The FRR’s portfolio comprises, on the one hand, index mandates of high unitary value and, on the other, active management mandates focused on market segments delivering consistent alpha generation appropriate to the longterm investor profile.

The aim of this “core-satellite” approach is to provide low cost exposure to the main markets, the selection risk focussing primarily on active strategies considered the best placed to remunerate such risk. It was reinforced in 2009 by the implementation of wider and more diversified passive management in the most mature and best arbitraged market segments for both equities and bonds.

During the first quarter of 2009 investments were made employing low tracking-error (“enhanced”) management of European mid- and large cap equities and passive management on a mid- and large cap Euro zone equities benchmark index.

At the same time, active management was focused on European small-caps, Japan and the United States where requests for proposals (RFP) launched at the end of 2008 resulted during the course of the year in the selection of managers employing high tracking-error active management methods.

The FRR also renewed some of the fixed income mandates thereby increasing significantly the weight allocated to inflation linked bonds. This shift, which began during the course of the year and is set to continue in 2010 is the direct consequence of the decisions made in June 2009 when the FRR reviewed its strategic asset allocation. In the case of Euro zone bonds, mandate selection procedures were launched concerning low tracking-error management of inflation linked bonds and active management of investment-grade credit issues. In relation to international bonds, the FRR launched two active management requests for proposals: first for United States investment-grade credit issues, and second for a world universe of developed countries’ sovereign debt.

2009 also saw the completion of the request for proposals process to replace the initially appointed transition broker at the end of its mandate. The mission of the two new managers selected involves trading financial instruments on a centralised basis, on the FRR’s behalf, to create financial asset portfolios, on the best possible conditions in terms of cost and confidentiality.

The FRR has set up a new investment vehicle known as the “Global Exposure Mandate”, which allows it to extend its exposure to a variety of asset classes using an index approach.

Finally, in relation to asset diversification, new investments were made this year in emerging countries’ sovereign debt funds, in a European infrastructure fund and global real estate.