French second-pillar pension fund Agirc-Arrco has reviewed its investment strategy ahead of a likely asset-management reshuffle, as economic and demographic constrains weight on retirement.

Agirc-Arrco’s financial committee is set to review the findings of the review this November.

The committee is expected to recommend concentrating investment into fewer hands, in a bit to reduce fees.

Agirc-Arrco is keen to optimise every euro, as the financial crisis has taken a heavy toll on reserves.

The General Inspectorate of Social Affairs (IGAS) issued a report in June 2013 on “Compulsory retirement systems’ investment control” and pointed to the existence of a number of “loopholes”.

Without targeting Agirc-Arrco specifically, it criticised indirect investment through funds, which it said allowed French retirement institutions to own assets they would be prohibited from buying directly.

It also questioned the preference for active management over indexing, claiming there was no evidence the former was superior and citing its higher volatility. 

IGAS also claimed active asset managers did not invest in securities “with a long-term perspective”, allowing them to receive “associated dividends or coupons”.

To avoid arguments on this issue, Agirc-Arrco has already taken several steps.

First, the GIE Agirc-Arrco central body has taken over the remaining Agirc reserves, calling on decentralised institutions to return assets this summer.

Philippe Goubeault, CFO at Agirc-Arrco, said: “If Agirc reserves had been kept by the decentralised institutions, their median portfolio would have fallen to €40m.”

Another step was an audit of Agirc-Arrco’s performance and asset-management outsourcing.

Over the five-year period between 2009 and 2013, the scheme’s long-term reserves produce an average 6.15% a year – 6.18% at the central body level and 6.13% for the 23 decentralised institutions, half of them (12) being close to the average (more or less 0.5%), the other being split between six outperforming and five underperforming institutions.

“Fees,” Goubeault said, “can be as low as 5 basis points (0.05%) on a €1bn fixed income portfolio, and up to 0.5% on a smaller dedicated equity fund.”

Today, reserves are scattered among decentralised Agirc-Arrco institutions, and they outsource their investments to 182 fund managers, split among 49 providers of dedicated funds and 143 providers of open-ended funds.

As a result, overall investment fees paid by Agirc-Arrco currently amount to approximately €140m a year.

Even if it represents 0.20% of the managed assets, it is worth reviewing, as many fund managers now offer more competitive prices.

IGAS controllers, for their report, asked Agirc-Arrco why it did not manage reserves at the centralised level, and while such a move would save on fees, it would also require more political will.

Many French institutions have a conflict of interest where investment outsourcing is concerned, as they are tied to private sector partners owning asset management subsidiaries.

Among the 49 managers of dedicated funds or mandates retained by Agirc-Arrco, seven belong to social protection groups controlling the decentralised Agirc-Arrco institutions.

These ‘insiders’ managed €17bn for Agirc-Arrco at end of June, or one-third of the €51bn allocated to dedicated funds and mandates.

The three largest ‘in-house’ fund managers were Federis (tied to Malakoff-Médéric decentralised institution) managing €8.1bn of Agirc-Arrco money, Agicam (AG2R La Mondiale) managing €7.9bn and SMA Gestion (Pro BTP) managing €1.4bn.

As a comparison, the largest external fund managers were Groupama AM, with about €6bn in Agirc-Arrco money, HSBC AM (€5.5bn), Amundi AM (€3.9bn), Rothschild & Cie (€2.7bn), CPR AM (€2.5bn), Metropole Gestion (€2.3bn), Credit Mutuel CIC AM (€1.7bn), Schelcher Prince Gestion (€1.6bn) and Russell Investment (€1.2bn).

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