FRR Press Conference 1 0 March 2 0 1 1 1
• 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 • 2
NET ASSET POSI TI ON AT END OF 2 0 1 0 3
Net assets: return to high point thanks to endow m ents and the m arket rebound FRR's Net Asset Value 04/ 03/ 2011 40 40 In Billion 37.5 euros 36 36 35.1 32.3 32 32 28 28 24 24 20 20 16 16 Jun-04 Apr-05 Feb-06 Dec-06 Oct-07 Aug-08 Jun-09 Apr-10 Feb-11 FRR's Net Asset Value Cumulative cash flows Cumulative cash flows valued with inflation 4
Annualised perform ance FRR's perform ance since conception 04/ 03/ 2011 4.0% 3.5% 3 .1 % 3.0% 2.5% 2.0% 1 .6 % 1 .6 % 1.5% 1.0% 0.5% 0.0% Annualized performance 1 Annualized inflation Annualized performance inflation adjusted 5
Annual perform ance % Annual Performance 20,00 15,00 10,00 14,95 12,35 11,10 5,00 4,85 4,19 2,93 0,00 -5,00 -24,93 -10,00 -15,00 -20,00 -25,00 -30,00 2004 2005 2006 2007 2008 2009 2010 (2nd half) 6
Contributors to 2 0 1 0 perform ance Main contributors to perform ance : � Equities 3.2% � Commodities 0.1% � Bonds 1.1% 4 .4 % Net perform ance after finance and adm inistrative costs � Finance and administrative costs to be deducted -0.2% Net perform ance over year 4 .2 % 7
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% 0.27% Overall net m anagem ent outperform ance ( listed / total assets) Approx.100 M€ in 2010 8
Relative perform ance of active m anagem ent m andates com pared to their benchm ark indices * Année 2004 : à partir du 09/ 07 9
CONSEQUENCES OF PENSI ON REFORMS FOR THE FRR LI ABI LI TI ES AND OBJECTI VES CLARI FI ED 10
Social Security Financing Law ( SSFL) extracts: The FRR’s objectives The FRR shall respect: " (..) the principles of prudence and diversification of risks given the objectives and timeframe for utilisation of 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. 11
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 10 9 CNIEG 8 ? Final drawdown 7 CADES 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 1 2 2 2 2 2 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 12
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 13
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. 14
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 of 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 15
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 Breakdow of liabilities’ hedging securities’ ratings 2% 3% 3% 4% AAA 5% AA+ AA 3% AA- 5% A+ A A- 10% BBB+ 64% BBB 1% BBB- 16
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 over the FRR’s investment timeline of 14 years (overweighting of emerging economies). proportion of econom ic exposure to em erging • a significant m arkets will be sought by using businesses from developed countries exposed to growth in such markets as an investment platform . 17
I I . The new strategic allocation Perform ance com partm ent Asset clusters indicative m ediane I ncluded assets w eights Real assets 1 5 % Com odities, real estate "business 7 0 % Equities, high yield assets" soverain debts 1 5 % em erging m arkets debts Cash 0 % Cash Breakdown of « business & souverain » assets -EURO 1/ 3 -DEVELOPPED 1/ 3 -EMERGING 1/ 3 18
I MPLEMENTATI ON OF STRATEGI C ALLOCATI ON RAMPI NG UP I NVESTMENT I N 2 0 1 1 19
Asset allocation: reducing "developed" in favour of "em erging" and reorganising coverage com partm ent Performance compartment Coverage compartment 31/12/10 31/12/10 Developped equit ies Emerging equit ies OAT / ILB Int ernat ional bonds High yield debt Real asset s Euro and US Corporat e Cash Emerging debt 70% 45% 60.9% 60.9% 39.1% 39.1% 40% 60% 1.2% 5.9% 15.1% 15.2% 5.3% 35% 50% 2.4% 5.9% 30% 9.7% 40% 15.2% 3.9% 25% 5.1% 30% 20% 20.7% 30.3% 15% 20% 30.5% 10% 18.4% 10% 15.4% 5% 0% 0% Port folio Target Port folio Median Target 20
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 21
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) 22
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 23
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 24
Conclusions • 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. 25
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