French fund Ircantec hires for €130m SME/green transition mandate

ESG criteria clear part of manager selection.

Ircantec, the €9.2bn French public pension scheme, which has responsible investment principles as a significant part of its manager selection criteria, has hired Access Capital Partners to a new €130m private equity co-investment fund to invest in local communities, public establishments, and French and European small and medium sized companies (SMEs), including an infrastructure portion to support France’s green energy transition.
The move comes as a number of France’s large state-backed pension funds shift part of their assets towards non-listed domestic investments in response to low interest rates and government backing for the strategies.
Ircantec – or to give it its full name in French: L’institution de Retraite Complémentaire des Agents Non Titulaires de l‘État et des Collectivités publiques – is a pay-as-you-go second pillar pension structure created in 1970. It covers state employees, and regional authority workers, including local politicians, and staff at companies such as EdF and GdF, the big French utilities, and the Banque de France. Its €9.2bn treasury is its contributions buffer for future pension payments. The fund, which is housed within France’s €300bn Caisse des Dépôts et Consignations (CDC) sovereign wealth fund, carries out its own manager selection.
Ircantec instigated the new private equity fund to take a more active stance as an actor in local economies.
Access Capital Partners, a UNPRI signatory, manages or advises €6.6bn in assets, focusing largely on small buy-out funds and co-investments.
The new Ircantec fund will take equity stakes in SME’s valued below €250m or with less than €100m turnover. Additionally, it will buy debt of companies with less than €500m turnover. An infrastructure pocket will mostly finance renewables and energy efficiency programmes in France based on a decision last year by the fund to invest in line with the two degrees climate change limits backed by the Paris COP21 agreement.
Ircantec said a key aspect in its hire of Access Capital Partners was the manager’s integration of ESG criteria into its investment process through the life cycle of its funds.When hiring fund managers, Ircantec takes into account ESG factors based on an internal charter. Notably, it stipulates that managers act in the long-term interests of its beneficiaries by targeting durable returns within guideline risk tolerance that includes sustainability criteria based on international norms and the work of the UN-supported PRI.
Ircantec has finalised a number of investment mandate searches at the beginning of 2016. Earlier this month it hired Robeco Institutional Asset Management, Paris-based BFT Investment Managers (formerly BFT Gestion), and Allianz Global Investors (AGI), for three separate European equities mandates worth €100m each.
Link to RI story
The fund has taken a number of major steps in recent months to increase its environmental commitment. At the end of November 2015, it published the carbon footprint of its €2.4bn equity portfolio. In October 2015, it announced a big step to reduce the C02 exposure of a slug of its investments and invest in green energy by reconfiguring approximately €1bn in assets run for it by Allianz Global Investors towards a low carbon/environmental opportunities equities strategy.
Link to RI story
It has also signed the Montreal Carbon Pledge, which is overseen by the Principles for Responsible Investment (PRI). Ircantec is a PRI signatory. In 2013, it published a comprehensive charter setting out how it applies responsible investment to its equity holdings based on the PRI and UN Global Compact, as well as outlining its corporate governance and share voting strategy.
In March, RI reported that France’s €36bn pensions buffer fund, Fonds de Réserve pour les Retraites (FRR), had postponed three mandate searches for a total of approximately €2bn in listed assets reflecting a change of strategy after it was given permission by the French government at the end of last year to invest €2bn in French illiquid assets. These will include further allocations to private equity, loans to small and medium-sized businesses, real estate and infrastructure in order of asset size priority.