PARIS — The €19.6 billion ($24.28 billion) Fonds de Reserve pour les Retraites will issue RFPs later this month for socially responsible investment mandates and in the fall will begin searching for private equity managers.
Earlier this month, the state pension reserve fund appointed private equity consultant Campbell Lutyens & Co. Ltd., London, to assist in finding managers for a number of international private equity mandates. The fund last month appointed money manager search firm Bfinance, Paris, to help it search for specialists in socially responsible investing. Officials at the state-backed fund will not say how much will be allocated to either socially responsible investments or private equity.
Details of the socially responsible investing and private equity mandates will not be available until the requests for proposals are issued, said a spokeswoman for the fund, who asked not to be identified.
The FRR was launched in 1999 to cover expected shortfalls in France's state-sponsored pay-as-you-go pension system. The fund's assets cannot be used until 2020, when French government officials expect the country's aging population to trigger a shortfall of assets to cover liabilities. By then, the reserve fund is expected to have grown to €150 billion, in part funded by proceeds from the privatization of state-owned assets and various endowments and allocations from the French government, according to the FRR's latest annual report for the year ended Dec. 31, 2004.
By the end of this month, the plan's total assets are expected to rise to €22.6 billion, following a one-time €3 billion contribution from France's gas and electrical industries, according to a statement from the FRR late last month.
Heavily in cash
As of March 31, only €11 billion had been allocated to specific mandates, leaving €8.6 billion sitting in "cash or near cash" investments, according to the FRR statement. This is despite a wide-ranging search for bond and equity money managers completed a year ago by the FRR and its general investment consultant, Paris-based Mercer Investment Consulting. More than 20 Europe-based and international money managers were hired to run €16 billion, of which €11 billion have been funded in 12 asset classes. The fund also hired transition broker Goldman Sachs International, London, and currency overlay and tactical asset allocation manager State Street Global Advisors, Paris.
• Barclays Global Investors Ltd. and Vanguard Investments Europe SA, each of which runs €1 billion in passive eurozone large-cap equities and €640 million in passive U.S. large-cap equities;
• AXA Rosenberg Investment Management Ltd., €200 million in active eurozone small-cap and midcap stocks, €620 million in active eurozone large-cap equities and €240 million in active Europe ex-eurozone large-cap equities;
• Capital International Ltd., Nomura Asset Management Ltd. UK and Morgan Stanley Investment Management, €240 million each in active Pacific Rim large-cap stocks including Japan and excluding emerginMorgan Stanley. UK and Morgan Stanley Investment Management, €240 million each in active Pacific Rim large-cap stocks including Japan and excluding emerging markets;
• Loomis Sayles & Co. LP, €480 million in active international government and corporate bonds; and
• BNP Paribas Asset Management SA and IXIS Asset Management SA, €960 million each in active eurozone government and corporate debt.
FRR executives seemed to be taking their time funding mandates awarded last year but appeared at pains to demonstrate their "love, care and attention" to what are public assets, said a source at an international money manager running assets for the fund, who asked not to be identified.
An FRR spokesman said the fund does not comment on the timing of its investments. He added that fund officials invest assets depending on market conditions. FRR has yet to fund most of its bond portfolios and some of its equity mandates.
The fund returned 3.98% for the year ended Dec. 31, 2004. The combined 9.46% return from its equity and bond portfolios during the second half of the year was diluted by the 2% return of its cash portfolio, which was 44% of total assets, according to the annual report. The fund had invested 46% of assets in equities and 10% in bonds.
Its current strategic asset allocation, established in April 2003, set investment targets for eurozone equities at 38% of total assets, non-eurozone equities at 17%, eurozone bonds at 38% and non-eurozone bonds at 7%. But the strategic asset allocation will be adjusted to incorporate new asset classes such as private equity, according to FRR's recently published 2004 annual report.