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France’s FRR on the hunt for small-cap managers in latest ESG mandate search

ESG requirements will help €36bn asset owner align with Article 173, it says

France’s €36bn Fonds de réserve pour les retraites (FRR), the country’s state pension reserve fund, is set to give an ESG overhaul to its investments in domestic and European small-cap companies, with €1.7bn in new active equity mandates up for grabs.
Divided into two lots – €1.1bn for European companies and €600m with a domestic focus – the two new “responsible active management” mandates will replace two existing small-cap mandates that were due for renewal, according to a spokesperson for the fund.
According to FRR’s 2016 Annual Report , its small-cap European active equities investments are managed by Fidelity Gestion, Montanaro Asset Management, Threadneedle Asset Management and Standard Life Investment. Its small- to mid-cap French active equities mandates are managed by CM-CIC Asset Management, CPR Asset Management, Generali Investments Europe, Oddo Asset Management and Sycomore Asset Management.
Prospective candidates for the new tender “will have to demonstrate the integration of ESG issues in their management process”, including: taking ESG criteria into account in investment decisions; engaging in dialogue with investee companies; and considering climate change.
The press release cites key climate change consideration such as reducing CO2 emissions and reserves, contributing to the ecological and energy transition and following the 2°C trajectory.
It also states that the successful manager will have to “produce quantitative and qualitative reports which summarise evolutions and progress realized by investee companies”.A spokesperson told RI that FRR will work with the chosen asset managers to realise the ESG dimension of the mandate. “We will work with them to develop these aspects because as asset owners we have to disclose, specifically because of the Article 173 French Transition Law, so we want also our asset managers to manage and take in to account ESG in their investment decision criteria too”, she said.
Each mandate – which both focus on firms with a maximum market cap of €7bn – will run for four years, with the possibility of being renewed for a further year. The tender documents identify the FTSE Developed Europe Small Cap and the MSCI Europe Small Cap as likely benchmarks. The deadline for applications is the end of May.
FRR, which defines itself as an “experienced long-term responsible investor”, states that it aims to increase its “impact on the real economy” with the new ESG mandate.
Separately, last week ERAFP, France’s public service additional pension scheme, a 100% SRI investor with €28bn in assets, announced it was looking for a manager for a €160m emerging markets corporate bonds mandate.
It also announced that independent currency specialist, Millennium Global, had won an active mandate to manage the hedging of its foreign exchange risk, citing the “robustness” of the firm’s “proposed management process” as its rationale for selection.