Risk management and control GOVERNANCE OF RISK MANAGEMENT Following the pensions reform of 2010, each year the Supervisory Board determines the FRR s strategic allocation, which relies on an investment model that provides for a high level of liability hedging. The FRR s investments are mainly implemented via mandates awarded to investment managers. The FRR is also author- ised to invest up to 20% of its assets directly in UCIs, excluding money market UCIs. Every month, a Risk Committee examines the perfor- mance of the portfolios and the Fund, as well as changes in the main financial and operational risks. This committee also examines invest- ments in new asset classes and defines the applicable risk frameworks. It is chaired by a member of the Management Board and organ- ised by the risk management teams. In general it also ensures that a risk management culture is propagated within the FRR. The Risk Commit- tee s files are then reviewed and analysed at Management Board meetings.

The Performance and Financial Risk Depart- ment is also invited to the FRR s various special- ised committees (Investment Strategy Committee, Manager Selection Committee) and, if so required, issues an opinion. It also sits on various internal bodies (Tactical Investment Committee, Strategic Allocation Steering Com- mittee, etc.). Lastly, every year it issues an opin- ion on the strategic allocation review, which it presents to the Supervisory Board meeting at which this review is conducted.

FINANCIAL RISKS Asset and liability management risk

This is the risk that the FRR s strategic alloca- tion is not appropriate for the funding of its lia- bilities to the CADES and the CNAV, which are the Fund s two identified beneficiaries. The FRR has to pay EUR 2.1 billion to the CADES every year until 2024, and to repay the CNIEG balance to the CNAV from 2020. This balance amounted to EUR 4.82 billion at the end of 2016 and its

The portfolio s actual annual volatility

Volatility ex post Volatility ex ante







2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016