FRR Press Conference 1 0 March 2 0 1 1 1 Net asset position at - - PowerPoint PPT Presentation

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FRR Press Conference 1 0 March 2 0 1 1

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• Net asset position at end of 2 0 1 0
• Consequence of pension reform s: the

FRR’s liabilities and the new strategic allocation

• I m plem enting the allocation in 2 0 1 1

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NET ASSET POSI TI ON AT END OF 2 0 1 0

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Net assets: return to high point thanks to endow m ents and the m arket rebound

16 20 24 28 32 36 40 Jun-04 Apr-05 Feb-06 Dec-06 Oct-07 Aug-08 Jun-09 Apr-10 Feb-11 16 20 24 28 32 36 40 FRR's Net Asset Value Cumulative cash flows Cumulative cash flows valued with inflation In Billion euros

FRR's Net Asset Value

37.5 04/ 03/ 2011 32.3 35.1

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Annualised perform ance

FRR's perform ance since conception

3 .1 % 1 .6 % 1 .6 %

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 1

Annualized performance Annualized inflation Annualized performance inflation adjusted

04/ 03/ 2011

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Annual perform ance

Annual Performance

4,19 14,95

• 24,93

4,85 11,10 12,35 2,93

• 30,00
• 25,00
• 20,00
• 15,00
• 10,00
• 5,00

0,00 5,00 10,00 15,00 20,00 2004 (2nd half) 2005 2006 2007 2008 2009 2010 %

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Contributors to 2 0 1 0 perform ance

Main contributors to perform ance : Equities 3.2% Commodities 0.1% Bonds 1.1%

Net perform ance after finance and adm inistrative costs

4 .4 % Finance and administrative costs to be deducted

• 0.2%

Net perform ance over year 4 .2 %

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Contributors to relative perform ance

Contributors to net ( active m anagem ent) outperform ance com pared to benchm ark indices Equities 0.28% Commodities

• 0.03%

Bonds

• 0.03%

Currency (active) 0.05%

Overall net m anagem ent outperform ance ( listed / total assets)

0.27%

Approx.100 M€ in 2010

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Relative perform ance of active m anagem ent m andates com pared to their benchm ark indices

* Année 2004 : à partir du 09/ 07

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CONSEQUENCES OF PENSI ON REFORMS FOR THE FRR LI ABI LI TI ES AND OBJECTI VES CLARI FI ED

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Social Security Financing Law ( SSFL) extracts: The FRR’s objectives

The FRR shall respect: " (..) the principles of prudence and diversification of risks given the

• bjectives and timeframe for utilisation
• f the Fund’s resources, in particular

the planned paym ent obligations (..) " Reasoning: The FRR will comprehensively manage its assets to guarantee totally the 14 payments whilst continuing to search for best overall perform ance for its investments.

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I I . New liabilities SSFL : FRR Liabilities

The FRR’s liabilities comprise: 1 . A fixed nom inal am ount of 2 .1 Bn€ per year to CADES These payments to be made between 2 0 1 1 and 2 0 2 4 . 2 . A final outlay depending on the FRR’s performance 3 . The CNI EG contribution by a single payment in 2020

FRR's liabilities 1 2 3 4 5 6 7 8 9 10 2 1 1 2 1 2 2 1 3 2 1 4 2 1 5 2 1 6 2 1 7 2 1 8 2 1 9 2 2 2 2 1 2 2 2 2 2 3 2 2 4 CNIEG Final drawdown CADES ?

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CONSEQUENCES OF PENSI ON REFORMS FOR THE FRR A NEW ALLOCATI ON CONSTRUCTED ON THE BASI S OF CLARI FI ED LI ABI LI TI ES AND LESSONS LEARNT FROM THE CRI SI S

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I . Lessons of the crisis : focussing on risk m anagem ent

• diversification is necessary but not sufficient to manage severe

crises

• extreme events are unpredictable and inevitable
• financial management must be structured so that liabilities are

met even in extreme situations

• management of performance assets must be flexible in a world

where financial cycles can be deep and vary in duration: asset allocation must, at all times, reflect the risk content of the asset classes.

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I I . The new strategic allocation Key points of the 2 0 1 0 strategic allocation

Guaranteeing the FRR’s liabilities

• Strategic

allocation comprising tw o m ain asset com partm ents constructed…

• …

as part of com prehensive risk m anagem ent of the portfolio

• Financing

ratio (value of assets / discounted value of liabilities) of 138% from the outset

• f new allocation

management

• A stress test of -66% on performance assets gives a post-

stress financing ratio of more than 100% .

• Liabilities well covered by coverage assets alone (85% )
• Coverage assets themselves highly secure and diversified

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I I . The new strategic allocation Coverage com partm ent

The coverage compartment is diversified with the aim of improving returns whilst remaining secure. 50% French Treasury Bonds (maturities matching payment schedule) 25% OECD large countries sovereign (today AA minimum) 25% Credit (Investment grade ; BBB- issuers)

Répartition par note de la poche de couverture

64% 1% 10% 5% 3% 5% 4% 3% 3% 2%

AAA AA+ AA AA- A+ A A- BBB+ BBB BBB-

Breakdow of liabilities’ hedging securities’ ratings

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I I . . The new strategic allocation Perform ance com partm ent: principles of construction

The four principles underpinning the construction of the performance compartment are:

• acceleration of bubble phenomena prompts us to conserve m obility

to enable asset allocation by reference to risk

• search for diversification still relevant
• overw eighting m arket segm ents likely to show higher grow th
• ver the FRR’s

investment timeline

• f 14 years

(overweighting

• f

emerging economies).

• a significant

proportion of econom ic exposure to em erging m arkets will be sought by using businesses from developed countries exposed to growth in such markets as an investment platform .

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I I . The new strategic allocation Perform ance com partm ent

Breakdown of « business & souverain » assets

• EURO 1/ 3
• DEVELOPPED 1/ 3
• EMERGING 1/ 3

Asset clusters indicative m ediane w eights I ncluded assets soverain debts 1 5 % em erging m arkets debts Cash 0 % Cash Real assets 1 5 % Com odities, real estate "business assets" 7 0 % Equities, high yield

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I MPLEMENTATI ON OF STRATEGI C ALLOCATI ON RAMPI NG UP I NVESTMENT I N 2 0 1 1

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Asset allocation: reducing "developed" in favour of "em erging" and reorganising coverage com partm ent

Performance compartment

30.3% 18.4% 2.4% 5.1% 3.9% 5.9% 5.9% 5.3% 1.2%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Port folio Median Target Developped equit ies Emerging equit ies High yield debt Real asset s Emerging debt

39.1%

31/12/10

39.1%

Coverage compartment

15.4% 30.5% 20.7% 15.2% 9.7% 15.2% 15.1%

0% 10% 20% 30% 40% 50% 60% 70%

Port folio Target OAT / ILB Int ernat ional bonds Euro and US Corporat e Cash

60.9%

31/12/10

60.9%

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Requests for proposals and fund selection

• 8 waves of management mandate RFPs
• 3 to 4 fund selection procedures for new asset classes

1 . Overlay m andate being renew ed 2 . Coverage com partm ent

• Management of French Treasury Bond (OAT) held till maturity
• Passive index management of developed countries bonds

3 . Perform ance com partm ent

• Index equities: based on capitalisation or risk
• SRI : renewal launched at end of year
• Commodities: renewal during the year
• High yield debt
• Emerging countries via equities in companies in developed countries

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Responsible investm ent ( RI ) : principal results in 2 0 1 0

Transparency : publication of a RI report, with details of actions since 2008 and results indicators Integration : end of 2010, 100% of equities mandates integrate ESG provisions Policy of dialogue : participation in new collaboration initiatives (Emerging Markets Disclosure Project, Aviva initiative on responsible stock markets..) and continuing to vote at GMs in France and abroad Research: contribution to “Universal Owner" (UNPRI) project and renewal of SF&RI Chair = > “Responsible Investor 2010" Prize (awarded by Amadéis and Natixis AM)

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Responsible investm ent as part of the new financial strategy

Reaffirmation by the Supervisory Board of the FRR’s identity as a responsible investor. 2008-2012 strategy, a benchmark framework that remains relevant. Work during 2011 : from adapting to the new portfolio structure to innovation : Examples : renewal of RI mandates, reflection on thematic approach managers ESG reporting continued promotion of RI

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2 0 1 1 : the year of responsible investm ent in Paris

The FRR is actively promoting RI at three major international events in Paris : EITI Conference (Extractive Industries Transparency Initiative) : 2-3 March 2011 ICGN Conference (International Corporate Governance Network) : 12-14 September 2011 ‘‘PRI in Person’’ : 15-16 September 2011

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• The FRR’s liabilities and objectives have been clarified; the

FRR has a clear investment timeline (2024) and clear liabilities.

• The new strategic allocation aims to secure payment of

liabilities, on the one hand, and achieve a surplus return on the other. The proportion of performance assets is very substantial (around 15 Bn€).

• Impementing this strategic allocation requires restructuring

the portfolio which means selecting new managers.

• The FRR’s responsible investor identity will continue to be

developed.

Conclusions

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Schedule: The Cour des com ptes public report

The public report of the Cour des com ptes :

• 1. expresses a hint of disappointm ent after the historic financial

crisis and the continuing crisis in the public finances;

• 2. does not reveal poor m anagem ent or m isuse of the public

coffers;

• 3. insists on necessary stabilisation of the am ount and

rhythm of paym ents to CADES over the next 14 years. With legislation now stabilised, the Cour des comptes report reinforces the strategy adopted by the FRR at the end of 2010: the FRR “can find a way to remain a useful and fllexible instrument".