Implementation of asset allocation
Types of management in the portfolio
The FRR then implements the allocation decisions by allocating the appropriate amounts to the various selected managers. The FRR's investments are made entirely through investment service providers, with the exception of day-to-day cash management.
"Portfolio" investments consist of management mandates, awarded through competitive bidding, or mutual funds that undergo a rigorous selection process. The selection of service providers is overseen by the Delegated Management and Responsible Investment Department, whose tasks include proposing managers for selection in order to implement asset allocation choices, supervising and reporting on investments, proposing guidelines and implementing ESG policy, and finally, managing the FRR's cash flow.
The FRR's mandates
Most of the vehicles used to implement the allocation are mandates, which enable the FRR to specify its management objectives and constraints in detail and then, through the managers, to implement a voting and engagement policy in line with best practices. These management objectives and constraints include important ESG aspects, such as exclusions and decarbonization rates.
The FRR's mandates consist of both index replication management mandates (particularly on large- and mid-cap equities in the eurozone against smart beta indices, with the aim of achieving medium/long-term outperformance relative to standard capitalization-weighted indices) and active management mandates seeking consistent relative outperformance, for example on small-cap equities, Japanese equities, or corporate bonds.
Satellite heart
This "core-satellite" approach implemented in management mandates aims to guarantee exposure to the main markets at the lowest possible cost, with selection risk primarily concentrated on active strategies deemed most likely to generate returns.
For active management, several managers are selected by geographical area in order to diversify the overall risk of the portfolio. At the end of 2024, active management will account for around 60% of the FRR's total net assets, but other management strategies will still seek to optimize returns (on French government bonds, for example) or ESG aspects (on portfolios opposed to "smart beta" indices in the eurozone, for example).
Several mandates involving unlisted assets are also part of the FRR portfolio, in private equity (8 mandates) and private debt (4 mandates).
The long term
Unlisted assets are included in the portfolio as substitutes for listed assets, insofar as the strategic allocation consists exclusively of the latter. Unlisted assets offer the advantage of a long-term yield premium compared to listed assets with comparable long-term risk.
As a long-term investor, the FRR can include a portion of illiquid assets and reap this return premium. It calibrates the proportion of illiquid assets so that it does not have to sell them, even in a very unfavorable scenario.
Investment in mutual funds
Investments in mutual funds are chosen in cases of operational constraints or to gain flexibility. They cover several asset classes: emerging market debt, emerging market equities, unlisted assets (a portion of private equity and private debt, real estate, infrastructure) and money market funds.
Two specific cross-functional management mandates, or "overlays," are used to hedge the FRR's currency risk and, through investments in simple derivatives (futures contracts traded on a regulated market on stock or bond indices), to adjust the allocation without intervening in the management of securities portfolios or to implement optional hedging strategies on regulated markets.
Finally, transition managers help optimize the costs of buying and selling securities when there are changes in managers, contributions, or withdrawals from mandates.
In order to select the best offers and potentially make arbitrage decisions, studies are regularly conducted on portfolio performance drivers and risk indicators, and rigorous internal financial and non-financial reports are prepared. The analyses are then reviewed by the Manager Selection Committee, which is composed of independent experts from outside the FRR and chaired by a member of the Executive Board.
The FRR's annual report includes a detailed mapping of the various mandates and funds that make up the FRR's portfolio.
Implementation of asset allocation
Principles for selecting management companies
The Fonds de réserve pour les retraites (FRR) is a public institution subject to the provisions of the French Public Procurement Code. In addition to the applicable legal advertising, the FRR announces the launch of its invitations to tender via its website. Documents relating to the launch of a procedure can be downloaded from the "Public Purchasing" dematerialization platform.
In accordance with FRR regulations (Article R-135-27 of the CSS), the Manager Selection Committee advises the FRR Executive Board on the selection of managers' bids. The FRR mainly uses two procedures for selecting its managers (including cross-functional managers) and, more generally, its service providers: restricted tendering and open tendering.
1
The open tender procedure
The open tender procedure is characterized by the fact that candidates simultaneously submit their application and their bid.
However, the selection process takes place in two phases:
Application review
The purpose of this selection process is to retain applications whose professional, technical, and financial capacity to perform the service has been recognized.
Selections
For selected applications only, opening and review of bids: the FRR analyzes and selects bids based on the criteria set out in the contract documents and in the public calls for competition.
The selected companies receive a letter of award and must submit the final documents requested to the FRR. The Fund then proceeds to notify the contract.
Unsuccessful candidates will receive a letter informing them of this decision.
No negotiations with candidates are possible within the framework of this call for tenders.
2
The restricted bidding procedure
The restricted bidding procedure is characterized by the fact that only candidates who have been authorized to do so after their application has been selected by the FRR may submit a bid.
This restricted bidding procedure therefore consists of two phases:
- on the one hand, the submission of an application file,
- and, secondly, the submission of a bid package.
Application review
The FRR reviews and selects them according to the application selection criteria announced in the contract documents and in the public calls for competition.
Following this selection process, certain candidates are invited by the FRR to submit a bid based on the specifications accompanying the invitation to tender.
Selections
Upon receipt of the bid documents, the FRR analyzes and selects them based on the bid criteria set out in the contract documents and in the public calls for competition. The selected companies receive an award letter and must submit the final documents requested to the FRR. The Fund then proceeds to notify the contract.
The contract shall commence on the date of notification.
The selected companies receive a letter of award and must submit the final documents requested to the FRR. The Fund then proceeds to notify the contract. The contract begins on the date of notification.
Unsuccessful candidates will receive a letter informing them of this decision.
No negotiations with candidates are possible within the framework of this call for tenders.
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