Salwa Boussoukaya-Nasr : « We look at all the existing strategies that are based on risk metrics, factor-based or fundamental values approaches. »

According to Salwa Boussoukaya-Nasr, CFO of FRR (« Fonds de Réserve pour les Retraites ») the French reserve fund, developments are necessary for more transparency for the turnover costs generated by the implementation of Smart Beta strategies.

Next-Finance : Do factor-based or Smart Beta strategies take more place in your allocation today? What amount is currently invested in Smart Beta or factor-based approach? What is their proportion of your total net assets?

Salwa Boussoukaya-Nasr : We have invested in the Smart Beta strategies through 3 geographical areas :

• North America: notional amount = 570 M € or 1.6 % of FRR total net assets.
• Euro Zone: notional amount = 2 400 M € or 6.81 % of FRR total net assets.
• Asia Ex Japan: notional amount = 192 M € or 0.54 % of the total net assets.

Are you only focused on equities? Do you have any interest in bond Smart Beta strategy ?

For the time being, we have only invested in equities. Nevertheless, we are also interested in Smart Beta strategies focused on corporate bonds. In addition, our previous investments in global government bonds were benchmarked by an index weighted by GDP.

We believe that if the performance was better than active management in recent years, Smart Beta strategies will not replace active management over the long term.

Salwa Boussoukaya-Nasr, CFO of FRR, the French reserve fund

Some studies suggest that the Smart Beta would do as well or better than active management. Do you think that Smart Beta could eventually replace active management in institutional portfolios ?

We believe that if the performance was better than active management in recent years, Smart Beta strategies will not replace active management over the long term. Indeed, Smart Beta strategies underperform in other types of market conditions and suffer, for example, in case of market concentration. Moreover, active management will always be useful to get back market values to their fundamental values.

What strategies are the most interesting according to you (Low volatility, Sharpe ratio maximization, Approach by type of risk factor Small, Value, Growth, Quality or multifactorial approaches)?

We look at all the existing strategies that are based on risk metrics, factor-based or fundamental values approaches.

What are the changes to be made to this management style (transparency, education, understanding the model evolution with the changing market environment, hidden costs, etc ...)?

We believe that 2 developments are necessary for the 2 following aspects:

• More transparency for the turnover costs generated by the implementation of Smart Beta strategies.
• What will be the attractiveness of such investments if their assets under management are still growing; will liquidity and market depth be sufficient ?

What will be the attractiveness of Smart Beta if their assets under management are still growing; will liquidity and market depth be sufficient ?

Salwa Boussoukaya-Nasr, CFO of FRR, the French reserve fund

What are the key elements that you consider to select managers Smart Beta?

We do not take into account specific aspects compared to traditional fund managers selection as we use fund managers able to replicate all types of equity indices.