The social security office complex (La cité de la Sécurité sociale) in the Gare district belongs to the Fonds de compensation, Luxembourg’s main public pension fund. Photo: Romain Gamba (archives)

The social security office complex (La cité de la Sécurité sociale) in the Gare district belongs to the Fonds de compensation, Luxembourg’s main public pension fund. Photo: Romain Gamba (archives)

The Fonds de compensation, Luxembourg’s main public pension provider, has posted a return of 9.8%--€2.32bn--for 2023. This performance was driven by the results its Sicav fund, which achieved a return of 10.41% last year thanks to the overall recovery of the financial markets.

Created in 2004, FDC, Luxembourg’s main public pension fund, manages the reserves of the general pension insurance scheme in Luxembourg and ensures its sustainability. And for the fund’s twentieth anniversary, according to the data in the 2023 annual report, at the end of the year its reserves had reached a new record of €27.39bn, an increase of €2.85bn year-on-year. This is 4.25 times the amount of annual benefits to be paid. On the other hand, this ratio fell for the second time since 2020, reaching its lowest level since 2013.

Diversified, well-managed assets

Of this total of €27.39bn, €26.25bn was managed directly by the fund, with the remaining €1.15 billion managed directly by the National Pension Insurance Fund (CNAP). The FDC has invested €24.20bn into it Sicav fund, its main open-ended investment vehicle. “The balance of approximately €2.05bn is made up of shares in the [public housing fund] Société nationale des habitations à bon marché, the direct real estate portfolio held in Luxembourg, the stock of loans, cash and the balance between accounts payable and accounts receivable, representing mainly contributions receivable from the [social security funding mechanism] Centre commun de la sécurité sociale and not yet available for investment,” read the annual report.

At the end of 2023, the Sicavs value stood at €24.2bn, up €2.29bn year-on-year. This represents a performance of 10.41% and an outperformance of the strategic benchmark of 84 basis points. Since its launch in 2007, the fund has posted an annualised performance of 4.83% and outperformed its strategic benchmark by 23 basis points.

The FDC's property portfolio comprises a group of buildings with a total lettable area of 160,000 square metres--including the Cité de la Sécurité Sociale, the social security office complex in the Gare district--an industrial site, three acquisitions in a state of future completion, several parking spaces and forest estates with a total area of 691 hectares. The total net value was €538m. The portfolio yielded €30.23m, or 6.09%.

Responsible investment policy

2024 was also the year in which the FDC put its new investment strategy into practice. This strategy focuses on the possible reinforcement of the FDC’s responsible investment policy. In practical terms, this meant broadening the principles on which the exclusion list is based. Then by developing and implementing a policy of engagement with the main greenhouse gas emitting companies, the FDC has joined the Institutional Investors Group on Climate Change (IIGCC) and the Climate Action 100+ initiative in order to commit to a reduction in greenhouse gas emissions by the companies in which it invests. The FDC has also created a sub-fund for index-linked bond management, in line with the objectives of the Paris Agreement, and has implemented a new asset class relating to renewable energy infrastructure, with a strategic quota of 2%. The results of these initiatives will be detailed in the 2024 edition of the responsible investor report.

Quality exclusives

The CDF exclusion list was updated in February 2024. It can be found . It applies to companies involved in controversial arms-related activities that contravene international standards, mainly covering human rights, the environment, international labour standards and anti-corruption. The list includes 102 companies, including big names such as Airbus, BAE, Rolls-Royce and Baidu. Sixty of the companies are cited for human rights violations, 38 for arms-related activities, nine for controversial business practices and six for environmental violations. The list mainly includes Chinese companies (20, including two from Hong Kong), Russians (19), Indians (12) and South Koreans (6).

A second list focuses on shareholder structure. Twenty-two companies are concerned, including Dassault and a myriad of companies in the Tata galaxy. A final list concerns “companies at risk of involvement”--13 in all. McDonald’s is listed alongside seven companies in the Bolloré galaxy, including Socfin and Socfinasia.

Originally in French