France’s pension reserve fund, the €28.9 billion ($40.6 billion) Fonds De Reserve Pour Les Retraites, has completed a strategic asset allocation review that began last January, resulting in a dramatic reduction in equities.
The reference portfolio’s new asset allocation includes 45 per cent to equities (down from 60 per cent), 5 per cent to real estate, 5 per cent in commodities, 25 per cent in fixed-rate bonds, and 20 per cent to indexed bonds.
In May 2006 the FRR’s strategy allocation was 60 per cent in equities (33 per cent in Euro and 27 per cent global), 30 per cent in bonds (with a 21 per cent allocation to Euro and 9 per cent to global) and 10 per cent in diversification assets including private equity, real estate, commodities and infrastructure.
The latter two asset classes, commodities and infrastructure, were new to the fund at that time, and the 2006 asset allocation also included a reduction to its equities allocation. At that time it also reduced its relative weight to the Euro area.
Within the latest asset allocation, the percentage of investments in equities and fixed-rate instruments made within the Eurozone will target 60 per cent, with international assets 90 per cent hedged.
It was also agreed the FRR can make investments in other asset classes outside the major assets represented in the reference portfolio if they are considered to be innovative, and the framework for this will be considered by the board at a later date.
The actual asset allocation of the fund is intended to deviate from the reference portfolio, in particular if the risk or expected return parameters deviate substantially from the long-term assumptions.
This dynamic management around the reference portfolio includes a new range of between 40 and 60 per cent in performance assets which include equities, real estate and commodities, until the next review.
The portfolio is expected to return an estimated 6.3 per cent per annum.
The fund has also been actively engaging its responsible investment policy with an analysis of the impact of environmental issues on the investment strategy factored into the strategic asset allocation, and integrated into the asset class level, particularly in real estate.