France’s FRR stands firm on RI as government starts €2bn per annum fund wind down

Fund’s assets to be used for early pay down of social security debt.

The head of France’s €35bn French pensions reserve fund (FRR) says it will maintain its renowned responsible investment policy despite the French government initiating an early wind down of the fund, which will see it start paying out about €2bn per annum from next year to cover France’s social security debt. Antoine De Salins, executive director at FRR, who sits on the board of the United Nations Principles for Responsible Investment (UNPRI), told a Novethic conference in Paris last week: “The responsible identity of the FRR is in force and I don’t expect that we will go back on our promises in this area.” De Salins also told the conference that the UNPRI’s annual conference would take place in Paris in September 2011.
The French government has indicated that the FRR will next year start paying about €2bn per annum into CADES (Caisse d’Amortissement de la Dette Sociale), the state agency charged with funding France’s social security debt, nine years earlier than planned. FRR will no longer receive any asset inflows from the state. At that rate the fund will be fully wound up by 2024. The fund had originally only been scheduled to start paying down its assets in 2020.
Observers say that the decision by the Frenchgovernment will imply a significant shift over time in asset allocation by the FRR as it moves towards a safer bond-driven strategy in its wind-up phase. The fund is believed to have sufficient liquid assets to be able to meet the 2011 €2bn payment to CADES, but after that will have to begin withdrawing assets from fund managers. In 2009, the fund revised its asset allocation strategy to reduce equity exposure slightly to 45% with a further 10% allocated to risk capital split evenly between property (5%) and commodities (5%). FRR has been one of the world’s most prominent responsible investors. It almost doubled the volume of its assets to 85% in the last four years that are subject to research integration on environmental, social and governance (ESG) factors. In its 2009 annual report, FRR said the percentage of assets managed on an ESG basis had risen from 48% in 2005, notably as a result of a major policy shift to responsible investment announced in March 2008. At the time, the fund said it had 13% of assets allocated on what it termed an ‘SRI process’. FRR initially invested about €600m in pure SRI mandates with asset managers in December 2006, but has also made sustainability factors a major part of its mandate tenders, including for two direct real estate mandates of €500m each initiated last year.