The French Pension Reserve Fund (FRR) has continued to adapt its strategic allocation to the extension of its management horizon by increasing its allocation to equities, following a strong performance in 2024.

At its meeting in June, the fund’s supervisory board approved a change in its strategic allocation, in line with the changes made in 2024 when the public authorities confirmed the extension of the FRR’s investment horizon beyond 2033.

While the FRR’s current liabilities consist of annual payments to the Social Debt Redemption Fund (CADES) until 2033, its assets can continue to be managed over a long-term horizon.

The projected macroeconomic scenarios are based on a balanced consideration of potential adverse shocks in the coming years, particularly related to AI, the ecological and energy transition, geo-economic fragmentation, and their effects on growth and inflation.

The work on strategic allocation has highlighted the importance of continuing to increase exposure to equities and intermediate-risk assets, whose expected return in relation to risk far exceeds that of quality bonds over a long horizon, beyond short-term fluctuations.

The FRR also reported that evolution of its assets improved in 2024, with a stronger liability coverage margin and a creation of net value compared to the cost of the French State debt of €1.1bn.

The fund credited this to "dynamic" asset allocation and the progress in the financial markets in 2024 on both equities and bonds.

Building on the increased flexibility, the supervisory board has adopted a new allocation comprising 46 per cent in unhedged equities, 36 per cent in intermediate-risk assets (including high-yield bonds), and 18 per cent in hedging assets (primarily French government and investment-grade bonds).

These have all changed since 2024, unhedged equities have increased from 41.5 per cent, while intermediate-risk assets are down from 37.5 per cent and hedging assets are down by 3 percentage points.

The fund said that this development reinforces the FRR's ability to create value exceeding the yield of government bonds (OATs) and solidifies its position as a long-term investor.

This is accompanied by the maintenance of a marked European overweighting in equity investments, with a minimum of 50 per cent eurozone exposure within the portfolio, and the reactivation of FRR’s investments in the French economy - particularly in unlisted assets.

This is in line with the FRR’s core mission to invest to create sustainable value in support of tomorrow’s major public challenges.

In addition to this, the FRR said it has already resumed its fund selection process with investments in four funds addressing key issues such as ecological transition, energy sovereignty, digital and technological development, and financing for French small to medium-sized enterprises and mid-caps.

All of the fund's investments are made in accordance with the FRR’s responsible investment policy, with its 2024–2028 strategy aiming to support the ecological and energy transition, promote social equity, and preserve biodiversity.

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