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France’s FRR posts 5% return in 2016

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Fonds de Reserve pour les Retraites, Paris, returned 4.97% in 2016, driven by equities, high yield and emerging markets bonds.

That compared with a 3.08% return in 2015. Long-term returns were not provided.

FRR said in a financial update Friday that net assets fell 0.9% to €36 billion ($37.9 billion) in the year ended Dec. 31.

The French pension fund said in 2016 its total asset performance was mainly derived from a strong 8.2% return from the portfolio's performance component at 8.2%.

FRR added that the asset value of the portfolio's hedging component increased 3.1% due to a fall in interest rates over the course of the year and the fall in dollar-denominated corporate bond risk premiums. FRR's €18.6 billion hedging component has 51% in liability-matching strategies and cash, 32% in euro-denominated corporate bonds and 16% in U.S.-denominated corporate bonds.

Olivier Rousseau, executive director at FRR, said in a telephone interview that the fund will remain allocated to eurozone equities — at 40% of the performance component — despite the asset class having a weaker year in 2016 compared to 2015.

Mr. Rousseau said the outlook in the medium term was good for cheap eurozone equity thanks to an improving economic climate.

“When political risk resides, we should see eurozone equity perform well,” he said.

FRR invests in equity through mutual funds. It has a 40% allocation to other developed markets in Europe, the U.S. and Asia-Pacific excluding Japan in its performance component. The remaining 20% is invested in high yield and emerging market debt.

“Emerging market debt returned 11.6%, euro-denominated high yield returned 9.1%, while dollar-denominated high yield debt returned 15.7% in 2016,” Mr. Rousseau added.

During the year, FRR contributed €204 million to the French economy through unlisted debt and equity investments, according to the statement.