France’s Fonds de réserve pour les retraites (FRR) achieved net performance of 1% last year while its assets fell by €7.3bn.
It attributed the shrinkage of its asset base to the “exceptional scale” of withdrawals made during the year, which totalled €7.1bn.
It indicated that a loss of some €200m was made due to the timing of the withdrawals, made at unfavourable moments during the market recovery cycle. This took the total asset decline to €7.3bn.
As every year since 2011, FRR on 25 April made a payment of €2.1bn to CADES, a social security debt amortisation fund. Last year FRR also had to make a €5bn payment to CNAV, the national old-age insurance fund, on 31 July.
FRR said the positive annual performance result illustrated the resilience of its portfolio, but also that it was “affected by the prudent bias with which FRR’s assets were managed faced with the prospect of extraordinary withdrawals and the resulting operational constraints”.
A public fund, FRR was last year incorporated into a government plan to deal with deficits in the social security system linked to the coronavirus pandemic. This involved demanding the €5bn payment to CNAV by the end of July at the latest, and an extension of FRR’s annual payments to CADES.
These were supposed to stop in 2024, but will now continue, albeit at a rate of €1.45bn, until 2033 or until reserves are exhausted. This could mean €13.05bn in extra payments.
FRR’s portfolio consists of performance-seeking assets, such as equities, and a liability-hedging portfolio invested in government bonds and investment grade corporate bonds.
The 1% performance for 2020, which FRR said was ”precisely calculated to correct the impact of the withdrawal timetable”, compares with a return of 9.7% in 2019. The annualised return since 2011 is 4.5%. On a cumulative basis its performance portfolio has returned 89.1% since then and the hedging portfolio 33.7%.
In 2020 FRR allocated €750m to domestic unlisted assets, mainly for private equity but also energy transition infrastructure. As part of a government technology financing initiative FRR also committed to investing €250m in growth capital. In 2021 it will invest €250m in global tech listed equity.
The reserve fund also continues to pursue a policy of decarbonising its portfolio. A member of the UN Net-Zero Asset Owner Alliance, it earlier this month launched a tender for optimised passive equity solutions aligned with a global warming trajectory compatible with the Paris Agreement.