisations, although some invest in synthetic on-balance-sheet securitisations.
PGGM has run a credit risk sharing mandate since 2006, most recently entering into a €1.7bn transaction referencing the corporate loans portfolio of UniCredit Bank Czech Republic and Slovakia.
PensionsEurope has said it supports the Commission’s initiative to review the EU securitisation framework, as securitisation may provide long-term investors like pension funds with a broader pool of assets that are low-risk from a credit perspective, alongside government bonds.
It wants to see a harmonisation of tax treatments and bankruptcy law, and for a revised EU securitisation framework to ensure better transparency and availability of data for investors.
As reported by IPE, there is hope that the recently published amendments to the EU’s securitisation regulation will help lower the barriers for institutional investors, although some market participants believe a cultural shift is also required for a successful revival.
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