French pension reserve targets private equity

The €19.2bn 'buffer' fund is seeking a consultant to advise it on a major allocation to private equity.

Fonds de Réserve pour les Retraites (FRR), the French pension reserve fund, says it is seeking a specialist consultant to help it select managers for an allocation of “several hundreds of millions” of euros to private equity.

The FRR was set up in 1999 to provide financial support to France’s pay-as-you-go (PAYG) state pension scheme. PAYG, which operates on the basis of current employee contributions subsidising the pensions of the retired, is predicted to face a funding crisis within a few decades due to the strains of an ageing population.

Through investment in a range of asset classes, the FRR – which is funded from company taxes and privatisation proceeds – is expected to help bridge the gap. The fund’s resources cannot be used until 2020.  

The FRR says it has invested the majority of its available funds so far in equities. As well as private equity, the FRR says it will also launch a “socially responsible” investment programme during this year, and will “consider” allocations to hedge funds and real estate. The fund said it was currently eschewing fixed income investments because of low yields.

The news will come as a boost to French private equity firms on the fundraising trial, although the FRR mandate is unlikely to be restricted to domestic funds only. French pensions and insurance companies have been notoriously apathetic towards private equity, as a result of which banks have been easily the most important source of domestic capital for French private equity funds in recent years.

Last September, the French finance ministry pressurised the country’s insurers into committing an extra €6 billion to private equity over the next three years. It was reported that the ministry had threatened to impose the measure in the budget unless it was agreed voluntarily.