Hedging, return-seeking portfolios boost returns at France's FRR

Fonds de Réserve pour les Retraites (FRR) achieved a 8.75% return over 2014 with strong performance in its return-seeking and hedging portfolios.

The French pension system reserve fund now has around €37bn in assets, an increase of €900m over the year despite paying out around €2.1bn in commitments.

The €3bn return, it said, was driven largely by the 9.8% generated by its return-seeking assets, which account for roughly 44.2% of the fund and are mainly invested in European and global equities.

FRR’s hedging assets, accounting for majority of the fund, returned 8.2% – with a third of total assets invested in French government bonds.

“[The 8.2% return] resulted from a renewed fall in interest rates, and was not expected after the marked fall in interest rates and corresponding increase in the market value of bonds observed in 2011 and 2012,” FRR said.

More than four years since FRR began annually contributing €2.1bn to Cades, a French government organisation to manage social debt, the fund has returned 6.1% on an annualised basis.

The fund said it also continued its strong commitment to the French economy and, over 2014, a further €300m into small and medium French equities, and an additional €120m in loans, taking the total to €300m.

By the end of the year, it held more than €2.2bn in French listed equities, €170m in private equity and €1.3bn in French corporate bonds.

It also increased its allocations to low-carbon indices to more than €1bn and reaffirmed its commitment by making regular assessments of its carbon footprint with the equity portfolios.

In September, the fund announced it, alongside Swedish buffer fund AP4, worked with index provider MSCI to develop a new low-carbon equity index.

The MSCI Global Low Carbon Leaders index is based on the firm’s existing All Country World index and seeks to take into consideration carbon emissions and fossil fuel reserves.

It also concluded a nine-month search for asset managers in a slight overhaul of its strategy, appointing nine companies across a range of asset classes.