FRANCE - The giant e13.1bn French Fonds de Réserve des Retraites (FRR) has appointed Mercer Investment Consulting to assist with its fund manager selection process which starts later this year.
Mercer were elected following a formal tender process. The team managing the project will be based in Paris, led by Thierry Brevet, but will draw on resources from Mercer offices worldwide.
Gilles Bénéplanc, worldwide partner and head of Mercer’s retirement operations in France, said: Our experience of working with State Reserve Funds worldwide and our knowledge of investment managers will enable us to help FRR reach its objective of becoming a global leader in the investment world.
The FRR, or French Reserve State Fund, was set up in 1999 and is designed to provide long-term top up funding for the ailing French pay-as-you-go State pension system. The fund only recently decided on its asset allocation.
Equities will form 55% of the assets. Some 37% of the portfolio will go into eurozone equities with 17% in non-eurozone equities. Another 45% of the fund will be allocated to bonds, the vast majority (38%) in eurozone bonds and 7% non-eurozone. The remainder may be placed in private equity/property. The bond portfolio will include both investment grade corporates and sovereign debt. The funds will be invested according to sustainable investment principles.
Some 12 specialist mandates are expected to be put out with 2 managers for each asset class. The fund is limited to using Euro-denominated instruments until 2H, 2004. Proposals are expected by June, with a shortlist to follow in July. Managers selection is expected to take place between October and December. Pending performance, managers will hold assets until 2020.
The allocation to equities is controversial, since the powerful French trade unions have an innate hostility to capital markets.
Francis Mayer, director general of the Caisse des Depots et Consignations (CDC), and president of the board of the FRR, emphasised that CDC would not hold any advantages in securing asset management mandates due to its position as administrator of the FRR.
“I hope there will be at least two managers for each asset class,” he said.
“CDC Ixis will compete, but we will strictly respect the Chinese Walls.”
Funded partly through tax revenue and partly from privatisation receipts, the FRR, with a target value of e150bn by 2020, was set up under the premiership of Lionel Jospin to cover the shortfall in the social security budget for pension payments from 2020. The projected long-term target now looks somewhat over-optimistic, as sources of funding have failed to keep pace.
A further development on French pensions was the presentation in April by the minister of social affairs, Francois Fillon, of his proposals for pension reform to trade union representatives.
The major plank of the reform aims to bring the period of qualification for public sector workers into line with that of private sector workers.
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