Antoine de Salins, head of Fonds de Réserve pour les Retraites (FRR), the French pension reserve fund, shudders at the suggestion one day he could be working for a bulge bracket investment bank based out at Paris’ La Defense business district. Gleaming towers, devising complex structured investments and deriving a fattish salary in the process are, seemingly, of scant interest to the former government official who admits to the occasional smoke of his trusty pipe at FRR’s Rue de Lille HQ, “preferring to be near a good bookshop” to satiate his obvious desire for cerebral stimulation. And he is wearing a Swatch, not a Rolex.
The FRR has built up assets under management of about €31bn since its debut in 2001 as a buffer fund for France’s ageing population under an amendment to the Social Security Financing Act.
Assets had peaked to €36bn during the summer of 2007, performing like every other pension fund with a two-thirds tilt to (predominately European) equities, but the fund underperformed by over 20 per cent during 2008 and the decision was made to crank up bonds and money market exposure thereafter. Since then the portfolio structure has stayed within a 45 per cent equities, 45 per cent bonds/cash mix, but remains defensive. The rest has gone into commodities, real estate and some private equity in a counter move made by Mr de Salins and his newly formed investment committee. Around €1.5bn will be invested in private equity by the end of 2010.  
And so far this year has been kinder, with the annualised performance of the fund up 4 per cent, due mainly to piling into corporate debt at the right time and an outperformance courtesy of a handful of actively managed mandates.  
Significantly, FRR has stayed clear from investing in hedge funds (see news p5) but that’s what you would expect from its boss and the 20-strong supervisory board who meet at least twice a year. “The crisis has shown that beta is by far much more important than alpha and therefore an investor should concentrate its resources on it,” he says.
The supervisory board is a powerful decision-making unit comprising trade unionists – including the left-leaning vice-chairman Jean-Christophe Le Duigou, the national secretary of the Confédération Générale du Travail (CGT) trade union.
Mr de Salins chairs the management selection committee, which includes the influential René Karsenti, head of the International Capital Markets Association (ICMA). This committee assists the executive board with the task of screening investment firms being considered for mandates.  
Though FRR began life in 2001, it didn’t start to gather assets until 2003-2004.  
Both strategy and tactical asset allocation are done in-house. “The first of these is the most important,” reveals the FRR boss. “Stock-picking we externalise, though not through choice, but because it’s a legal provision passed by the French parliament. It is done for political reasons if anything.” External management portfolios are based on a core satellite approach.
As the FRR is a public body managing public money – France’s very own sovereign wealth fund (SWF) in some respects – legislators deliberately handcuffed its pension fund from choosing which equities to buy (though not which mandates to award). “They wanted the fund to be protected from any potential criticism or suspicion – right or wrong. If we manage internally to protect French companies or invest more in local firms irrespective of performance.” In 2008, for diversification purposes, FRR’s equity distribution was greater in US corporates than in firms based in France. “I believe the domestic bias of pensions is far worse in North America than in Europe,” Mr de Salins says.  
But is FRR merely an SWF cloaked as a beta-tracking, liabilities-obsessed, investor? “We are a buffer fund and share some of the main characterisitics of a typical SWF - but we are a long-term investor and FRR’s fiduciary duty is a little bit different, since we work for the French PAYG system.
“Our duty is to maximise performance within a certain limit of risk so we can pre-fund the projected shortfalls of our (pay-as-you-go) system, so we are not a global SWF as we have a specific objective as part of France’s social protection system.”
Mr de Salins isn’t going to get rich doing what he does, unlike most of the herd out at La Defense. Though there is job security, the FRR is on a tight budget (20 basis points tighter this year apparently). “To be honest, I am not sure attaining riches is the ultimate goal in life. On the other hand, the goal of the FRR is to close the predicted liability gap of pension payouts because of an increasingly ageing population. We don’t have many pension funds in France, as you know.” FRR has forecast a payout liability of €2.3bn every year between 2020 and 2040, assuming assets accrued hit €83bn by the start of that period.  
As points of reference, its chief looks to the likes of Hermes in the UK (the in-house manager of the BT pension fund and a forward-thinker on responsible investing (RI)), Ireland’s National Pensions Reserve Fund (NPRF) and institutions on the continent and from Australia/New Zealand. As for North America, Mr de Salins identifies with the C$123bn (€78.7bn) Canada Pension Plan (CPP), a reserve fund based in Toronto; less so with Calpers, which he believes can often get mired in “huge political issues”.
“The CPP does a great job and from time to time we collaborate and exchange ideas – it’s quite an informal network,” he says.      
In 2008, FRR announced an engagement policy to examine portfolio companies’ activities, their attitudes towards corruption and to promote good corporate governance. FRR would then engage with those firms it saw as ‘high risk’. This year, the

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