Looking for innovative solutions
The French institutional market is not declining, it is just becoming more complex. Of course the 35 billion euros of the « Fonds de réserve pour les retraites » (Pension Reserve Fund) (FRR) will be absorbed in 2011 by the Cades, (the State agency in charge of funding France’s social security debt), thereby making drastic choices inevitable. Of course the Agirc and Arrco employee retirement schemes have slipped into the red earlier than expected and are "tapping" their portfolios as a stopgap measure. Finally, of course, insurance companies which, in the absence of french pension funds, are key players in the world of institutional investors, will be subject to the inevitable implementation of the Solvency II Directive and are shrinking their equity allocations.
However, life insurers’ assets under management have grown by more than a hundred billion euros in barely one year. But above all, in addition to considerations such as matching the maturities of their assets with those of their liabilities, they will be required to assess the yield of these assets in relation to their capital consumption. The combination of these regulatory constraints and the weakness of rates will encourage them to turn to more innovative investment solutions. In addition, major French corporate are once again reporting sizeable profits and have made it a point of honour to pay down debt, with the result that they have never been as cash rich. This in turn means that they have more leeway to extend the investment timescale of their cash management. Moreover, accounting rules require multinationals to be more vigilant as regards the impact of their pension funds results on their balance sheets.
In this context, the capacity of not only asset management companies but also investment banks to come up with suitable solutions will give them a competitive edge over their rivals.