Below are our expectations: 

• The Governing Council of the ECB will reduce the deposit rate again by 25 basis points to 2.25%, a zone where European monetary policy could no longer be considered restrictive.
• During the press conference, due to increased economic uncertainty, ECB President Christine Lagarde will likely keep all options open in order to adjust future monetary policy decisions, on a meeting-by-meeting basis and depending on available data, economic projections and risk assessments that have significantly shifted since Wednesday, April 2. "Liberation day", as it was referred to by Donald Trump, revived concerns of prolonged economic slowdown in the European Union that could weigh heavily on prices despite potential countermeasures.
• However, the ECB will still consider inflation risks as symmetric.
• Although interest rates are the primary monetary policy tool, Christine Lagarde will remind us that the ECB has "non-conventional" instruments at its disposal in case of financial stress (targeted longer-term refinancing operations - TLTRO, transmission protection instrument - TPI, etc.). 

In summary, the ECB is likely to continue with the gradual reduction of its key interest rates (-25 bps) in April, because disinflation is on track and largely consistent with the institution's forecasts. Unless there is a change in communication from the European Central Bank, market reaction following the meeting should be limited.

This commentary is provided for information purposes only. The opinions expressed by La Française are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 128 Boulevard Raspail, 75006 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale. Commentary signed by François Rimeu 

Paris, April 10, 2025: Crédit Mutuel Asset Management, a management company of La Française, the multi-specialist asset management division of Crédit Mutuel Alliance Fédérale, is pleased to announce that its US equity fund, CM-AM Convictions USA, has reached an important milestone: three years of existence and already over €670 million in assets under management .

CM-AM Convictions USA stands out in its peer group, as evidenced by its Morningstar  rating of five stars over three years. Past performance is not indicative of future results.

Building on the success of its flagship fund, CM-AM Convictions Euro (which has over €1.3 billion in assets under management as at March 31, 2025, and a 19-year track record , managed by the historical duo of Jean-Louis DELHAY and Jean-Luc MENARD), the management company launched a new equity fund in 2022: CM-AM Convictions USA. This fund replicates the investment process of CM-AM Convictions Euro, but applied to the United States, with the STANDARD & POOR'S 500 as its benchmark index.

CM-AM Convictions USA is actively managed and discretionary. The fund aims to deliver a performance, net of fees, superior to its benchmark, the STANDARD & POOR'S 500, over the recommended investment horizon of more than five years. The management team, consisting of Valentin VERGNAUD and Jean-Luc MENARD, selects companies that are considered high-quality and judged attractive within the North American region. As at March 31, 2025, the portfolio is invested in 52 companies. CM-AM Convictions USA is classified Article 8 under the SFDR  regulation.

The management team primarily focuses on companies positioned in dynamic markets and supported by MEGATRENDS. They have identified four key trends: technological innovation, well-being and lifestyle, sustainable economy and medical progress. These themes have been central to the fund since its inception and will continue to develop, regardless of the economic context.

Valentin VERGNAUD, co-manager of CM-AM Convictions USA, concluded: “The active conviction-based management of the fund is built on a rigorous financial and extra-financial selection process. Idea generation mainly comes from a quantitative scoring system, which highlights those companies considered the most interesting. The fund primarily focuses on what are viewed as quality stocks, whose growth prospects and cash flow generation are considered visible and resilient across different market phases. Together with a stable management team, this is how we build the 'quality and growth' oriented portfolios within Crédit Mutuel Asset Management’s “Convictions” range. The fund’s assets under management have grown to over €670 million in just three years, reflecting the strong interest of investors in this strategy."

Main risks associated with the fund: Loss of capital risk, market risk, small cap equity investment risk, emerging markets investment risk, currency risk, convertible bond risk, interest rate risk, credit risk, investment in speculative securities (high yield), impact of techniques such as derivatives, liquidity risk, sustainability risk.
 

CM-AM CONVICTIONS USA

Photo for illustration purposes only – Investments do not constitute a commitment to future acquisitions.

La Française Real Estate Managers (REM), acting on behalf of a collective real estate investment vehicle, has acquired off-market a co-living residence for seniors, located at 13 Avenue du Général Leclerc in Choisy-le-Roi (94). The property is operated by Chez Jeannette, under a 12-year lease.

The property is situated in the city center, near the town hall and its park, in a neighborhood well-serviced by public transportation (RER C, Choisy-le-Roi station; T9, Rouget de Lisle station). The property is close to a variety of medical facilities: the medical care and rehabilitation clinic of Choisy-le-Roi, 280 meters away; a nurse’s office, 400 meters away; a pharmacy, 350 meters away.

The acquisition involves a townhouse built at the end of the 19th century. It consists of a main building and two pavilions extending from the right and left wings. With its 300 m² south-facing garden, the home offers three upper floors (R+3). It will be converted into shared senior housing (total surface area of 538 m² Carrez) with services (a house master and living aids), capable of accommodating 12 residents (11 rooms with bathrooms in the main building and 1 independent apartment in the left wing). Renovations to convert the space, which include thermal interior and exterior insulation, non-toxic interior paint and flooring and rainwater collection, and achieve good energy performance are financed by the buyer.

The Chez Jeannette concept is a new way of caring for the elderly, by offering an alternative to existing solutions to support seniors who are losing their autonomy and by developing a shared and supervised housing model. The goal of Chez Jeannette is to provide support services, create social ties and develop a home living environment.

Jérôme VALADE, Director of La Française REM’s Healthcare Real Estate Division, concluded: “ This rehabilitation project involves restorations and improvements that will enhance the environmental performance of the property. We are delighted to renew this transformation experience alongside Chez Jeannette, an operator with whom we share a common vision of senior care giving.”

For this acquisition, La Française REM was advised by 14 PYRAMIDES (Me Louise Bonnet-Kinget), ARCHERS (Me Marlène Benoist Jaeger), NERCO (Florence Gilg) and the teams of Wüest Partner.

About La Française

La Française offers conviction-based management that combines performance targets and sustainability objectives across all asset classes. Organized by specialty, our portfolio managers focus on what passions them most within their own area of expertise.

Our shareholder, Crédit Mutuel Alliance Fédérale, a mutualist group and the first bank to adopt the «benefit corporation» status, is at the very root of our commitment to responsible investing. Our teams have developed cutting edge expertise across many facets of ESG, an expertise that is integrated across all of our business activities and analyses.

Our approach to customer relationships, considered partnerships, and the creativity of our teams who place the client first enable us to develop innovative solutions and services tailored to your investments needs and time horizons.

La Française is the asset management business line of Crédit Mutuel Alliance Fédérale. With 157 billion euros in assets under management (31/12/2024), we are a major player in the asset management landscape, in France and Europe. With over 1 000 employees, we are active in 10 countries, working alongside our client base and ensuring proximity with those markets in which we invest. Our niche areas of expertise cover listed and unlisted assets, including real estate.

More information about la-francaise.com

Contact La Française:
La Française 
Pascale Cheynet: +33 1 43 12 64 25 | pcheynet@la-francaise.com
Debbie Marty: +33 1 44 56 42 24 | debmarty@la-francaise.com

Disclaimer
Issued by La Française Finance Services, whose registered office is located at 128 boulevard Raspail, 75006 Paris, France. It is regulated by the Autorité de Contrôle Prudentiel et de Résolution (ACPR) as an investment service provider under number 18673 X, a subsidiary of La Française.

Portfolio Management Company La Française Real Estate Managers received AMF approval No. GP-07000038 dated 26 June 2007 and AIFM authorization dated 24/06/2014 under Directive 2011/61/EU (www.amf-france.org). 
 

• David MARTIN has been appointed Country Head France, third-party distribution. With 23 years of experience within the group, David has successfully led numerous campaigns, contributing significantly to the growth of assets under management, while demonstrating strong managerial expertise. Supported by a team of 13 experienced professionals, David will be responsible for overseeing all operations, strategy and business development in France. He will report directly to Gerardo DUPLAT, Head of Business Development at La Française. In addition to his new responsibilities, David will continue to lead business development efforts in Switzerland.
   
• The responsibilities of Romain GOBERT, Head of Retail Sales France, have been expanded to encompass the full range of investment solutions, both listed and unlisted assets, distributed by La Française. Under Romain’s guidance, a team of 6 professionals dedicated to the third-party retail segment will provide clients with more comprehensive and integrated investment strategies. Romain will report directly to David MARTIN.
   
• Christophe INIZAN has been appointed Head of Real Estate Sales Strategy. With his unparalleled experience in real estate, Christophe will play a crucial role in driving the group’s ambitious development objectives both in France and internationally for its Real Estate expertise. He will be responsible for coordinating, across all client segments (retail, wholesale and institutional) and geographic regions, the strategic planning, development and management of open-ended Real Estate strategies. Christophe will report directly to Gerardo DUPLAT.µ

Gerardo DUPLAT, Head of Business Development, La Française, commented “This series of nominations marks a key step in the fine tuning of the organization of the development team, dedicated to third-party distribution in France. Under David’s leadership and with the contributions of Romain and Christophe, we will continue to expand our presence in France and strengthen our real estate footprint across Europe.”

Philippe LECOMTE, CEO of La Française Finance Services (the distribution platform of La Française) concluded, “After all the structural changes operated in 2024, La Française has turned a new page. With the support of our shareholder, Crédit Mutuel Alliance Fédérale, our comprehensive product range covering both listed and unlisted assets and our experienced multi-expertise sales team, La Française has laid the foundation for successful business development in France and abroad.”

Professional backgrounds:

David Martin, Country Head France, has over thirty years of experience in the asset management industry, supporting and advising Institutional Investors with their allocation strategies (securities and real estate). He began his career in 1993 as a bond broker developing the Institutional client base of CPR London (Credit Agricole Group). During the next step in his career, from 1996 to 2002, David worked for CPR AM Paris and covered a full range of securities solutions tailor-made for the institutional investors. David joined La Française in 2002 as Sales Director - France. In 2021, David was promoted to Head of Business Development for Switzerland, in addition to his role as Sales Director for French institutional investors.  

David Martin holds a graduate degree with a concentration in Corporate and Market Finance from NEOMA Rouen.

Romain Gobert, Director of Retail Sales France, has 15 years of experience in the asset management industry occupying various sales positions. After a short initiation with Edmond de Rothschild Asset Management in 2010, Romain joined CM-CIC Asset Management as a sales representative, dedicated to external investors (wholesale, independent financial advisors). In 2011, he transitioned to La Française where he has spent the greater part of his career, developing an expertise in namely listed assets. For ten years he was Sales Manager, dedicated to the retail segment, before being appointed Head of Retail Sales France, for listed assets.

Romain holds a master’s degree in Corporate Finance (European Business School) and a master's degree in Trading (ESLSCA).

Christophe Inizan, Head of Real Estate Sales Strategy, has nearly thirty years of expertise in the real estate sector and asset management, beginning in 1994 with the real estate developer SAGEC, as a program manager. He joined AXA in 1998 as a client relationship manager, where he developed the B2C business with private clients. In 2001, he joined the Union Française de Gestion, now known as La Française, as a Sales Manager responsible for developing the insurance and real estate product lines with financial advisors. Thereafter followed a series of promotions: in 2009, he was appointed Sales Manager for France, overseeing Network Relations. In 2015, his scope was expanded to include listed assets, and Christophe was appointed Sales Director - Retail Distribution. In 2020, he was appointed Sales Director in charge of the real estate offer for the retail segment.

Christophe has an undergraduate degree in Law from the University of Pau.

About La Française

La Française offers conviction-based management that combines performance targets and sustainability objectives across all asset classes. Organized by specialty, our portfolio managers focus on what passions them most within their own area of expertise.

Our shareholder, Crédit Mutuel Alliance Fédérale, a mutualist group and the first bank to adopt the «benefit corporation» status, is at the very root of our commitment to responsible investing. Our teams have developed cutting edge expertise across many facets of ESG, an expertise that is integrated across all of our business activities and analyses.

Our approach to customer relationships, considered partnerships, and the creativity of our teams who place the client first enable us to develop innovative solutions and services tailored to your investments needs and time horizons.

La Française is the asset management business line of Crédit Mutuel Alliance Fédérale. With 157 billion euros in assets under management (31/12/2024), we are a major player in the asset management landscape, in France and Europe. With over 1 000 employees, we are active in 10 countries, working alongside our client base and ensuring proximity with those markets in which we invest. Our niche areas of expertise cover listed and unlisted assets, including real estate.

More information on la-francaise.com

Contacts La Française : 
Pascale Cheynet +33 1 43 12 64 25 | pcheynet@la-francaise.com
Debbie Marty +33 1 44 56 42 24 | debmartynull@nullla-francaise.com

Disclaimer

Issued by La Française Finance Services, whose registered office is located at 128 boulevard Raspail, 75006 Paris, France. It is regulated by the Autorité de Contrôle Prudentiel et de Résolution (ACPR) as an investment service provider under number 18673 X, a subsidiary of La Française.

 

¹Clean Industrial Deal - European Commission
²Competitiveness of European Energy - Intensive Industries
³Meeting the costs of resilience: The EU's Critical Raw Materials Strategy must go the extra kilometer
⁴Ibid
⁵Analysis of Nuclear Fuel Availability at EU Level from a Security of Supply Perspective
⁶Sweden open to power cable project if Germany reforms, minister say  
⁷Renewable Revolution: A Review of Strategic Flexibility in Future Power Systems

• Tackling the innovation gap with other global powers. This gap is evident in various ways: Europe’s low investment in Research and Development in comparison to other countries and the absence of European companies created in the last 50 years with a market capitalization exceeding €100 billion, while the United States has seen the creation of six companies worth over €1000 billion during the same period. 
   
• Accelerating decarbonization and increasing competitiveness: European companies are confronted with electricity prices that are two to three times higher than those in the United States. The price of natural gas in Europe is four to five times higher than in the United States. This disparity is not only due to the lack of natural resources in Europe, but also stems from taxation and fees in place in the energy market.
   
• Increasing the security and sovereignty of our industrial supply, therefore reducing our dependency on critical materials and technologies, particularly in light of rising geopolitical tensions.  Today, Europe is heavily reliant on a few suppliers for raw materials. For instance, China provides 100% of the European Union's (EU) rare earths supply, Turkey provides 99% of the EU's supply of boron and South Africa supplies 71% of the EU's needs for platinum³. 
   

The Clean Industrial Deal therefore outlines concrete measures aimed at providing quick relief to both energy-intensive industries (e.g. steel, metals, etc.) which need to decarbonize and electrify without unfair competition or regulatory complexity, and to the clean-tech sector (e.g. clean energy, electric vehicles, etc.) which is central to future competitiveness and essential for industrial transformation, circularity and decarbonization.

The Clean Industrial Deal is therefore structured around several pillars, namely affordable energy and circularity:

Affordable energy⁴ , which is the first pillar, includes measures aimed at reducing energy bills for industries, businesses and households in the short term, while increasing the electrification rate of the global economy with a target of 32% by 2030 compared to 21.3% today.

The reduction of energy bills may involve supporting the adoption of long-term Power Purchase Agreements (PPAs & Contracts for Difference - CFDs) with guarantees for SMEs and energy-intensive industries. Additionally, tax measures are mentioned to allow the possibility to reduce taxation of electricity to zero for energy-intensive industries.

Efforts to reduce energy costs must also be accompanied by i) an acceleration of clean energy deployment and electrification in Europe, while reducing authorization periods for the implementation of projects; ii) ensuring the proper functioning of gas markets by eliminating current taxes and fees.

The focus on circularity (the second pillar of the Clean Industrial Deal) is in line with the EU's ambition to become the global leader in the circular economy by 2030. The proposal on critical raw materials⁵ includes a recycling target rate of 25% by 2030. This objective will be supported by measures aimed at promoting recycling and limiting the export of waste to decrease the EU’s dependence on raw materials. These materials will be reused, refurbished, recycled and revalorized in the economy. The circular potential of European remanufacturing market is expected to increase from its present value of €31 billion to €100 billion by 2030, creating 500,000 new jobs⁶ . 

At this stage, the only downside of the Clean Industrial Deal is its level of ambition. Indeed, the European Commission has mentioned 480 billion euros in investment to be mobilized while the Draghi Report recommended 750 to 800 billion euros to tackle the situation. As is often the case with European proposals, the intention is good, but its potential for action cannot be fully realized without coordination and consistent efforts at the national level.

This commentary is provided for information purposes only. The information contained in this publication is based on sources considered reliable, but Groupe La Française does not guarantee their accuracy, completeness, validity or relevance. Published by La Française Finance Services, registered office at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, n° 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 128 boulevard Raspail, 75006 Paris is a management company approved by the Autorité des marchés financiers under number GP 97,138. Société Anonyme with a capital of €3871680, RCS Paris n° 388,555,021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale. 

¹The Clean Industrial Deal: A joint roadmap for competitiveness and decarbonisation
²The future of European competitiveness
³Critical raw materials - European Commission
⁴Affordable Energy - European Commission
⁵Critical Raw Materials Act - European Commission
⁶The Clean Industrial Deal: A joint roadmap for competitiveness and decarbonisation

• In line with investor expectations, the FOMC will unanimously keep its target rate unchanged in a range between 4.25% and 4.50%.
   
• Chairman Jerome Powell will reiterate that the current monetary policy of the Federal Reserve is well-positioned to fulfill its dual mandate: price stability and full employment.
   
• In the current environment, with heightened uncertainty due to economic reforms by the new U.S. administration (related to trade, immigration, fiscal policy and regulation), Jerome Powell will emphasize that the institution prefers to be patient regarding future rate cuts, given risks that could push prices higher.
   
• In this context, he will stress the need for the Fed to ensure that households and businesses continue to expect inflation to remain anchored at the 2% target to prevent inflation from becoming persistent.
   
• In our opinion, Jerome Powell will try to reassure financial markets by indicating:
  i.    On the one hand, that the FOMC still believes it can reduce rates this year, as the Fed expects inflation to converge towards its 2% target in the medium term, while noting that this sometimes-bumpy process may take longer than expected.
  II.   On the other hand, that tariff hikes could lead to a one-time increase in consumer prices, although the central bank needs more visibility in terms of scope and timing.
   
• The dot plot, which shows where each FOMC member thinks rates will be by year end, could, in our view, reflect a firmer message than in December 2024 by lowering the forecast from two rate cuts to only one for 2025 and 2026, with the Fed Funds target rate anticipated at 4.1% by the end of this year (up from 3.9% previously) and 3.9% by the end of 2026 (up from 3.4%). The Fed should then normalize rates to a neutral level in 2027, between 3.0% and 3.50%. In parallel, we expect the median long-term Fed Funds rate forecast, which was raised by 50 basis points since December 2023 to 3.0%, to be revised upwards again.
   
• Regarding the Summary of Economic Projections, despite recent mixed data, we do not expect any significant changes to GDP growth rates for 2025 and the following two years (around 2%) due to the strength of the labor market. The unemployment rate for 2025 to 2027 should remain in a narrow range between 4.2% and 4.3%. As for inflation, the "Core PCE" forecast, based on household consumption expenditures, will likely be revised upwards, especially for 2025 and 2026, to reflect upside risks to inflation that have already reflected in household inflation expectations from the University of Michigan and Conference Board surveys, as well as in business activity surveys (ISM, PMI) through the increase in prices paid by U.S. manufacturers in response to future tariff hikes. Inflation is then expected to converge to the 2% target by 2027, highlighting the 'temporary' nature of the inflation increase.
   
• As alluded to in the January FOMC minutes, released on February 19, the monetary committee will announce a slowdown in the pace of its Quantitative Tightening (QT) or even a pause, pending the resolution of the debt ceiling issue, which has been reinstated since January 1, 2025, at $36 trillion (Source: Bloomberg).

In conclusion, unsurprisingly, the Fed is expected to announce a pause in rate cuts in March while slowing or stopping the decline in the size of its balance sheet. The Federal Reserve will remain determined to bring inflation back to its 2% target while supporting full employment. In the press conference, Jerome Powell will most likely reiterate that the institution must maintain a restrictive monetary policy until inflation is firmly on track to meet the 2% target. As a result, the Fed will wait for a clear assessment of the economic impact of Donald Trump's reforms before reducing its key rates to a neutral level, which is expected to be between 3.0% and 3.5%, according to estimates (Source: Bloomberg). In this framework, the FOMC will continue to monitor economic data, evolving outlooks and the balance of risks before adjusting its monetary policy. We believe financial markets will react negatively to this monetary committee meeting, given the significant strengthening of their expectations regarding future rate cuts by the Fed since mid-February. On the bond market, the U.S. yield curve is expected to flatten.



This commentary is provided for information purposes only. The opinions expressed by La Française are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 128 Boulevard Raspail, 75006 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.  
 

• The ECB's Governing Council will reduce its key interest rates by 25 bps each, with balanced inflation risks. This will bring the deposit rate to 2.50%, the refinancing rate to 2.65% and the marginal lending rate to 2.9%.
   
• With the deposit rate (the central bank's key reference rate) approaching the neutral rate* (between 1.75% and 2.25% according to the ECB's February 7th analysis), we believe the Council will adapt its language, describing financing conditions as ‘moderately’ or ‘somewhat’ restrictive. We think the ECB will wait for the results of its quarterly euro area bank lending survey (BLS), which will be published on April 15, two days before its next meeting in April, before making a more pronounced change in its vocabulary.
   
• As a result, the ECB is likely to continue its rate cuts cautiously, remaining dependent on incoming data and attentive to U.S. monetary policy. The ECB's caution regarding the direction of its monetary policy beyond this meeting could imply a pause in April, although we believe the ECB has little reason to delay further monetary easing (particularly due to weak growth in the region). In all likelihood, the ECB has an intermediate target of 2%.
   
• Compared to the macroeconomic projections from December 2024, the ECB is expected to revise its growth forecast slightly downward for this year (from 1.1% to 0.9%-1.0%; Source: Bloomberg) due to weaker domestic demand and risks associated with U.S. trade policy, though these could be partly offset by prospects for peace in Ukraine. Regarding price developments, the ECB should maintain its inflation outlook unchanged, in line with its 2% medium-term target (core CPI, excluding energy and food: 2025: 2.3%, 2026: 1.9%, 2027: 1.9%). (Source: Bloomberg)

In summary, we do not expect any major changes from the ECB in March. The Governing Council will likely lower rates, probably unanimously, with minor adjustments in its economic outlook. Financial market reactions should be limited, unless there is a drastic shift in the ECB's communication, suggesting it no longer considers its monetary policy to be restrictive, which is not our scenario.

* Neutral rate: A rate that keeps the economy at full employment with stable inflation, but which cannot be directly observed.

This commentary is provided for information purposes only. The opinions expressed by La Française are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 128 Boulevard Raspail, 75006 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.

Source: World Bank, Bloomberg, as of end of 2023

For several months now, the Trump administration has issued numerous statements on this matter mainly directed towards NATO member countries. They have repeatedly stated that each country should allocate at least 2% of its GDP to defense spending, in line with a guideline established in 2006. In 2023, only 23 of the 32 member states complied with this rule. The US president has even spoken about wanting the 5% mark to be reached.

All of this should push European countries, gradually and no doubt with difficulty, to increase their defense spending in the medium term. There are already discussions aiming at removing these expenditures from European debt calculation rules. It is therefore not far-fetched to imagine that defense spending could reach between 2.5 % and 3 % of the GDP of European Union countries within a few years. 

Of course, we cannot predict how relations between the current major powers will evolve, and maybe everything we have just mentioned will be irrelevant in the coming months. Nevertheless, a scenario that would require significantly higher defense spending in the European Union does not seem unrealistic at this stage.

Academic research does not show a strong correlation between defense spending and investment, and consequently economic growth as many parameters come into play (Source: Defense Spending and The Economy, Gordon, Adams and Gold, 1987). However, although not all papers agree, an increase in defense budgets could lead to higher inflation, even if it is only temporary (Source: A reexamination of the effect of rapid military spending on inflation, Nourzad, 1987).

In this scenario, it is likely that inflation expectations would rise, and nominal rates would not be able to decrease due to sustained nominal growth, which would favor real rates over nominal rates. Defense contractors would experience an increase in demand, boosting their profitability. Ultimately, this only reinforces our conviction regarding gold, which once again appears to be a safe haven asset. Beyond central bank purchases or the hedge it provides against inflation risk, the likelihood of a change in the ‘global order’, as rarely seen in history, is probably the main argument in favor of gold today.

This commentary is provided for information purposes only. The information contained in this publication is based on sources we consider reliable, but we do not guarantee their accuracy, completeness, validity or relevance. This non-contractual document does not constitute in any way a recommendation, solicitation of an offer, or an offer to buy, sell, or arbitrate, and should not, in any case, be interpreted as such.  Published by La Française Finance Services, registered office at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, n° 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 128 boulevard Raspail, 75006 Paris is a management company approved by the Autorité des marchés financiers under number GP 97,138. Société Anonyme with a capital of €3871680, RCS Paris n° 388,555,021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale. 

Source: Swiss Re - How big is the protection gap from natural disasters where you are?

Governments often intervene as a last resort to cover the cost of uninsured losses. For example, the Spanish government committed over €10 billion⁷ in funding for reconstruction after flooding hit Valencia in October 2024. It also acknowledged the need to implement a long-term plan to transform the area and adapt it to the challenges of the climate emergency affecting the Mediterranean basin.

Indeed, to gear up for future challenges, governments need to take proactive measures to assess vulnerabilities. Together with businesses and investors, they must invest in adaptation and resilience (quality of infrastructure, preservation of vital resources, etc.), which, according to the UN, accounts for only 21% of international climate financing⁸ .

Governments can also address inequalities by providing financial support to vulnerable populations. They should take action by promoting insurance coverage and the establishment of micro insurance systems, which would reduce the impact of shocks on public finances. And for businesses, it means adjusting their practices to reduce their environmental impact, while involving the upstream part of the value chain, workers and local communities to ensure a just transition.

This commentary is provided for information purposes only. The information contained in this publication is based on sources considered reliable, but Groupe La Française does not guarantee their accuracy, completeness, validity or relevance. Published by La Française Finance Services, registered office at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, n° 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 128 boulevard Raspail, 75006 Paris is a management company approved by the Autorité des marchés financiers under number GP 97,138. Société Anonyme with a capital of €3871680, RCS Paris n° 388,555,021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.

¹Barclays, Sustainable Investing Research - Winter update 2024: What's up with the extreme weather?
²Hurricanes, severe thunderstorms and floods drive insured losses above USD 100 billion for 5th consecutive year, says Swiss Re Institute | Swiss Re (December 2024)
³Los Angeles Times, Estimated cost of fire damage balloons to more than $250 billion
⁴Counting the cost 2024, a year of climate breakdown, Christian Aid (December 2024)
⁵Los Angeles Times, State Farm seeks emergency rate increase averaging 22% after L.A. fires
⁶Swiss Re, sigma Resilience Index 2024
⁷Les Echos, In Spain, the government releases 10 billion euros for flood victims
⁸United Nations, Climate Action Fast Facts
 

¹Top American banks exit net zero alliance: What does this mean for their European peers? | Euronews
²HSBC, Standard Chartered, other Major Banks Exit SBTi - ESG Today
³NZBA-2024-Progress Report.pdf
⁴Members - United Nations Environment - Finance Initiative
⁵Central banks' green push hits a hurdle as Fed drops out | Reuters
⁶Statement on Blackrock's departure from the initiative - The Net Zero Asset Managers initiative
⁷McDonald's Joins The Stampede Of Corporations retreating From DEI
⁸WDT.2025.pdf
⁹JD Vance attacks Europe over free speech and migration
¹⁰Climate change target of 2C is ‘dead’, says renowned climate scientist | Climate crisis | The Guardian
¹¹WEF _ Global _ Risks _ Report _ 2025.pdf
¹²Climate intuition _ Navigating the new climate era _ Building intuition for strategic decision making
¹³State of transition in the banking sector report 2024 - Transition Pathway Initiative
¹⁴Asset owner statement on climate stewardship.pdf
¹⁵Investors warn Omnibus package could weaken EU sustainability disclosures, harming investment and economic competitiveness

Recent polls² predict a clear victory for right-wing sister parties, the Christian Democratic Union (CDU) and the Christian Social Union in Bavaria (CSU), with 29.8% of voting intentions. The far-right Alternative for Germany (AFD) continues to gain momentum with 21.5 % of voting intentions, while the Greens (die Grünen) and the Social Democratic Party of Germany (SPD, center) stand at 13.1 % and 16.1 %, respectively. Three other parties, the Free Democratic Party of Germany (FDP), the Sahra Wagenknecht Alliance (BSW, conservative far left) and Die Linke (far left) are hovering around the 5 % threshold, required for parliamentary representation. Converting polls into parliamentary seats is complex and uncertain, as the final results will largely depend on whether these three parties surpass the 5% mark.

It is possible that the CDU/CSU will only need one party (the Greens or the SPD) to secure a simple majority. However, our base scenario remains a “Grand Coalition” led by Friedrish Merz as Chancellor as opposed to a more fragile coalition with either the SPD or the Greens due to a smaller majority.

However, the most important issue, is not whether the coalition will be built around two or three parties. What matters is whether those opposed to any reform of the “debt brake” rule will secure a blocking minority, meaning over 33% of the seats. Amending the constitution requires a two-thirds majority. The AFD is currently opposed, as are the BSW and Die Linke. Should these last two parties surpass the 5% threshold, it could make any change extremely difficult. Nevertheless, achieving a sufficiently broad consensus to allow for a modification in the constitutional rule is not unrealistic.

However, the three parties that are likely to form the coalition do not share the same position on a constitutional reform: The SPD and the Greens are more ambitious while the CDU/CSU is more cautious about making deep changes to the rule. The combined score of the Greens and the SPD will therefore determine their influence in negotiations with the CDU/CSU. The higher their score, the more ambitious the modifications to the “debt brake” rule could be. Indeed, Friedrich Merz has repeatedly stated that while he is not opposed to reforming the rule, new spending must be linked to investment.

However, given the proposals of each of these three parties, it is the CDU/CSU that seems to advocate for the most significant tax reforms:

• The CDU/CSU seeks to cut the corporate tax rate to 25%, abolish the solidarity tax for wealthy households, reduce the income taxes and lower the VAT. Additionally, they aim to lower electricity prices, simplify the immigration process for skilled workers and restrict access to certain social benefits. 
• The SPD, on the other hand, plans to reduce income taxes for lower-income households while increasing taxes for high-income brackets, with the goal to reduce inequalities. They also aim to raise inheritance taxes and introduce a wealth tax. Alternatively, they would like to lower VAT on food and reduce corporate taxes in the case of investment. As with the CDU/CSU, electricity prices would be reduced and access to the labor market would be simplified for skilled foreign workers.
• The Greens offer proposals similar to those of the SPD, along with “climate” subsidies for households, excluding the wealthiest.

Military spending could be excluded from the debt calculation envelope in order to “simplify” the debate; however, an increase in these expenditures is likely to meet the demands of the Trump administration. The stance on nuclear energy may also change but would require both a change in legislation and significant technical controls. In fact, a small majority of the population now supports nuclear energy. (Source: Radiant Energy Group, 2024)

The Cologne Economic Research Institute estimated the fiscal impact of the various programmes at €70 billion for the CDU/CSU, €15 billion for the SPD and €32 billion for the Greens. As a result, it is difficult to connect these proposed spending increases with the parties’ positions on the debt brake rule, especially for the CDU/CSU. It will likely be difficult for Friedrich Merz to adopt a “spending” stance during the elections given his party has always been seen as the most fiscally virtuous one, but ultimately, he would not be opposed to amending the constitution.

We believe a constitutional reform is likely following the German elections, though this is not guaranteed if the “small” parties opposed to it exceed the 5% mark. Estimating the fiscal impact is a difficult exercise but will most likely be marginal in 2025. According to German constitutional law experts, any change to the constitution before September is, in fact, unrealistic.

What does this mean for financial markets?

The psychological impact of such a reform should not be underestimated. The prospect of lower electricity prices and tax cuts for both businesses and households is likely to positively influence consumption and investment. Recent indicators show a slight improvement with PMIs rising above 50 as of 31/01/2025, Source: S & P Global (this is also the case for Sentix indicators). Additionally, the ripple effect on other Eurozone countries should not be overlooked; for instance, we estimate that a 1% increase in GDP for Germany would lead to a 0.1% rise in GDP for France.

For financial markets, this would be positive news and could lead to inflows into the region, particularly towards equity markets. The CDU/CSU program seems to support sectors such as real estate/infrastructure (less rent control, chronic underinvestment that should ease), automobile (they are likely to be in favor of fewer CO2-constraints), defense (higher spending) and financials. Given that Germany’s forecasts are only slightly revised upward, the ECB's monetary policy should not be significantly impacted in 2025. Such a reform would also be positive for the Euro currency. Of course, the German elections are not the only factor influencing these markets. Developments in the Trump administration's policies and any potential fiscal stimulus from China will be equally important.

¹ German growth 2024 & Budget deficit 2022, 2023, 2024, Source: Bloomberg
² Europeelects, as at 10/02/2025

This commentary is provided for information purposes only. The information contained in this publication is based on sources we consider reliable, but we do not guarantee their accuracy, completeness, validity or relevance. This non-contractual document does not constitute in any way a recommendation, solicitation of an offer, or an offer to buy, sell, or arbitrate, and should not, in any case, be interpreted as such.  Published by La Française Finance Services, registered office at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, n° 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 128 boulevard Raspail, 75006 Paris is a management company approved by the Autorité des marchés financiers under number GP 97,138. Société Anonyme with a capital of €3871680, RCS Paris n° 388,555,021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale. 

• The ‘rescue’ M&A era is long gone.
• M&A consolidation: a phase coming to an end? 
• The return of the M&A driven by hubris?

THE ‘RESCUE’ M&A ERA IS LONG GONE

The Great Financial Crisis (GFC) of 2007-2009 was an upheaval for the global banking industry. While the largest US and UK institutions were forced into urgent mergers, banks across continental Europe experienced a wave of nationalisations and massive bailouts. The aftermath of the euro crisis exposed regulatory and balance sheet weaknesses of European institutions, while almost all banks in the so called ‘peripheral’ countries lost access to the interbank market, forcing them to rely on liquidity from the ECB and their national central banks to survive.

The introduction of Basel III solvency and liquidity standards, as well as the creation of the ECB's Single Supervisory Mechanism (SSM), accelerated mergers in some of the most fragmented banking sectors, such as Spain and Italy, with most savings banks in these two countries seeing major transformations. Banks had to merge to survive. Some institutions were unable to escape liquidation (Banco Popular, Venetian banks in Italy, etc.), while others have had to withhold dividends from shareholders for many years to form capital buffers in line with growing regulator demands. Many banking groups also exited what they considered to be ‘non-core’ markets, refocusing on their home markets and lowering their leverage levels. We do not believe that this type of M&A has occurred since 2019, with the notable exception of the Swiss bank Credit Suisse, which UBS urgently absorbed in early 2023 due to its major governance and liquidity deficiencies.

M&A CONSOLIDATION: A PHASE COMING TO AN END ?

Banks' profitability was severely hampered by a low-interest rate environment until 2022; high-cost structures (especially in retail banking, with the growing rationalisation of branch networks and competition from online banks); large provisions for credit and litigation risks; and considerable reserve requirements to ensure comfortable capital ratios. The race to for size thus became a crucial factor in ensuring economies of scale and cost savings. Once again, the Spanish and Italian banking sectors were at the forefront of this shift, particularly with the merger between CaixaBank and Bankia (2020-2021), and Intesa Sanpaolo's hostile takeover bid for UBI Banca (also in 2020-2021). The challenge was to establish a dominant position in their local markets, while benefiting from a more merger-friendly regulatory and accounting environment (formation of badwill and use of deferred tax credits) and less complex balance sheets. The ‘Too Big To Fail’ philosophy, once a guiding principle for regulators, was left behind with the approval of regulatory and supervisory authorities. In addition to consolidating leading and second tier players, many banks also adjusted their balance sheets according to their competitive advantages, strengthening or scaling back specific activities (consumer loans, credit cards, car leasing, etc.).

However, the race for size has limits , such as hostile takeovers for systemic institutions. Deutsche Bank was unable to convince the German authorities of its plans to acquire Commerzbank in 2019, due to the risks of significant layoffs on the transaction, as well as uncertain synergy targets due to the very low intrinsic profitability of the German retail banking sector. While BBVA's hostile bid for Banco Sabadell is less problematic from a systemic point of view, the complexity and size of the offer launched in May 2024 requires numerous approvals and lobbying battles, which could ultimately discourage BBVA if the authorities decide to impose asset disposals to validate the deal.  It therefore seemed easier to consider consolidations for second tier banks, such as UK’s Nationwide and Coventry Building Society, which announced their acquisitions of Virgin Money and Co Op Bank in the first half of 2024 (see chart in the appendix for more details), and more recently Danish bank Nykredit with Spar Nord Bank.

The conclusion seemed clear: it was easier to consolidate domestically than internationally, especially for financial reasons (the need to maintain substantial and separate solvency and liquidity ratios in each country, the regulatory complexities regarding the scope of bank resolutions, the incompleteness of the European Banking Union on the guaranteed deposits fund, and less obvious synergies).

THE RETURN OF THE M&A DRIVEN BY HUBRIS?

The Italian bank UniCredit, whose retail bank is active in Germany and Austria, entered the large-scale M&A scene with a bang, quickly acquiring a stake in Commerzbank's capital in September 2024, provoking the ire of German politicians and the German bank’s management. Some statements could even be interpreted as contempt, or worse, for the intentions of an Italian bank towards a German bank1. The opposition quickly became political rather than financial, highlighting nationalist tensions as an additional obstacle to transnational mergers. Although it is easy to criticise the German position, let’s ask ourselves: What would be the political and economic reactions if a large foreign bank wanted to acquire a French bank such as Société Générale? 

Acquire abroad? Yes. Be taken over by foreigners? No thank you.

Andrea Orcel, the CEO of UniCredit, felt that his M & A project in Germany was at best delayed by the upcoming elections, so he set his sight on the Italian bank Banco BPM in November 2024, just 12 days after the latter announced a takeover bid for the asset manager Anima. Leading a bank acquisition project is already a major ambition in itself, but pursuing two simultaneously seems almost unrealisable—if not a sign of excessive hubris from its leader, eager to offer shareholders a new narrative, while the expected decline in European interest rates threatens to impact banks' net interest margins.
 

• The Federal Open Market Committee (FOMC) will likely keep its key rates between 4.25% and 4.50%, reflecting the current performance of the US economy and ongoing inflation, which remains above the 2% target.
   
• Based on the minutes of the December FOMC meeting and comments from Governor Christopher Waller on January 16, Jerome Powell will likely maintain the possibility of rate cuts in 2025, as the Fed still anticipates inflation returning to the 2% target in the medium term.
   
• However, Federal Reserve Chair Jerome Powell will probably clarify that the FOMC, which follows a "data-dependent" approach (especially regarding inflation and the labor market), is not committed to any specific timeline for future rate cuts. In the press conference, Powell might consider a rate cut in March, provided inflation data aligns with the Fed's expectations. Still, at this point, the likelihood of such a move seems low, given the current macroeconomic uncertainty and the uncertain path of the Trump administration’s economic policies. Alternatively, and even though rate cuts are on hold for now, the Fed will most likely rule out the possibility of an interest rate hike.
   
• The FOMC is also expected to maintain quantitative tightening (QT), as Fed officials have expressed no intention of putting an end to QT at this meeting.

In summary, reflecting December FOMC projections, which showed fewer rate cuts for 2025, the January meeting will likely mark a pause in the easing cycle. We expect a moderately positive reaction from financial markets, given the Fed's optimistic outlook for potential rate cuts later in the year. The trajectory of US interest rates will become clearer during the March 18–19 meeting, when the Fed updates its Summary of Economic Projections (SEP), which will take into account the potential ripple effects of Trump’s economic policies.


This commentary is provided for information purposes only. The opinions expressed by La Française are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 128 Boulevard Raspail, 75006 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale. 

• The European car market is shrinking, unlike China
   
• 70% of the market is controlled by Asians, and most of the thirty European gigafactory projects (plants producing batteries for electric vehicles) have been designed and built with the help of Chinese and Korean companies
   
• However, China does not have all the automotive know-how. Complex and heavy parts (such as engines, transmissions, chassis and seats) are mastered by Europeans

On November 21st, 2024, Northvolt, an electric vehicle battery manufacturer, said to be Europe’s future of energy, filed for Chapter 11 bankruptcy. This downfall raises questions about Europe’s strategy for the automotive industry. Reflecting this downturn, European automotive suppliers have reported a net loss of 56,000 jobs between 2020 and 20241 while BYD (a Chinese car manufacturer) expanded its workforce by 415,000 employees between 2021 and 20232 and increased its vehicle sales by 6.5x, establishing itself as the global leader in the electric vehicle segment. The European automotive industry appears to be struggling under strict regulations with limited financial support, especially when compared to the significant aid provided under the U.S. Inflation Reduction Act or the strong backing of Chinese manufacturers by their government...

... adding to these challenges is low consumer demand across Europe for expensive electric vehicles, further hindering the sector’s growth.

European automotive suppliers have reported a net loss of 56,000 jobs between 2020 and 2024 while BYD (a Chinese car manufacturer) expanded its workforce by 415,000 employees between 2021 and 2023 and increased its vehicle sales by 6.5x, establishing itself as the global leader in the electric vehicle segment.

The failure of Northvolt: A symbol of aborted European ambitions 

Founded in 2017 to compete with Asian battery giants (CATL, LG, etc.), the Swedish start-up is a symbol of Europe's ambitions in the energy transition. Quickly, Northvolt secured significant funding, raising €15 billion in debt and capital from Volkswagen (a 21% shareholder), BMW (2.8%), major financialinstitutions (mainly Goldman Sachs) and, to a lesser extent, public funds. By the end of 2022, Northvolt had an impressive order book of $55 billion, reflecting a strong commitment from automakers.

Unfortunately, Northvolt’s management, driven by overly ambitious goals, attempted to build eight high-tech factories in eight locations across two continents. However, a shortage of skilled labor, knowledgeable in these advanced technologies, and insufficient expertise in essential machine tools resulted in the inaugural factory producing only 1% of its original target. This led to client order cancellations, including BMW, and a massive cash burn, leaving the start-up with $5.8 billion in debt and only $30 million in liquidity3 at 2024 year-end. Thanks to its revised development plan, Northvolt still has a couple of months left to secure new financing.

Thanks to other industry players (Verkor, ACC, PowerCo, etc.), Europe has managed to increase its share of the global battery market from 3% to 17% since 2017, achieving annual revenues of €81 billion in 2023 after allocating more than €6 billion of the European Union (EU) budget to support cross border battery projects and innovation4. However, the market remains dominated by Asian players who control 70% of it. Additionally, most of Europe’s thirty gigafactory projects (factories producing batteries for electric vehicle) have been designed and built with the help of Chinese and Korean companies. For example, CATL and Stellantis have announced plans to co-construct a lithium battery factory in Spain, further expanding China’s manufacturing footprint on European soil.

The number of vehicles sold in Europe (including the UK) shrank to 13.4 million units in 2024 down 17% vs. 2018. European production outside the UK also fell sharply by 18.5% to 12.2 million units in 2023.

The European automotive industry is therefore slow to undergo an industrial transformation to withstand the aggressive tactics of Chinese players, who have been cut off from the US market due to geopolitical restrictions. On top of this, the “mountain” of CO2 regulations looms over automakers, with penalties that could reach billions of euros.

The number of vehicles sold in Europe (including the UK) shrank to 13.4 million units in 20245 down 17% vs. 2018. European production outside the UK also fell sharply by 18.5% to 12.2 million units in 20236. These lower volumes have placed significant pressure on the cost structure of automotive equipment suppliers. In addition, production costs have risen due to inflation in energy prices, logistics costs and wages. More importantly, according to Jim Fairley, CEO of Ford Motors, manufacturing an electric vehicle requires 40% less labor than producing a thermal vehicle7. As a result, automakers in Europe have announced capacity reductions (Volkswagen, Ford).

In addition, the EU's climate change goals add further pressure. Starting in 2025, the average CO2 emissions of new cars must be reduced by 15% compared to 2021 levels, with a target reduction of 37.5% by 2030. For the entire automotive market to be aligned, the market share of electric vehicles in Europe would have to reach at least 28% by 2025 (compared to 21% in the first half of 20248). Manufacturers must comply with these targets or face financial sanctions which could amount to a total of €15 billion.

A declining market and regulatory pressures imply a significant restructuring of the industrial sector. The European Association of Automotive Suppliers9 says that around 56,000 net jobs have been lost since 2020. Additionally, further job cuts (32,000) were announced in the first half of 2024 alone.[…]

• The Governing Council of the ECB will once again cut key interest rates by 25 bps each, with an inflation projection around the 2% medium-term target and inflation risks, both upward and downward, largely balanced. This will bring the deposit facility rate to 2.75%, the refinancing rate to 2.90% and the marginal lending facility rate to 3.15%.
   
• While the ECB still expects economic activity to recover this year, it will highlight that risks weighing on growth remain oriented downward; there being a risk that inflation could be below the 2% target if growth in the region remains weak.
   
• Going forward, ECB president Christine Lagarde will indicate that the central bank will proceed cautiously and adopt a balanced approach as the ‘neutral' rate (a level that neither stimulates nor restrains the economy) comes near. It estimates the neutral rate to be between 1.75% and 2.5%. At this point, most ECB members have indicated that the goal is to reach the neutral rate this year, likely by the end of the first semester. 
   
• Echoing the minutes of the FMOC’s December meeting, we do not expect Christine Lagarde to announce that the ECB has any intention of cutting interest rates more aggressively (50 bps) unless the risk of a recession in the region arises.

In conclusion, the ECB will be on ‘autopilot’ in January, pending the release of new macroeconomic forecasts during the Monetary Committee on March 6th. This rate cut, widely anticipated by investors and very much alluded to by central bank members, should not trigger a strong market reaction.


This commentary is provided for information purposes only. The opinions expressed by La Française are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 128 Boulevard Raspail, 75006 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.

• A key question raised by the proposed Omnibus legislation is whether it will undermine the progress made in sustainability reporting
• There is growing concern that the Omnibus legislation will be regressive
• This regulatory instability encourages companies to view CSDR and associated frameworks as mere compliance obligations rather than opportunities for strategic transformation
• Companies may start to see sustainability reporting as a compliance obligation rather than a strategic priority

To tackle this challenge and consequently reduce the bureaucratic complexity placed on businesses, European Commission President Ursula von der Leyen proposed an Omnibus Regulation in November 2024. The proposal seeks to consolidate and simplify the Corporate Sustainability Reporting Directive (CSRD, 2022, which strengthens non-financial reporting obligations for companies), the EU Taxonomy Regulation (2020, which classifies sustainable economic activities) and the Corporate Sustainability Due Diligence Directive (CS3D, 2024, which mandates due diligence to identify and address negative impacts across value chains). While efforts to simplify regulatory requirements are welcome, the proposed omnibus regulation raises a crucial question: will it risk undermining the progress made in sustainability reporting? Moreover, given the complexity of these three regulations (CSRD, CS3D, EU Taxonomy) and the broader political context within the EU, can an omnibus regulation realistically achieve its intended objectives ?

Challenges facing implementation of omnibus package

While well-intentioned, the consolidation of these three frameworks to achieve consensus seems highly challenging given the conflicting approaches and priorities of EU member states. For instance, the CSRD has already faced significant challenges during its development and implementation. As of late 2024, hence just months before the publication of the first CSRD-compliant reports, some European regulators continue to push for a softening of the CSRD framework. Ursula von der Leyen has highlighted the challenges of overregulation for SMEs (Small and Medium Enterprises), while other leaders, such as former French Prime Minister Michel Barnier, suggested a “moratorium” to delay implementing the CSRD in France. Similarly, former German Federal Minister of Justice, Marco Buschmann has called for a revision of the CSRD text. Consensus on the CSRD has yet to be achieved, making it unlikely that an Omnibus package covering these three regulations will be finalized in the short term. According to Forbes, the EU Commission is expected to discuss this matter in February 2025.

They have also significantly expanded the reporting requirements, making the process more complex.

While the Omnibus regulation seeks to reduce the burden and cost of sustainability reporting for businesses, the CS3D goes beyond mere reporting and disclosures. The CS3D also requires companies to establish robust processes to identify and address human rights and environmental issues. Therefore, the scope of the Omnibus regulation must be clearly defined and there are basically two alternatives. As an overarching regulation, the scope of the Omnibus package could encompass those of all three regulations (CSRD, EU Taxonomy and CSRD), which in no manner would reduce the reporting burden on companies. Alternatively, it could simply reflect sustainability reporting and disclosure requirements, common to all three regulations, which would imply excessive simplification at the cost of more quality ESG practices and reporting standards. Furthermore, these regulations remain subject to potential amendments based on stakeholder feedback. Therefore, consolidating them under a single framework is a considerable challenge.

Simplification or Deregulation of Sustainability Reporting ?

Amid negative sentiment, fuelled by sustainability regulations which are stunting European competitiveness and sovereignty, there is growing concern that the Omnibus package could be regressive. The CSRD, EU Taxonomy Regulation, and CS3D – each designed to complete the sustainability framework with distinct ambitions and scopes –could be reduced to just “another” set of regulations. This shift could be counterproductive, lifting the burden on companies at the expense of sustainability goals. For example, the final version of the first set of European Sustainability Reporting Standards (ESRS, standards of CSRD) has already been watered down, i.e., fewer data points and a narrower focus on materiality compared to its earlier drafts. Further simplifications, particularly concerning core CSRD concepts would potentially be counterproductive and undermine efforts to establish robust sustainability reporting practices.

Regulatory changes could penalize early adopters

The proposed Omnibus regulation has created significant uncertainty for businesses, sending troubling signals. Major changes to CSRD requirements risk penalizing early adopters who have invested substantial resources in adjusting their strategies. As shifting regulations can undermine proactive efforts, companies that have been delaying compliance may face fewer disruptions. For years, businesses were encouraged to adopt sustainability measures early on, but due to ongoing revisions, this advice now appears almost ironic. This dynamic echoes to recent cases, as seen with the EU’s deforestation regulation, where early adopters were disadvantaged.

The proposed Omnibus regulation has created significant uncertainty for businesses, sending troubling signals. Major changes to CSRD requirements risk penalizing early adopters who have invested substantial resources in adjusting their strategies. As shifting regulations can undermine proactive efforts,companies that have been delaying compliance may face fewer disruptions.

The CSRD implementation timeline varies by company size and begins with large firms. […]

• Questions are being asked as Donald Trump takes office, given the environmental record of his last term. 
• A number of challenges will have to be met during this period 
• Europe will be a pillar in the climate issue and could influence global markets, including the United States
• Donald Trump's political decisions could call into question certain aspects of ESG investment, but the sustainability focus of global markets should remain intact

U.S.: ESG at a Crossroads

Trump’s anticipated energy policies, focused on reviving fossil fuels, could undermine progress made under the Biden administration. The Inflation Reduction Act (IRA), hailed as a transformative piece of legislation for clean energy investment, may face challenges, including reduced funding or altered provisions. It should be noted that we do not expect a full repeal of the IRA given that it could hurt the growth of domestic manufacturing jobs and clean energy investments, a majority of which have benefitted districts and states led by Republican lawmakers¹. Also, a full rollback of the IRA could affect the US clean energy sector negatively in its competitiveness against China. However, Trump's likely support of fossil fuels and rollback of climate policies could create significant roadblocks for the sector and also for companies committed to reducing their carbon footprints. If federal incentives for renewable energy shrink, while support for traditional energy industries increases, it could potentially impact how quickly and broadly companies in the U.S. achieve their decarbonization plans.

For investors, the outlook is mixed. Investors may witness significant cuts to federal climate action and reporting standards. Trump’s pick for SEC Chairman, Paul Atkins, has been a vocal opponent of SEC’s climate disclosure rules². However, states like California and New York are likely to continue to set ambitious climate goals. Additionally, large institutional investors could support the demand for sustainable assets, as both the financial risks of climate change and the desire for long-term resilience remain central concerns for asset managers and pension funds.

S. achieve their decarbonization plans.

Earlier this year, JP Morgan Chase and State Street’s investment arms announced their departure from Climate Action 100+³ while Goldman Sachs quit the Net Zero Banking Alliance⁴ in December (after exiting the CA100+ in August). Financial firms in the U.S. have faced growing pressure from Republican politicians over their membership to climate action groups and over other ESG commitments, arguing that it could lead to a breach of antitrust law or fiduciary duty. Nevertheless, growing climate risk awareness among financial institutions and the increasing importance of sustainable investing have continued to drive investments in the field, even without federal support. For instance, BlackRock’s "Aladdin Climate" platform enables investors to assess climate risks, while Goldman Sachs and Bank of America have pledged $750 billion and $1.5 trillion, respectively, towards sustainable finance by 2030. In the first three years since announcing the $1.5 trillion goal in 2021, Bank of America reported to have mobilized and deployed $560 billion in sustainable finance as of September 2024⁵.
 

Trump's likely support of fossil fuels and rollback of climate policies could create significant roadblocks for the sector and also for companies committed to reducing their carbon footprints.

Europe: climate momentum set to continue

Europe is poised to reinforce its leadership in sustainable finance, especially as it works to fulfill its commitments from COP29 in Baku6. With the EU Taxonomy, the Sustainable Finance Disclosure Regulation (SFDR) and the European Green Deal forming the backbone of its ESG strategy, the eurozone is likely to raise the bar for sustainable investing. Trump’s presidency could exacerbate the transatlantic divide, prompting European regulators to further tighten their standards to uphold international climate goals and maintain a competitive edge in the global market.

Europe might also seek to influence global financial markets by expanding ESG disclosure requirements for companies operating internationally, which could impact multinational corporations based in the U.S. and elsewhere.

For global investors, this divergence may highlight Europe as a hub for sustainable assets […]

• A 25 bp rate cut to reduce rates to a 4.25% -4.50% range. The Fed should justify this decision by dwindling inflation risk, despite core inflation still above its target, even over an annualized 3-month period.
• Growth forecasts for the US are expected to remain unchanged except for a slight increase from 2% to 2.1% in 2025.
• Inflation forecasts should see a slight upward revision in 2025 to 2.2% vs. 2.1%. We do not expect any changes in 2026 nor 2027.
• The unemployment rate is expected to remain stable at around 4.2%-4.3% in 2025-2026, slightly lower than expected in September.
• Finally, dots should be reviewed as follows:

  • 2025 is expected to show only 3 cuts compared to 4 previously;

  • The pace for 2026 and 2027 should remain unchanged (2 cuts in 2026, no cuts in 2027);

  • The long-term dot is anticipated to rise by 12.5 bps to 2.87% -3.12%.

• Lastly, Jerome Powell should announce a 5 bp cut in the reverse repo rate.

Ultimately, Powell's communication will most likely be in line with previous meetings. The strength of the US economy and the stability of the labor market should drive the above revisions but should not dramatically change the Fed's message. If the communication is successful, the impact on bond markets should be quite marginal.

This commentary is provided for information purposes only. The opinions expressed by La Française are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 128 Boulevard Raspail, 75006 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.
 

Jérôme VALADE said: 

For the past three years and in today’s economic context, healthcare assets have demonstrated their defensive role. Driven by the aging of the population and the associated increase in health care needs, these investments benefit from sustained demand and can resist economic fluctuations to a certain degree. Astrid will contribute to the development of this strategic sector for La Française REM.

Astrid BONDUELLE, Investment Manager – Healthcare Assets

Astrid provides La Française Real Estate Managers with proven experience in the real estate value chain. She began in 2020 at Groupama Gan REIM as an investment analyst, also supporting real estate portfolio management. She then joined the real estate management company Euryale, where she developed her investment skills, working on the sourcing, analysis and due diligence of acquisition opportunities in pan European healthcare real estate.

Astrid holds a master's degree in Real Estate Management from Université Paris Dauphine.

• The Governing Council of the ECB will cut the key reference rate (deposit facility rate) by 25 bps to 3.0 %. 
• Given that services inflation remains too high (around 4%), we do not expect any change in communication regarding European monetary policy during this meeting. The ECB will likely maintain its data-dependent approach, taking decisions on a meeting-by-meeting basis without committing in advance to a specific interest rate trajectory. However, the ECB will point out that further interest rate reductions towards the ‘neutral zone’ (which neither stimulates nor restrains economic growth), estimated at around 2 %, are expected to continue in the coming months. 
• In its new economic projections:
  • In line with statements of its members since October, we expect that the ECB will report that overall inflation will return to the 2 % target by Q4 2025 (as was the case in its September forecast). The ECB will also likely lower its inflation forecast for 2025 (-0.1% versus September expectations) while keeping core inflation (excluding food and energy prices) slightly above the target. Moreover, we expect that the ECB will unveil inflation expectations for 2027, with core inflation expected to stabilize at 2%. 
  • Regarding growth, projections are expected to be revised down slightly for 2025 and 2026 (-10 bps, 1.2% and 1.4%, respectively). ECB president Christine Lagarde will signal that these forecasts are surrounded by significant uncertainties related to fiscal policies in the two largest economies of the region (France and Germany).

In summary, the European Central Bank is likely to stick to gradual rate cuts despite a fragile economic environment. However, echoing comments from ECB chief economist Philip Lane, Christine Lagarde might indicate in the press conference a possible shift away from the data-dependent strategy in the future (once ‘the disinflation process is complete’) in favor of an approach focused on assessing future risks. There are few expectations associated with this meeting other than a 25 bp cut. There is a very slim chance that there will be a more accommodative stance leading rates lower across the curve. 

This commentary is provided for information purposes only. The opinions expressed by La Française are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 4, rue Gaillon 75002 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.  
 

• The decision was taken at COP29 to triple climate financing for
  developing countries
• The decision was taken at COP29 to triple climate financing for developing
  countries
• Financial targets have been set for 2030 and 2035
• The most important thing remains the search for a gradual phase-out of
  fossil fuels

An increasingly important investment...

Originally, developing countries demanded close to US$1tn per year by 2030 (and $1.3tn by 2035) from developed nations. Now, this figure represents an overarching goal, calling on the mobilization of all sectors, both public and private. Why does the source of commitment matter? According to the latest study by the Independent High-Level Expert Group on Climate Finance (IHLEG)1, climate action requires US$6.5tn in annual investment by 2030 and US$7.6tn per year by 2035. Of this, emerging markets and developing countries (excluding China) need c.US$2.4tn per year by 2030 (US$1.4tn from domestic resources and US$1tn from external finance). 

While investment is expected to come from different funding sources, the cost of capital is a key element for beneficiaries, especially for those countries that are the most vulnerable. Maximizing the share of public commitment from external finance sources would indeed minimize the additional climate-related debt burden on beneficiaries. 

Any shortfall in investment before 2030 will place added pressure on the years that follow, creating a steeper and potentially more costly path to climate stability”. The findings of the IHLEG report suggest that the opportunities related to investments (avoided costs and co-benefits of climate action) could amount to 15-18% of global GDP in 2030. To put things into perspective, the climate action need of US$6.5tn in annual investment is equivalent to 6% of the World’s GDP in 2023.

... but must be supported

Taking a step back, the actual amount committed to climate finance is of little value, unless there is increased commitment to phasing out fossil fuel (as introduced last year but disappointingly not reinforced this year outside of the Powering Past Coal Alliance2) or enhanced ambitions in countries’ NDCs (leveraging on the progress made on Article 6). The 2024 Emissions Gap Report3 estimates that prolonged current mitigation efforts would lead to c.3.1°C in warming. However, if unconditional and conditional pledges are fully implemented, the global temperature rise could be brought down to c.2.6°C. 

During the COP, John Kerry made a statement raising doubts about whether even “clawing back” to the 1.5°C target was possible. Clawing back would imply cutting emissions by 42% by 2030 and 57% by 2035. The odds are indeed stacked against us, but a strong increase in private sector investments in mitigation and adaptation could keep our hopes alive. 

Global assets under management reached US$132tn in June 20244 (of which privately held assets account for roughly 10%5), which means that just 1% to 6% of global AuM would need to be channeled towards global climate action in order to meet the annual investment objectives highlighted by the IHLEG. Private capital, infrastructure and ring-fenced debt are asset classes where additionality can be maximized as well as social and environmental co-benefits.

The need for close links between public and private funding

In France, the enactment of the “loi industrie verte” in October 2024 is a good example of how private capital is being gathered to finance the climate transition. Energy-transition related, private equity investments are financed through the systematic allocation of a portion of life insurance or retirement savings assets. “Obligations de transition”6 will also be launched in France in January 2025. Small and medium sized enterprises will gain access to a new funding solution for their transformation or the development of energy transition solutions. While these frameworks maximize domestic outcomes, similar investment programs exist to fund high impact projects in developing countries. 

When and where public financing falls short, private financing sources should fill the gap. And while the scale and rate of delivery of climate finance are decisive in reaching climate targets, the main complexity is to channel the flows to maximize their additionality.

¹⁾Raising ambition and accelerating delivery of climate finance - Grantham Research Institute on climate change and the environment (lse.ac.uk)
²⁾25 Countries and the EU launch Call to Action for No New Coal in National Climate Plans - PPCA (poweringpastcoal.org)
³⁾Emissions Gap Report 2024 | UNEP - UN Environment Programme
⁴⁾Beyond the balance sheet: North American asset management 2024 | McKinsey
⁵⁾Global Private Markets Review 2024 | McKinsey
⁶⁾Qu’est-ce qu’une obligation transition ? | Ministère de l'Économie, des Finances et de l'Industrie et Ministère chargé du Budget et des Comptes publics (economie.gouv.fr)

France is currently facing a political crisis as rarely experienced under the 5th republic and an equally worrying economic situation. The latest Purchasing Managers’ Indices for France show a situation that is deteriorating further with little chance of seeing this negative trend reverse in the short term.

Since the announcement of the dissolution of the National Assembly last June, French assets have significantly underperformed their European counterparts :

• From 10 June to 26 November, the CAC 40 was down -8.3% while the Stoxx 600 was down only -2.3%.
• Over the same period, French debt has also been under pressure:
  • The spread between the OAT (10-year French sovereign debt) and the bund (German 10-year government bond yield) widened from 0.47% to 0.82%;
  • The spread between the Spanish 10-year government bond yield and the OAT tightened from 0.25% to -0.10%;
  • The spread between the Italian 10-year government bond yield and the OAT tightened from 0.84% to 0.44%.

So the questions we face today are: What are the possible scenarios and what are the potential impacts ?

We see two possible scenarios with multiple ramifications :

1. Either the efforts made on the budget are not enough to the RN's liking and the censure motion passes,
2. Or the Barnier government passes a more or less amended budget via Article 49.3 of the Constitution and survives a potential censure motion (with no doubt a National Assembly (RN) that would abstain from voting).

Before we consider these scenarios and the potential ramifications, it is useful to recall some data for France:

• Debt to GDP ratio: 112.7%
• Estimated 2024 budget deficit: -6.2%
• Estimated 2024 primary deficit: -4% (the worst in the euro area along with Slovakia; by way of comparison, Italy stands at -0.4%)
• Projected 2025 Budget Growth (derived from draft budget bill): +1.1%

Scenario 1:

Currently, we believe that there is a 50% probability that the Barnier government could fall. Investment banks seem a little more optimistic with an average probability of around 30%. In this scenario, it seems likely that the OAT vs 10-year Bund spread would initially rise to 95-100 basis points (bps) and that French equities would underperform other European indices by 2 to 3%.

The logical next step would be to activate article 47 of the Constitution with a newly appointed government implementing its policy (and therefore the budget) without a vote. It should be noted that this would only be possible if parliament fails to come to a decision. However, a parliament that rejects a text is in fact a parliament that has taken a decision, which would make this provision inapplicable. The next step is a debate among constitutionalists, which we are not, and which would open the door to very unstable times ahead (for more details: « On est vraiment dans l’inconnu » : le scénario d’une Assemblée incapable de voter le budget agite les constitutionnalistes - Public Sénat (publicsenat.fr)).

Uncertain times could lie ahead; probably negative for the growth outlook, with little chance of stabilization before July elections. In this context, rating agencies would logically be harsh with France and would most likely downgrade its rating.

Scenario 2:

In the 2ndh scenario, where the Barnier government would survive a motion of censure, there would inevitably be a general sense of relief and therefore a rebound in French assets. A return to around 70 bps on the spread of the OAT vs the 10-year Bund seems possible, as well as a slight outperformance of French equities, somewhere around of 1-2%. However, this relief is likely to be relatively short lived:

• First of all, because the survival of the Barnier government would be linked to cancellations of spending cuts, which would automatically raise 2025 budget deficit estimates (currently at -5% at best);
• Secondly, because these deficit calculations are based on a 1.1% growth rate assumption for 2025 which in our opinion is optimistic. Unfortunately, growth of around 0.6-0.7% seems more realistic in our opinion.
• And finally, because upcoming elections in July of 2025 will likely weigh on investors and their intention to increase investments in French assets.

Even if rating agencies were to give France time, it would probably only postpone the loss of the AA rating to later, when deficit targets are not met because of overly optimistic growth targets.

As you can see, we remain very cautious on French assets today. The challenges facing the French economy are dizzying: an ageing population, debt, a lack of productivity, and so on, not to mention the fact that these problems are present in most European economies and that the geopolitical situation is unstable to say the least.

Source of data: Bloomberg

This commentary is for information purposes only. The opinions expressed by the author are based on current market conditions and are subject to change without notice. These views may differ from those of other investment professionals. Issued by La Française Finance Services, registered office at 128 boulevard Raspail, 75006 Paris, France, which is regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, subsidiary of La Française. Crédit Mutuel Asset Management: 4, rue Gaillon 75002 Paris is a management company approved by the Autorité des marchés financiers under number GP 97,138. Société Anonyme with capital of €3871680, RCS Paris n° 388,555,021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, asset management holding company of Crédit Mutuel Alliance Fédérale.

Crystal Park features solid ESG (Environmental, Social and Governance) credentials with a BREEAM Excellent certification and the EcoJardin Label for its listed park, signifying the ecological gardening of the surrounding green spaces.

Antoine LE TREUT, Deputy Managing Director, in charge of La Française REM's Institutional Division for France, said: “This refinancing deal illustrates perfectly our ambitious and proactive asset management strategy which aims to optimize the value of our assets and to secure long-term cash flows through lease renewals. This operation also reflects the confidence of our financial partners in our approach. I would like to personally congratulate our asset management team, Xavier BARREYAT, Cédrick BECKER and Claudia REN for successfully managing this operation.”

For this transaction, La Française Real Estate Managers was advised by Jones Day on legal, Allez & Associés (notary office) and Eastdil on finance restructuring. Lenders were advised by Lacourte Raquin Tatar on legal and Allez & Associés (notary office). 

• COP16 clearly marks an intensification of efforts to protect nature and biodiversity
• Insufficient funding to meet biodiversity targets
• There is a gap between commitments made and actions actually taken
• In this context, it is highly likely that the 2030 targets will not be met

Ambitious Yet Vague: The 30x30 Target

A major focus of COP16 was the goal to protect 30% of global land and marine areas by 2030, a pledge established at COP15 in 2022. However, the successful execution of the 30x30 target remains challenging. Global ecosystems vary widely, and conserving such a large portion of land and ocean requires careful, region-specific approaches. The technical requirements—particularly in areas heavily affected by agriculture, infrastructure, or extractive industries—create difficulties in applying a onesize-fits-all model. Additionally, protecting land does not necessarily mean creating fully sustainable ecosystems. Critics argue that the 30x30 initiative could become a “greenwashing” exercise, with designated protected areas that might still face exploitation due to weak enforcement.

Just ahead of the summit in October, it was reported that 85% of nations were set to miss the deadline to release new NBSAPs (national biodiversity strategies and action plans), due to various challenges. This included 12 of the 17 “megadiverse countries”, which together are home to 70% of the world’s biodiversity. Brazil and Colombia said that the timeframe given to produce new NBSAPs was not long enough to properly consult all the relevant stakeholders and Indigenous groups; India referenced difficulties translating the targets to a local context; and the UK blamed multiple changes in power for the delay. By the end of the COP, only 44 out of 196 countries produced new NBSAPs while about 119 produced some form of national target/s. Furthermore, countries failed to reach an agreement on a “global review” of country progress at COP17 in 2026 and COP19 in 2028. They also did not clearly detail actions needed post reviews. No agreement on monitoring framework indicators was reached due to concerns over implementation without funding commitments.

Former 2020 Aichi targets were broadly missed due to delayed action by countries and a lack of quantitative monitoring. The lack of binding enforcement mechanisms and international oversight on protection standards could undermine the very purpose of the 30x30 target.

Financial Promises : A Persistent Gap

As with climate, financing requirements remain one of the most complex barriers to effective biodiversity action. While COP16 laid out a roadmap to mobilize financial resources, pledges from wealthier nations still fell short of the $200bn needed annually to meet global biodiversity targets. Pledges only amounted to USD 163mn at COP16. Many developing nations said that a lack of timely funding available from the Global Environment Facility (GEF), a major multilateral environmental fund, had prevented them from producing new NBSAPs.

COP16’s approach to financing biodiversity focused on international aid, private sector investments, and new financial instruments, such as biodiversity credits. These tools are innovative, but their impact will largely depend on the extent to which they are adopted globally. Furthermore, relying on private sector funding raises questions about accountability and priorities. Without clear guidelines and supervision, such financial mechanisms may serve the interests of private investors over those of vulnerable ecosystems and communities.

Indigenous Peoples’ Rights: Recognized but Not Fully Protected

One of the most progressive aspects of COP16 was its emphasis on Indigenous peoples’ rights. Indigenous communities play a crucial role in biodiversity conservation, given their longstanding and intimate connections to nature. As such, a permanent subsidiary body for Indigenous Peoples was decided to enable them to contribute directly to negotiations. While the acknowledgment of Indigenous contributions is an important step, it does not guarantee the protection of Indigenous peoples’ rights. Without enforceable measures, Indigenous communities could continue to face marginalization or exploitation by more powerful interests, including governments or corporations seeking access to resource-rich lands. COP16 highlights Indigenous communities as partners in conservation yet offers no binding agreements to protect their sovereignty and livelihoods.

• Not surprisingly, a 25-basis-point rate cut from 4.75-5% to 4.5-4.75%. This cut is already almost totally priced in by markets. 
• The outcome of the US Presidential election may be known but the Fed will likely remain cautious regarding the pace of future rate cuts.  
• Since the decision to cut rates by 50 bps in September, economic data reflects a resilient economy.
• The Fed should also stress the impact of recent hurricanes and strikes on the latest employment data (as it did after Katrina or Sandy).
• The Fed’s message should not be very different from September’s except for mention of the hurricanes.

In summary, the outcome of the Federal Reserve meeting is widely expected. Markets have already priced in the rate cut and remain focused on the results of the US Presidential election.

This commentary is provided for information purposes only. The opinions expressed by the La Française group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 4, rue Gaillon 75002 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.  
 

on 15 November 2024 at 16h00
at the Company's registered office at 128 Boulevard Raspail - 75006 

Paris, to consider and vote on the following agenda:

1.  The reading and approval of the report of the Board of Directors and the Statutory Auditor's report;
2.  The reading and approval of the merger agreement which provides for the absorption of CM-AM Obli Corpo* ISR by the LA FRANCAISE OBLIGATIONS CARBON IMPACT** sub-fund of the LA FRANCAISE FUND;
3.  Approval of the terms and conditions of the merger;
4.  Determination of the completion date of the merger and the valuation of the assets for the purpose of determining the exchange parities;
5.  A capital increase through the issue of new shares and fractions of new shares following the contributions resulting from the merger;
6.  Powers to be granted to the Board of Directors for the purpose, under the supervision of the Statutory Auditors, of completing the merger, valuing the net assets of the FUND and determining the exchange parities on the date set by the Extraordinary General Meeting;
7.  Powers to carry out formalities.
    

*This fund is not registered in Finland
**This subfund is not registered in Finland

In accordance with current legislation, shareholders are informed that all the documents provided for in Articles R 225-81 and R 225-83 of the French Commercial Code are available at the Company's registered office and will be sent free of charge to any shareholder who requests them.

Shareholders who meet the conditions set out in Article R 225-71 of the Commercial Code may ask the Board of Directors to add items or draft resolutions to the agenda. They must be sent by registered letter with acknowledgement of receipt to the registered office. In order to be considered, these requests must be received five days before the meeting and be accompanied by the text of the draft resolutions and a share certificate.
All shareholders, regardless of the number of shares they own, have the right to attend this meeting, to be represented by a shareholder, by their spouse or by the partner with whom they have entered into a civil partnership, or to vote by post in accordance with Articles L 225-106 and L 225-107 of the French Commercial Code.

The right of any shareholder to take part in the meeting or to be represented at the meeting is subject to the registration of his shares, either in his name or in the name of the intermediary registered on his behalf, at midnight (Paris time) two business days prior to the meeting.

If you wish to vote by post, you can obtain a voting form from the Company at: La Française - 128, boulevard Raspail – 75006 Paris. Requests for such forms must be sent by registered post with acknowledgement of receipt and must reach the Company at least six days before the date of the meeting.

Remote voting forms will only be processed if they reach the Company two days before the date of the Meeting, accompanied by a certificate issued by the custodian of these shares proving that they have been recorded in the register dated two days before the date of the Meeting.

If you vote by post, you will not have the option of attending the meeting in person or being represented by proxy

The present notice serves as notice of meeting, subject to no change being made to the agenda, following requests for the registration of draft resolutions submitted by shareholders.

Unless otherwise instructed, proxies and postal votes received for the Extraordinary General Meeting called for 4 November 2024 at 4 p.m. (the date for the first notice of the meeting) shall remain valid for the Extraordinary General Meeting called for 15 November 2024 at 4 p.m. and for all other successive General Meetings with the same agenda. 

The Chairman of the Board of Directors

For the third consecutive quarter, European commercial property investment volumes are rising, confirming that real estate markets have reached an inflexion point.

The exception is France, where cumulative investment volumes over the past twelve months fell again in the third quarter. In France, the impact of monetary policy easing was offset by uncertainty regarding the viability of the Barnier administration and the overwhelming size of French public debt. During the first nine months of the year, €10.1 bn were invested in commercial real estate in France, down 11% year-on-year.

Investors continued to diversify their portfolios, showing a clear preference for demographic-driven real estate (i.e., healthcare and managed residential real estate), hotels and logistics. Offices continues to fall, penalized by investors' “wait and see” attitude. In France, the decline was twice as sharp in the Grand Paris region as in the regions (-56% vs. -28% according to provisional data). The retail sector is becoming more attractive, driven by investor interest in staple stores and retail parks. Alternative assets remain attractive because of their defensive profile and size. Investors are interested in assets for which they do not need funding.

Varying recovery rate for each asset class

The sudden rise in risk free interest rates over the last two years led to a rise in real estate yields and therefore a price correction for all asset types. The extent of the adjustment varies however significantly depending on the asset segment. In Europe, yields on shopping centers and secondary offices increased by more than 200 basis points compared to their all-time lows. Over the same period, hotels, healthcare and managed residential increased by less than 100 basis points. During the first nine months of 2024, increases in real estate yields were more contained: 9 basis points on average for prime offices and 6 basis points for logistics. Some asset classes are even experiencing slight drops in yield year to date. Although these drops remain marginal, they confirm that real estate markets are tipping into a new cycle.

French office letting market, where supply is weighing on rents

With 412,000 m ² in transactions of the course of the third quarter, take-up in Ile-de-France amounted to 1.3 million m ² over the first nine months of the year, down by 9% year-on-year. Given uncertainty surrounding the French political situation, companies have put off their long-term real estate decisions. After a strong start to the year, large transactions slowed abruptly in the third quarter and show no sign of a turnaround in the fourth quarter. In the longer term, the shift towards hybrid work models, favoring more in-office work, could spur demand.
Market polarization continues. Central locations continued to be favored by users. For example, over the last nine months, 55% of office space take-up was in Paris intra Muros (inner Paris). Peripheral locations, on the other hand, struggled to attract new users while vacancy rates peaked. Although prime rents continued to rise in central locations, the predominant “wait and see” approach of users is putting a cap on rents overall. After several years of indexation, passing rents are above market value in certain areas, such as La Défense or the Northern bend. Lease renegotiations are common and often include incentives.

CM-AM Convictions Euro is a Eurozone equity fund that features:

•  A proven investment process with a 17-year track record , supported by in-house quantitative and qualitative research tools. 
• Conviction based asset management based on four key trends: innovation, sustainable economy, lifestyle and longevity. 
• A quality/growth bias: the fund management team focuses on quality companies that exhibit strong growth but can integrate more cyclical companies  according to market stages. 
• An all-cap strategy: the fund invests in small (capitalizations greater than €200 million), mid and large-caps in order to optimize the performance/risk ratio of the portfolio. As at 30/09/2024, the portfolio was 87% invested in large-caps, contributing to ensure the liquidity of the fund.
• A sustainable approach: the fund is classified Article 8 according to SFDR and integrates ESG criteria into various stages of the investment process.

The fund is consistently well ranked within its peer group as evidenced by its Morningstar ratings over various time periods . Past performance is not indicative of future performance.

Jean Louis DELHAY, CIO of Crédit Mutuel Asset Management and lead manager of the fund, commented: 

"The fund's appeal is based on active, conviction driven management that adapts to market conditions with a quality-oriented core portfolio and a selection of companies deemed capable of creating value over the long term. This approach has allowed us to navigate various market cycles while offering an attractive risk/reward profile to our investors.”

 Eliana de ABREU, CEO of Crédit Mutuel Asset Management, concluded: 

“We are very proud to have reached this symbolic milestone of €1 billion in assets under management which is a testament to the quality of the fund’s management. The growing interest of investors reflects the relevance of our fundamental and long-term approach.”

• Given the less favourable balance of risks in the eurozone, Governing Council members will cut key interest rates by 25 bps arriving at 3.25% for the deposit facility rate. 
• President Christine Lagarde will underline that the inflation target is symmetrical.
• She will be very confident about the sustainable return of inflation to the 2% target “in time” (i.e., in the second half of 2025 according to the ECB's September forecasts) but more concerned about economic activity in the eurozone and more specifically short-term activity. 
• President Lagarde will indicate that the ECB can lower its rates despite the high rate of services inflation (which remains around 4%) because the central bank is closely monitoring overall price dynamics and wage developments. 
• Christine Large will however repeat that interest rates are not on a linear downward trajectory.

In summary, we believe that there will be a rate cut in October: data and business surveys are deteriorating, and price dynamics confirm that inflation is likely to return to its target of 2% as expected. The implications for financial markets should be relatively limited. Indeed, the rate cut in October is widely expected by investors and they have even priced in a 25 bp rate cut in December. Moving forward, attention will be focused on the ECB staff’s growth and inflation projections which will be published in December and could potentially show inflation declining faster than expected in 2025 (compared with September forecasts).

This commentary is provided for information purposes only. The opinions expressed by the La Française group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 4, rue Gaillon 75002 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.

• What can we expect from the fall in interest rates?
• What are the investment opportunities?
• Short-term or long-term?
• Should we favour credit or debt?
   

Falling rates typically create a positive environment for credit markets and are likely to be a key driver of performance going forward. In 2022 and 2023, spread compression was the primary contributor to returns, supported by improved fundamentals and strong inflows into the asset class. By the end of September, EUR High Yield (HY) spreads closed at 342 bps (below the 10-year average of 404), while USD HY spreads closed at 303 bps (vs 439). (source: Bloomberg) A similar picture was seen in investment grade (IG)

For the rest of 2024 and into 2025, the main performance contributors will shift to carry and duration. Current yields of 5.7% for EUR HY and 5.5% for USD HY (net of hedging costs) are well above the 10-year average, making them attractive in the current risk environment. These yield levels provide a cushion against potential spread widening. In a falling rate scenario, bonds with longer duration will see an additional benefit to performance.

Finally, default rates in high yield are expected to remain stable due to resilient macro conditions and the fact that many companies have already refinanced their near-term debt maturities.

With a presence in ten countries, thereby ensuring local market proximity, La Française pursues an international development strategy. The group offers a range of listed and unlisted investment solutions that combine performance targets with sustainability objectives and reflect the shared values and commitments of Crédit Mutuel Alliance Fédérale.

To mark the beginning of this new chapter, La Française has redesigned its corporate logo.

I would like to acknowledge the commitment of our employees during the construction phase of this newly-formed La Française group. Together, we are prepared to rise to the occasion and do all in our power to offer our investors specialized conviction-based asset management, grounded on a sincere ESG investment strategy,"

said Guillaume Cadiou, CEO of Groupe La Française.

“ The multi-specialty architecture of our newly formed asset management business line and its alignment with our core values underline Crédit Mutuel Alliance Fédérale's desire to provide quality investment solutions and services to our customers, " added Éric Charpentier, CEO of Banque Fédérative du Crédit Mutuel and CIC.

" I am particularly proud to see our asset management division emerge. Its establishment, as well as the quality of its expertise, allows Crédit Mutuel Alliance Fédérale to strengthen its position as a major player in the asset management landscape, ” concluded Éric Petitgand, CEO of Crédit Mutuel Alliance Fédérale.

⁽¹⁾ Assets under management of the La Française group and its subsidiaries, as well as the share of assets under management of the activities of BLI, CIC Market Solutions, Dubly Transatlantique Gestion, distributed by La Française AM Finance Services.

• The Fed to reduce the federal funds rate by 0.50%, bringing the target range to 4.75%-5%. This reflects the FOMC's growing confidence that inflation is returning to the 2% target, despite August’s core CPI data which slightly exceeded expectations. We anticipate that the decision will not be unanimous.
   
• Fed Chair Jerome Powell will likely signal that the pace and magnitude of future rate cuts will depend on overall economic data and the balance of risks.
   
• Powell is expected to reiterate that risks to employment are increasing. However, he will emphasize that, despite some moderation, the U.S. labor market remains strong, with low levels of layoffs and an unemployment rate which is still favorable by historical standards.
   
• Regarding the Summary of Economic Projections (SEP), we do not expect significant changes to growth and inflation forecasts, though we do anticipate higher unemployment projections in both 2024 and 2025. Nevertheless, the FOMC is likely to remain divided on the future direction of monetary policy, with projections potentially suggesting 100 bps of cuts in 2024.

In summary, the U.S. Federal Reserve will join other central banks, such as those in Europe, in cutting interest rates, starting with a 50bps reduction in September. Chair Powell is unlikely to provide clear guidance on future meetings, as the FOMC adopts a meeting-by-meeting approach. We anticipate a more dovish tone in September due to the downside risks facing the labor market.

This commentary is provided for information purposes only. The opinions expressed by the La Française group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 4, rue Gaillon 75002 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.

• Governing Council (GC) members to reduce the deposit facility rate (DFR) by 25 bps to 3.50%.
• As announced in March 2024, starting September 18, the ECB will implement an adjustment to the width of the corridor of policy rates « to limit the potential upward pressure on money market rates and set incentives for banks to borrow liquidity in the ECB operations». The rate on the main refinancing operations (MRO) will be anchored at 15 bps above the deposit rate (at 3.65% with the expected 25 bps cut on the DFR), as opposed to 50 bps currently. The highest rate, on the marginal lending facility rate (MLF), will remain at 25 bps above that MRO (at 3.90%).
• President Christine Lagarde will again underline that the ECB will maintain a data-dependent and meeting-by-meeting approach for subsequent adjustments. Therefore, Mrs. Lagarde is not expected to share any forward guidance beyond this meeting.
• Regarding updated ECB macroeconomic projections, with downside risks to the growth outlook, we expect lower figures especially for 2024 and projections to predict that inflation will fall to the 2% target in the last quarter of 2025 unchanged. 

In summary, the ECB’s decision to cut rates in September should be driven by a weakening economic momentum in the Eurozone. Despite a continued rise in services prices, the ECB should keep confidence in the inflation path ahead (i.e., towards the 2% target by the end of 2025). We believe that risks are from the dovish side (lower European interest rates and Euro currency) considering the current economic momentum. Consequently, Christine Lagarde is likely to keep the door open to another potential cut in October. 

This commentary is provided for information purposes only. The opinions expressed by the La Française group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 4, rue Gaillon 75002 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.  

The latest US employment figures were quite disappointing and in August even induced a (short-lived) episode of panic in a market that in truth was sorely lacking in depth. Hence, we see no reason for the Fed o refrain from gradually reducing the restrictive nature of its monetary policy.

Are these generally disappointing figures from the summer indicative of an imminent recession? We think not. The eurozone is slowing down after a slight improvement in the 1st half of the year, but keeping its head above water thanks to the services sectors. The slowdown is also real in the United States, but the economy is nevertheless expected to maintain nominal growth of around 4-5% in the coming quarters, a pace one could only dream of in Europe. There are no significant updates to report from China at this time.. The health of the exporting machine allows them to hope for growth close to 5% this year.

Financial markets are anticipating a fairly aggressive cycle of rate cut cycle, particularly in the United States, with four rate cuts by the end of 2024, and eight in the following 12 months. We believe these expectations are overly ambitious given the state of the US economy. After all, there are still uncertainties about the future of inflation in the medium term, not to mention the potential consequences of the elections in the United States. The situation is obviously less true in the eurozone, where there are greater difficulties in the economic environment.

• The Federal Reserve to keep the interest rate unchanged with a target range of 5.25% to 5.50%, steady since July 2023.
• The Fed to continue to follow a data-dependent and meeting-by-meeting approach.
• Chair Powell to underline that the risks of monetary policy to the American economy are two-sided (between upside risk to inflation and downside risk to employment). 
• The Fed’s Powell should adopt an optimistic tone about the inflation outlook, especially given the core CPI for June which provides further proof that the disinflationary trajectory has resumed after price reacceleration at the start of the year and that there are signs of broad-based inflation deceleration.
• Concerning employment, Mr. Powell to indicate that the labor market, still strong, is back in balance compared to the pre-pandemic period.  He is likely to repeat that the FOMC is ready to act if the job market deteriorates “unexpectedly” (i.e., driven by layoffs).

In summary, the FOMC should signal that inflation figures since April and labor market normalization indicate that the U.S. economy is moving sustainably back to 2% inflation. Consequently, Jerome Powell is likely to set the table for future interest rate cuts, and maybe as early as September (which is already widely expected by financial markets), while underlining a data-dependent approach. We believe that the Fed will communicate more clearly on imminent monetary easing (if data warranted) at the upcoming Jackson Hole symposium in late August. 

This commentary is provided for information purposes only. The opinions expressed by the La Française group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 4, rue Gaillon 75002 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.  
 

• Governing Council (GC) members to maintain key interest rates; 3.75% for the deposit rate. Services inflation was sticky with an annual rate of 4.1% in June, which kept core inflation at 2.9%, and in addition, the labor market is strong. Therefore, the ECB will likely indicate that the bumpy path of the disinflation process toward 2% requires that decisions to cut policy rates be made carefully and gradually.
• President Christine Lagarde to repeat that monetary decisions will continue to be data dependent in order maintain maximum flexibility for future meetings. 
• She should confirm that further rate cuts look likely if incoming data confirm that euro zone inflation will move to the 2% target by the end of 2025. 

In summary, the July committee is likely to be a non-event. ECB President Christine Lagarde is not expected to provide any clear forward guidance as ECB macroeconomic projections will be reassessed in September. Therefore, this meeting should have a limited impact on financial markets.

This commentary is provided for information purposes only. The opinions expressed by the La Française group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 4, rue Gaillon 75002 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.  

Supported by thirty professionals, Antoine Le Treut will report to Philippe Depoux, CEO of La Française Real Estate Managers.

" I am particularly pleased to welcome Antoine Le Treut, with whom I have already had the opportunity to work at Gecina. He will bring to La Française REM his fine knowledge of the French real estate market and its actors, as well as his vast experience as an investor, seller and real estate asset manager. He will be responsible for developing the real estate activity in France for institutional investors. Over the course of his career, Antoine has closed over a hundred transactions across all asset classes, representing close to 16 billion euros," said Philippe Depoux, CEO of La Française REM. " In turn, David Rendall will focus entirely on international real estate business development, a priority for La Française REM. In addition to his role as Head of International Real Estate, David Rendall will expand his responsibilities to include Managing Director La Française REM UK, thereby succeeding Peter Balfour, recently retired.”

Antoine Le Treut, 42, Deputy Managing Director - Institutional Division - France

2023 Integrated Annual Reports (published in 2024) have validated the forecasts made by the European Banking Agency (EBA) in its EU-wide pilot exercise on climate risks conducted in 2021³ - GAR levels (turnover KPI⁴) would be exceedingly low. Indeed, while the average % of eligible assets reaches 36.5%, the average GAR (% of aligned assets) calculated by our team only stands at 2.5% (based on a sample of 24 FIs).

To manage stakeholders’ expectations, FIs have been actively communicating GAR’s limitations through various channels such as the European Banking Federation (EBF)⁵, their Integrated Annual Reports, etc. They have been specifically highlighting that the indicator is structurally low and misleading and that comparability is challenging as the indicator is heavily influenced by each FI’s business model (e.g., exposure to companies non-subject to Corporate Sustainability Reporting Directive (CSRD)). Additionally, accessing data supporting asset EUT alignment, especially in the retail segment, presents a real challenge.

Graph 1: Breakdown of total GAR assets (denominator) for a sample of 24 European banks (in %)

Source: 2023 Integrated Annual Reports (published in 2024)

Graph 1 shows several statistics illustrating FIs comments as, in average, 50.1% of the assets included in the denominator are excluded from the numerator significantly capping the GAR level, and 13.4% included in the numerator are not eligible to the EUT. We also note that, in average, 31.6% of the total assets are excluded from the GAR denominator⁶.

There is limited visibility on how the Commission will review and integrate FIs ’feedback and update GAR’s methodology. Also, according to an article published by Environmental Finance, such review is not likely to happen before 2025. However, in its guidance on ESG risks disclosures, the EBA has been already proposing a complementary (but comparable) indicator to address some of the GAR’s limitations: the ’Banking Book Taxonomy Alignment Ratio’ (BTAR)⁷ that should be disclosed by FIs soon.

We appreciate the comprehensive comments made by FIs regarding the need for stakeholders to be careful when interpreting the GAR. We also concur that there is substantial room for improvement in its design. However, we also recognize the enhanced transparency facilitated by the indicator and are of the opinion that the crash test is not really a complete failure.

First, the detailed elements provided by FIs on GAR’s calculation already help to overcome certain limitations. Despite the indicator structural constraints, readers have direct insights into eligible assets and aligned assets, thereby providing clarity on the portion of eligible assets aligning with the EU taxonomy (averaging at 6.5% based on our sample). While this quick recalculation is far from solving all limitations, it addresses partially the lack of consistency between the numerator and the denominator, and the comparability challenge. It also enables to draw the following conclusion – alignment levels remain low and, beyond GAR’s design limitations, FIs still need to actively work on their contribution to the EU environmental objectives. 

Then, the granularity proposed by the GAR disclosure template facilitates the identification of low-hanging fruits and potential engagement topics with FIs for sustainable investors. One significant opportunity lies in implementing measures to actively address the ’mortgage’ portfolio, as it constitutes most assets eligible under the EUT but still has a very limited alignment with it. Indeed, while loans granted to households (mostly composed of mortgages⁸) represent, in average, 88.8% of the EUT eligible assets, a very limited portion of those eligible assets are aligned with the EUT (usually less than 5%). Interestingly, the assets deemed ‘most eligible’ (in terms of volume), are also the most impacted by the EUT usability challenge, primarily due to data scarcity in the retail segment (even if FIs are not required to meet minimum social safeguards for mortgages ), but also due to the still relatively low energy efficiency in European buildings (compared to stringent EUT criteria). Some FIs even indicate that not a single mortgage in their portfolio aligns with the EUT. Others express a slightly more optimistic outlook, reporting a relatively high level of alignment (with alignment figures around 20%), often coupled with the highest GAR levels. FIs with higher GARs attribute this to the relatively higher energy efficiency of buildings in their jurisdictions (supporting the contribution to the Climate Change Mitigation EUT objective). They also provide insights into the processes employed to conduct internal physical risks assessments (supporting the alignment with the Climate Change Adaptation Do Not Significantly Harm criteria⁹). However, readers should exercise caution as higher alignment figures may not necessarily reflect better practices but could simply result from ‘’different interpretations on how certain Taxonomy criteria must apply’’, as noted by the EBF. 

This might be another important lesson learned during this crash test - the GAR calculation has prompted FIs to realize how important the EUT usability challenge was. There is now a need for stakeholders to identify, evaluate and propose different approaches to foster the emergence of best practices on how to support and disclose alignment, and how to support their clients (mainly corporates and individuals) to get closer to the EUT standard. Initiatives have already started, with the EBA proposing, for example, a ‘’simplified approach’’ (using proxies) that could be applied to retail clients and facilitate the EUT alignment exercise. Also, several measures are already proposed by FIs or regulators to orientate households’ choices toward more energy efficient solutions (e.g., green mortgages with lower interest rates to support demand, energy efficiency advisory services). Considering the low level of alignment, those actions still need to get a better outreach to achieve the EU Fit for 55 objectives¹⁰.

It is worth noting that overcoming these usability challenges will be beneficial in the GAR context but also enhance FIs' capacity to access the European Green Bond market. Indeed, the voluntary European Green Bond Standard (EU GBS) will require issuers to allocate most of proceeds to assets aligned with the EUT. Facilitating FIs access to the European Green Bond market can also support the success of this (for now) voluntary scheme as financial corporates represent a material share of labelled bonds issuers. 
After this crash test, the GAR is likely to stay under the spotlight and may see its credibility diminished (at least, considering its current version). Nevertheless, having extensively elucidated its limitations and subjected it to real-world testing, stakeholders (e.g., FIs, regulators) are now conscious of the challenges encountered and should actively work to address those. This will be crucial not only for reporting purposes but also for ensuring the success of the EU sustainable finance framework.

Armand SATCHIAN
ESG Analyst
La Française Asset Management
 

¹The eligibility version represents the percentage of assets eligible to the EU taxonomy (eligible assets/total GAR assets). Taxonomy eligibility indicates if an economic activity is in the scope of the Taxonomy.

²European Commission, COMMISSION DELEGATED REGULATION (EU) 2021/2178 of 6 July 2021, 10 December 2021, Publications Office (europa.eu).

³EBA, EBA publishes results of EU-wide pilot exercise on climate risk, 21 May 2021, EBA publishes results of EU-wide pilot exercise on climate risk | European Banking Authority (europa.eu).

⁴There are two versions of the GAR KPI - a turnover version and a CAPEX version. While the turnover version considers the proportion of Taxonomy-aligned revenues of the respective counterpart, the CAPEX one is based on the proportion % of the proportion of Taxonomy-aligned CAPEX of the respective counterpart.

⁵EBF, Green Asset Ratio cannot be to sustainability what CET is to capital, January 2024, Green-Asset-Ratio-January-2024-002-2.pdf (ebf.eu) 

⁶Assets consistently removed from the GAR calculation (not even in the denominator) are sovereigns’ assets, central bank exposures, supranational issuers and the trading portfolio.

⁷EBA, Final draft implementing technical standards on prudential disclosures on ESG risks in accordance with Article 449a CRR, EBA draft ITS on Pillar 3 disclosures on ESG risks.pdf (europa.eu) 

⁸Platform on Sustainable Finance, Final Report on Minimum Safeguards, October 2022, Final Report on Minimum Safeguards (europa.eu) P. 54 ‘’ Financial institutions carrying out this activity would have to meet MS in order to be able to count these activities as taxonomy-aligned This would not be required, for example, for mortgages where the underlying activity is considered eligible (i.e. activities 7.1, 7.2 and 7.7) and whose descriptions do not include the term ‘financing’.

⁹Climate Change Adaptation DNSH is the only relevant DNSH criteria for mortgages.

¹⁰ The Fit for 55 refers to the EU's target of reducing net greenhouse gas emissions by at least 55% by 2030.

source : 

1. Plastics (europa.eu)
2. WWF-Impacts_of_plastic_pollution_in_the_ocean_on_marine_species__biodiversity_and_ecosystems.pdf
3. Plastic pollution in the ocean: data, facts, consequences (unesco.org)
4. Plastic Pollution Facts | Plastic Pollution Coalition
5. ZERODRAFT.pdf (unep.org)
6. Business Coalition for a Global Plastics Treaty (businessforplasticstreaty.org) 
7. Global Plastic Alternative Packaging Market Expected to (globenewswire.com)
8. Plastic Waste Makers Index - Minderoo Foundation
9. BIOPLASTICS MARKET DEVELOPMENT UPDATE 2023 – European Bioplastics e.V. (european-bioplastics.org)
10. Reusing 10% Will Stop Almost Half of Plastic Waste From Entering the Ocean > Press releases | World Economic Forum (weforum.org)
11. Earth Day: The Official Site | EARTHDAY.ORG

This commentary is provided for informational and educational purposes only. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, 326 817 467 R.C.S. Paris, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management (314 024 019 R.C.S. Paris; 128 bld Raspail, 75006 Paris) was approved by the AMF under no. GP97076 on 1 July 1997.

Interview with Yingwei LIN, ESG analyst, to mark World Health Day.

As an engaged player in the Long-term Investors in People's Health (LIPH) initiative, what are your goals ? Why is healthcare a major issue for La Française and why did you choose LIPH ?  

Yingwei LIN: There are several reasons for our engagement. That said, for La Française, the overriding and key reason is to improve public health and lay the foundations for concrete and significant change on a major social issue.

In 2023, the social theme accounted for 44% of our collective and individual engagement, an increase on the 2022 figure. From 2022 onwards, we widened our scope of action on health-related issues from various angles to address broader topics than just human capital alone.

While the well-being of citizens is essential to contributing to long-term social and economic prosperity, it also helps to reduce public and private health-related spending.

Moreover, even though it is a basic right for everyone, it is under threat. Health is not limited to physical, mental and social well-being, but goes beyond the sole challenge of disease prevention or equitable access to care, for example. Social determinants¹ of health in particular are all factors that can have a significant impact on a person’s state of health.

Our role is therefore to act collectively to bring about effective and lasting responses, but also to limit the cost of inaction. Through the LIPH programme and the Healthy Markets initiative, we are collaborating with ShareAction²and a coalition of investors representing $5.8 trillion to address these various challenges. In particular, we invest in three corporate public health pillars: 

• Staff health: to promote a healthy working environment and conditions
• Consumer health: to encourage healthier food and drink choices and make them more accessible to everyone.  
• Community health: to limit pollution and other side effects of company activities on human health.

In addition, we are engaged with LIPH because the programme contributes to several Sustainable Development Goals (SDGs), including SDG 3.4, which aims to combat non-communicable diseases, and SDG 2.2, which aims to end all forms of malnutrition.

Finally, every year on 7 April, the anniversary of the creation of the WHO in 1948, a theme is selected to shine a light on a major public health issue. This year, “My Health, My Right”³was chosen to highlight the notion that benefiting from conditions conducive to good health is a fundamental human right. Everyone has the right to access health services, as well as safe drinking water, clean air, good food, decent working and environmental conditions. 

The 2024 "My Health, My Right" initiative fully reflects our engagement within LIPH, demonstrating that our actions aim to address the most concrete and urgent health problems.

How are you doing within the LIPH programme? What are your missions?  Have your actions resulted in progress to date? 

Y.L.: La Française joined the LIPH programme in the third quarter of 2022, and we are one of the most active signatories.

We initiated our engagement to the "consumer health" pillar in order to address malnutrition by targeting global food manufacturers, UK retailers and the out-of-home food industry. Urbanisation goes hand-in-hand with a significant increase in the consumption of processed and ready-to-consume foods as well as many products which are high in calories, sugar or salt, which leads to increased rates of overweight and obesity in urban, peri-urban and rural areas.⁴In 2022, one in eight people worldwide were obese, and nearly 43% of adults and close to 20% of children and adolescents were overweight⁵.  These two factors are major risks for many non-communicable diseases (cardiovascular diseases, diabetes, cancer, neurological disorders, chronic respiratory diseases, digestive disorders) causing approximately 5 million deaths in 2019.

Together with a coalition of investors, we have co-signed letters to 12 of the world’s largest food manufacturers⁶. Our primary objective is to increase the supply of "healthy" products on the market by calling upon manufacturers to set targets to increase the proportion of sales of "healthier" products in their overall turnover, according to recognised standards that define foods qualified as healthy in terms of public health. Finally, we want this figure to be published every year.

In 2023, we carried out several initiatives specifically with Nestlé, as a global leader in the agri-food industry. During our numerous meetings, we explained the importance for the company to commit to such an approach and to become a model in its sector by strengthening its social responsibility and seizing the economic opportunities that arise from it. As a result of our regular dialogue, we obtained a first positive step from Nestlé, which was nevertheless insufficient in view of the ambition of the initiative.

Consequently, we persisted with our engagement by co-signing a public letter to Nestlé’s CEO, along with statements and quotes from the press, and launched a shareholder resolution against Nestlé to be voted on at the 2024 AGM. This collective resolution has been widely reported in the media⁷ so that as many people as possible are informed and can take individual action.

What are your targets for 2024?

Y.L.: We will pursue our existing engagement and think about how to maximise our impact. The dialogues we have with companies and the collaborations we have initiated with various organisations and investors allow us to better understand these challenges and identify best market practices.

As an investor, we are aware of our responsibility to our clients, employees, other stakeholders and civil society. We will therefore strive to act individually and collectively to monitor, raise awareness and encourage the companies in which we invest to improve their sustainability performance.  

We will also strengthen our engagement by continuing our joint work on the three pillars and, more specifically, through programmes on mental health in the workforce and the community. 

On the consumer health pillar, as stated above, we will table a resolution at the Nestlé General Meeting on 18 April with a group of five investors with a combined $1.68 trillion in assets under management, including the UK’s largest asset manager – Legal and General Investment Management (LGIM) – to follow up on our 2023 actions⁸.

Following our campaign to increase pressure on Nestlé, we also intend to turn our attention to Unilever with the same level of ambition. We have already held a meeting in 2024 and are currently waiting for a response from Unilever this month, before adapting our equity strategy. 

Finally, we will remain open to new areas of engagement that could complement our social theme and allow us to partner with other investors in order to share ideas and best practices.

Disclaimer: This commentary is provided for information and educational purposes only. The opinions expressed by La Française Group are based on the current market situation and are subject to change without notice. These opinions may differ from those of other investment professionals.

¹ According to the WHO definition, determinants of health are “personal, social, economic and environmental factors that determine the health status of individuals or populations": income, education, employment, social contexts, public policies, for example.
²  ShareAction is a responsible investment NGO that strives to set the highest standards for responsible investment. ShareAction’s “Long-term Investors in People’s Health” (LIPH) initiative supports investors to consider population health – and the factors that influence it – within their investment decision-making, their voting and their company engagement practices. https://shareaction.org/about-us/who-we-are-2
³ According to the WHO, at least 140 countries – the UN recognises 195 countries in the world – identify health as a fundamental human right in their constitution. Yet 4.5 billion people, more than half of the world’s population, were not fully covered by essential health services in 2021. https://www.who.int/campaigns/world-health-day/2024 
⁴ Urbanization and Obesity | Obesity Prevention Source | Harvard T.H. Chan School of Public Health
⁵ Obesity and overweight (who.int)
⁶ AG Barr, Britvic, Coca-Cola, Danone, General Mills, Kellogg’s, Kraft Heinz, Mondelez, Nestlé, PepsiCo, Premier Foods, Suntory Beverage & Food
⁷ Nestlé shareholders call on food giant to reduce reliance on unhealthy products I Financial Times Nestlé sous la pression de ses actionnaires pour limiter ses ventes de « malbouffe » I Les Echos Nestle Faces Investor Challenge Over Healthy Food Targets I Bloomberg https://www.independent.co.uk/business/shareholder-activists-call-on-nestle-to-tackle-reliance-on-unhealthy-food-sales-b2512322.html https://www.esginvestor.net/investors-call-out-nestle-on-unhealthy-products/ https://www.nutritioninsight.com/news/shareholders-challenge-nestle-to-lead-market-with-healthier-offerings.html https://www.nutritioninsight.com/news/shareholders-challenge-nestle-to-lead-market-with-healthier-offerings.html https://www.just-food.com/news/nestle-faces-shareholder-resolution-over-health-credentials/?cf-view
⁸ Shareholders file health resolution at Nestlé: https://shareaction.org/news/shareholders-file-health-resolution-at-nestl%C3%A9 Legal and General Investment Management (LGIM), Candriam, La Francaise Asset Management, Coöperatie VGZ et Guys and St Thomas' Foundation.

• The European Central Bank (ECB) to again maintain its key interest rates at 4.0% for the deposit rate, 4.5% for the Refi rate and 4.75% for the marginal lending facility.
• President Christine Lagarde to pre-announce that the ECB will cut interest rates in June, probably by 25 basis points, given its greater confidence in reaching the 2% inflation target.
• Mrs. Lagarde to repeat that monetary decisions will remain data-dependent and meeting-by-meeting. Consequently, we do not believe she will provide any guidance on how the ECB will cut interest rates after the first move.

In summary, we do not expect any surprises. Indeed, there is a large consensus among ECB members that June is a key date for the first rate cut. We believe the GC will likely proceed cautiously with easing, and the pace of easing will be entirely data dependent. Consequently, this meeting should have a limited impact on financial markets, but it will probably push European interest rates and the euro currency lower as the first cut is finally coming after the unprecedented scale of interest rate hikes by 450 basis points in total.

This commentary is provided for informational and educational purposes only. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, 326 817 467 R.C.S. Paris, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management (314 024 019 R.C.S. Paris; 128 bld Raspail, 75006 Paris) was approved by the AMF under no. GP97076 on 1 July 1997.

Please find below what we expect:

• The target range for the Fed’s benchmark rate to remain unchanged at between 5.25% to 5.50%, the last interest rate increase came in July 2023.
• Fed Chair Powell to confirm that interest rates should move lower later this year, eventually in the summer, if inflation continues to ease as the Fed expects. Jerome Powell will underline that the pace of cuts will be data dependent.
• The Federal Reserve to continue its quantitative tightening (QT) program as planned (at $95bn/month) as it deems that excess liquidity is still comfortable overall. We do not expect the FOMC to indicate when the Federal reserve will start the slowdown of its balance sheet runoff. Consistent with influential Fed official Christopher Waller ‘s last comments, Chair Powell will underline that balance sheet policy will be independent of interest rates decisions and a reset of the balance sheet towards shorter-term Treasury bills. 
• New economic projections should evolve as follows : 
  • Growth will be revised significantly upwards in 2024, from 1.4% to 2% but projections will remain unchanged in 2025 and 2026 at 1.8% and 1.9% respectively.
  • Projections for both headline and core PCE (personal consumption expenditures) inflation will remain broadly unchanged from 2024 to 2026 relative to December 2023 projections.
• Median interest rate projections at the end of 2024, 2025 and 2026 should remain unchanged, but in the longer run, the views of some FOMC members may exceed 2.5%. 

In summary, the Fed should remain cautious. Future changes in monetary policy stance (timing and sizing) should be data dependent. The Fed is biding its time, especially after recent higher-than-expected inflation data. During the press conference, Fed Chair Jerome Powell will likely repeat that more evidence is needed to confirm that inflation is slowing back to the 2% target. As during his report to Congress, Jerome Powell might reference the healthy economy and that interest rate cuts may not be too far off. Consequently, the March FOMC is likely to push U.S. interest rates slightly lower and US stocks higher.

This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management (314 024 019 R.C.S. Paris ; 128 bld Raspail, 75006 Paris) was approved by the AMF under no. GP97076 on 1 July 1997.

In 2024, the investment market will likely be driven by parties that are forced to sell assets due to new financing conditions or that are unable to inject sufficient capital to meet the latest environmental and/or technical standards. These forced sales will provide opportunities for equity-rich investors.

Offices are inevitably hit by the new emphasis on diversification

Following the sharp rise in key interest rates and evolving financing conditions, European commercial real estate investment volumes fell by 47% year on year to €131 billion. Offices, an asset class marked by the trend towards flexible and home working, posted the largest decline. To a lesser extent, the logistics sector, hit by high asset valuations, also suffered from investors' wait and see attitude.

However, the decrease in investments did not hit all asset classes homogeneously. Indeed, investors have stepped up their diversification strategies. As a result, alternative assets accounted for 27% of investments in 2023 (a relative increase compared to 2022).

Geographically, the UK and Spain held up better, posting losses of around 35%, while Germany, the Nordics and the BeNeLux suffered the sharpest declines, between 55 and 60% year on year. France and Italy are in line with the European average, falling by around 45%. In general, the large deal segment suffered the most from tightening financing conditions.

Prime office yields keeping pace with rate movements

After a year of rising yields, real estate valuations may have found a ‘sweet spot ', helping to kick start activity in real estate markets. However, with few deals, especially large deals, yields remain difficult to estimate. At the end of 2023, prime office yields of European capitals ranged between 4% and 5.25%. Germany and the BeNeLux saw the most significant rate rises in 2023. The prospect of looser financial conditions and lower volatility bodes well for a gradual recovery in the investment market in 2024. It should be noted that the environmental challenge, at the heart of real estate strategies, requires significant brown discounts for the most energy intensive assets.

Widening spread between take-up and supply

While office supply continued to increase in 2023, up 14% year on year, the fourth quarter saw an overall stabilization, even a slight increase, in demand for central locations, such as Amsterdam and Brussels. 

European markets are on divergent trajectories, highlighting the importance of geographic diversification of real estate portfolios. Over the year, supply increased by more than 50% in Berlin, Munich and Dublin, but fell in Brussels and Milan, as well as in many central locations such as the central business district of Paris or Madrid. Future supply, constrained by higher construction costs and tighter financing conditions, should, however, remain limited.

Vacancy rates: the gap between prime and secondary assets is widening 

Increasing user expectations of environmental performance and quality of life at work are widening the gap between prime and secondary assets. Rents for next generation assets continue to rise, averaging +4.4% in the euro area in 2023, while rents for secondary assets, particularly in the periphery, are decreasing; a trend that is reinforced by incentive measures.

While vacancy is growing across Europe, it is rising primarily in peripheral locations and is still largely made up of secondary assets, highlighting the mismatch between the existing stock and user demands. Central locations continue to suffer from a lack of supply, especially for new or restructured offices. This is particularly the case in the central business district of Munich, Paris and Amsterdam, which have low vacancy rates of 0.7%, 2.5% and 3.1% respectively.

By Virginia Wallut, Director of Real Estate Research and Sustainable Investment, La Française Real Estate Managers.

Sources: CBRE, MBE, La Française REM Research

The information contained in this document is believed to be accurate at the time of publication and reflects the current views of La Française Real Estate Managers. The content of this document has no contractual value and may differ from the opinions of other management professionals. Published by La Française AM FINANCE Services, whose registered office is located at 128, boulevard Raspail, 75006 Paris, 326.817.467 R.C.S. Paris France and authorised by the ACPR ("Autorité de contrôle prudentiel et de résolution") under no. 18673 as an investment service provider. The portfolio management company La Française Real Estate Managers (399,922,699 R.C.S. Paris/128 Bld Raspail, 75006 Paris) received AMF accreditation No. GP-07000038 on 26 June 2007 and AIFM accreditation under Directive 2011/61/EU, dated 24/06/2014 (www.amf-france.org) 
 

Governments play a crucial role in advancing gender equality in the labour market; policymakers can develop and implement policies and regulations that actively promote women in the workplace. Despite progress, the challenge remains significant, and more needs to be done, especially in the context of sluggish growth and retreating inflation, be it slowly. Countries like Sweden and Iceland have made significant strides in promoting gender equality in the workforce. In Sweden, policies such as generous parental leave, quotas for female representation on corporate boards and the prioritization of affordable childcare have contributed to its reputation as a leader in gender equality. Similarly, Iceland became the first country in the world to enforce equal pay for equal work by law in 2018. 

For companies, acknowledging the dual role that women play within the workforce and outside, typically as caregivers, is essential. By embracing diversity, promoting inclusivity and strategically leveraging women’s skills and talents, businesses can become more resilient and successful. Implementing policies that support work-life balance, such as childcare initiatives and flexible work-from-home options, ensures that women can fully participate and thrive in the workforce. According to the World Economic Forum, the increasing presence of women in the paid labour force since 1970 has contributed $2 trillion to the broader U.S. economy². Fully integrating women into the labour market would substantially boost economic output, notably in Europe, where the toll of the gender employment gap is estimated at €370 billion per year³.

Ultimately, fostering an environment where women can excel, contributes to the overall success and sustainability of organisations in today’s dynamic economic environment. In fact, companies with more women in leadership positions tend to have higher returns on equity, higher earnings growth and better stock price performance^4&5. 

¹ Global Gender Gap Report 2023, World Economic Forum, June 2023

² Gender pay inequality, Consequences for women, families and the Economy, US Congress joint economic committee, April 2016, p.11

³ The gender employment gap: Challenges and solutions, Eurofund, October 2016

⁴ Is gender diversity profitable? Evidence from a global survey, Peterson Institute for International Economics, February 2016

⁵ Delivering growth through diversity in the workplace, McKinsey & Company, January 2018

This commentary is provided for informational and educational purposes only. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, 326 817 467 R.C.S. Paris, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management (314 024 019 R.C.S. Paris; 128 bld Raspail, 75006 Paris) was approved by the AMF under no. GP97076 on 1 July 1997.

By Claudia Ravat, ESG Analyst, La Française AM.

It is widely expected that the Governing Council (GC) will keep its policy rates on hold at the March meeting for the third consecutive meeting. Inflation has not receded sufficiently at this stage. The European central bank (ECB) will release their new quarterly macro-economic projections. We expect them to show lower headline inflation, especially in 2024 given the falling of gas prices, to an all-time low since 2021. However, we do not expect material change in core inflation (which excludes energy and food) over the projected time horizon due to the tight labor market and robust wage growth. Core inflation will probably stand above the 2% ECB target until 2026. In this context, we believe the GC will not want to cut interest rates too quickly, despite debate as to when to start. 

Please find below what we expect : 

• The European Central Bank (ECB) to maintain its key interest rates at 4.0% for the deposit rate, 4.5% for the Refi rate and 4.75% for the marginal lending facility. 
• ECB President Lagarde to reiterate that even though the latest inflation data are encouraging, ECB officials need to be more confident that the disinflation process is sustainable. Therefore, Christine Lagarde will reaffirm that it is still too early to cut interest rates. 
• The ECB President to indicate that the timing of the ECB’s first cut will remain data dependent, and especially dependent on wage growth data. 
• Compared to December 2023 projections, we expect that Euro GDP growth for 2024 will be revised slightly down, from 0.8% to 0.7%, and will remain broadly unchanged for the next two years at around 1.5 % per year. In terms of prices, we expect that the headline HICP (Harmonised Index of Consumer Prices) will be projected lower this year, down by 0.3 percentage points (pp) to 2.4% and to be quite similar to the December forecasts for 2025 and 2026, respectively at 2.0% (-0.10 pp downgrade from December) and 1.9% (unchanged). In parallel, core inflation will decline over the projection period, from 2.6% in 2024 (-0.10 pp compared to December 2023 projections) to 2.2% in 2025 (-0.10 pp compared to December 2023 projections) and then converge to the 2% objective with 2.1% in 2026 (unchanged).

To conclude, we believe that the ECB will try to buy more time for future decision-making regarding interest rate cuts. 

During the press conference, Christine Lagarde will probably keep a balanced tone: she will reaffirm the ECB’s strong commitment to bring inflation back towards its 2% target. Overall, the economy is more resilient, and inflation is receding more slowly than originally anticipated some weeks ago. Hence, a change in monetary policy stance is less pressing. The ECB still has time and can wait until June. All in all, we expect little impact on financial markets.  

This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management (314 024 019 R.C.S. Paris ; 128 bld Raspail, 75006 Paris) was approved by the AMF under no.  GP97076 on 1 July 1997. 

Around the globe, unforeseen climate emergencies in 2023 – like torrential rains in Southeast Asia and droughts in Africa - have taken thousands of lives, caused billions in infrastructure and economic damage and have displaced vulnerable populations.  During the wrap up of COP28, the United Nations (UN) issued an appeal for $46.4bn for 2024, in order to bring aid to 181m people worldwide, suffering from famine and disease or subject to mass displacement, stemming from conflicts, climate emergencies and collapsing economies. People, planet and profit – all three P’s have been put under threat in this age of polycrisis.

Investing based on systems – a case for transformative investing

Big problems require strong actions. To address the polycrisis that we are experiencing, society needs to invest in transformative change across multiple planetary, societal and economic ecosystems. Systems-based investing or transformative investing is a school of investing that is theoretically guided by a systemic theory of change  and that applies a comprehensive systems intervention approach. 

With results close to or above 90%, La Française is demonstrating its ability to integrate ESG criteria into its management processes across its various asset classes, as well as its determination to take action through its commitment policy. 

In the space of two years, La Française has improved by more than 10 points to reach almost 90% of the maximum score for real estate asset classes and almost 95% of the maximum score for corporate fixed income products. Active fundamental asset management of listed equity products remains broadly stable at 86% of the maximum score. 

Finally, it should be noted that Policy Governance and Strategy, and Confidence building measures modules have each received the maximum score of 5 stars.

Laurent Jacquier Laforge, Head of Sustainable Investment at the La Française Group:

"These results are a clear approval and encourage us to continue our efforts to become an active and influential player and to report on our impact to our stakeholders. The merger with Crédit Mutuel Alliance Fédérale to form an asset management division gives us the opportunity to deploy an ESG strategy with broader coverage in terms of the size of assets under management and the diversity of asset classes covered".

Laurent JACQUIER-LAFORGE, Global Head of Sustainable Investing Groupe La Française

The La Française Group signed the Principles for Responsible Investment (PRI)¹  in October 2010 to strengthen its engagement in terms of sustainable finance and support the adoption of ESG criteria in investment. This approach underlines the importance the management company attaches to long-term, sustainable growth, shared value creation and greater transparency.
It is therefore committed to respecting the six principles established by the United Nations with regard to asset management: 

• Integrate ESG issues into its investment analysis and decision-making processes.
• Integrate ESG issues into its shareholder policies and practices.
• Seek appropriate disclosure on ESG issues by the entities in which La Française invests. 
• Promote the acceptance and implementation of the PRIs within the investment industry.
• Work in partnership with financial players who are committed to respecting the PRIs to improve their effectiveness.
• Report on activities and progress towards implementing the PRIs.

You can find our evaluation and transparency reports on our publications page on our website here.

¹ The Principles for Responsible Investment (PRI) were launched by the United Nations in 2006. The PRI is an initiative created in partnership with UNEPFI (United Nations Environment Programme Finance Initiative) and the United Nations Global Compact.

ESRS characteristics : 

The final version of ESRS is materiality-centered, giving companies flexibility in defining the topics that are relevant to their activities. CSRD is the first regulation to require double materiality assessments from firms. As per the double materiality principle, companies are expected to report, across their entire value chain, on how sustainability issues affect their business activities AND on how their business activities affect the environment and those around them. Limited assurance is required on the reported sustainability information. However, the European Commission is considering extending this to reasonable assurance in the future to ensure more reliable information.

Rules under pressure in EU and beyond

Further delays in finalizing the CSRD are expected due to lobbying and political interference. In 2022, four associations, including the American Chamber of Commerce to the EU, wrote an open letter calling for greater alignment between the ESRS and IFRS Sustainability Disclosure Standards (IFRS SDS), and to give non-EU companies an option to use other national/international standards under the CSRD . The IFRS SDS are developed by the International Sustainability Standards Board (ISSB) and are also known as ISSB standards. 

According to the EC, EFRAG and ISSB worked jointly to enhance the compatibility of their sustainability reporting standards. However, there are still significant differences between the two. The main one being that of materiality - ISSB standards are made for investors and focus mainly on financial materiality, whereas the ESRS addresses all prominent stakeholders and focusses on wider topics, such as society, workforce and environment. The ISSB’s chair has been vocal about the board’s intention to not adopt the double materiality principle . This structural divide makes the CSRD’s broader implementation even more challenging. Even though ISSB Standards represent less reporting burden for firms and have inspired commitment from c.60 jurisdictions, we believe double materiality is more meaningful to companies and investors when addressing sustainability topics. In November 2023, the EC announced a 2-year delay (until 2026) in the adoption of requirements for non-EU companies. For companies that opt to report under ISSB standards now, there will be reluctance to switch to ESRS in future. 

There is also a threat of political interference blocking the implementation of CSRD. In October 2023, 42% of European Parliament members voted in favor of a resolution to block the adoption of ESRS  and called for limitations on it; claiming that it puts too much burden and complexity on EU firms  and could affect their competitiveness. The European Parliament election is scheduled for 2024, and its outcome will affect the EU's sustainability reporting ecosystem. The results of the ongoing SFDR consultation could also substantially change the CSRD rules as both regulations are part of the EU Green Deal.

Everchanging standards, companies need more visibility

There is a lot of uncertainty for companies as the rules are still a work in progress. In October 2023, the EC increased the size threshold for larger undertakings and small and medium-sized companies (SMEs) subject to CSRD by 25% . European officials stated that the measure had been taken to ensure the competitiveness of EU companies . Potentially more modifications are yet to come. Furthermore, there is a staggered implementation timeline for the CSRD. As shown in Figure 1, the implementation is progressive depending on the company's size. Companies already subject to the NFRD must report across their entire value chain starting 2024. However, smaller companies or non-EU companies with a significant presence in the EU will have more time to adopt the ESRS. 
 

Initially [...]

The former office building was refurbished in 2023 to a high standard, with good ESG fundamentals, to provide a three-storey (ground level and two upper levels) primary care facility in the state-of-the-art, sustainable and pedestrian-friendly mixed-use development. Refurbishments include the installation of a new air conditioning system, LED lighting, upgraded lifts and a new entrance lobby. The building, which will develop 25,361 sq. ft of surface area, provides bright and flexible space that will provide a range of medical treatment spaces.  The property caters to soft mobility solutions with the provision of ample bike racks and ten EV charging stations. To the rear of the property is a lake and wilderness area, with meeting pods that benefit all occupiers of the estate. At completion, the property is expected to have a Building Energy rating Certificate of B1.

The property is fully let to Laya Healthcare Limited on a 25-year lease. Laya Healthcare is the second largest provider of health insurance in Ireland and operates a number of walk-in urgent Care Clinics across Ireland. Laya Healthcare’s fit-out will provide a mixture of rooms for treatment, minor theatre, consultation, MRI scans and associated staff administration and rest areas. 

Peter Balfour, Head of Real Estate UK for La Française Real Estate Managers said, “Let to a leading private healthcare provider under a long-term lease and located in a rapidly emerging location with a growing population, this primary care facility with good ESG credentials is a quality addition to our European healthcare portfolio.”

This acquisition, for a transaction volume of just under £13 million, was closed on behalf of a collective real estate investment vehicle. 

La Française REM was advised by Knight Frank, Matheson on legal and Hollis on technical and environmental due diligence.
 

As such, Crystal Park is 100% let to three tenants, including PwC who will occupy 66 % of the building, representing 26 700 m2.

Crystal Park was acquired in 2019 by La Française Real Estate Managers, acting on behalf of South Korean institutional investors through a fund managed by Mastern IM. Located in a dynamic business environment, the building offers over 43 300 m2 of office space and a landscaped park of more than three acres. The asset which is a landmark in Neuilly-sur-Seine was completed in 1959 as the original headquarters of a French multinational corporation and heavily refurbished in 2000 and 2018 by the renowned architectural firm Valode & Pistre. The property offers extensive facilities, including a two-floor restaurant reserved for on-site staff, an auditorium, concierge services, a conference and business centre, a fitness centre, etc. It is unique in offering such a high-quality campus in close proximity to the CBD and the sought after residential districts to the west of Paris. Crystal Park features solid ESG (Environmental, Social and Governance) credentials with a BREEAM Excellent certification and the EcoJardin Label for its listed park, signifying the ecological gardening of the surrounding green spaces.

David RENDALL, Managing Director, Institutional & International Divisions of La Française REM said, “We are pleased to be able to accommodate the development of our tenant and would like to extend our thanks to PwC for its renewed confidence. Crystal Park is a unique asset, providing an exceptional working environment for its occupants and a marketing tool to attract talent to their organisations.”

Philippe DEPOUX, President of La Française REM said, “This is yet another deal that illustrates the level of satisfaction of our tenants with our asset management capabilities and the quality of our real estate portfolio. I would personally like to congratulate our asset management team, Xavier BARREYAT, Cédrick BECKER and Claudia REN on the management of Crystal Park.” 

For this operation, La Française Real Estate Managers was advised by Ashurst.

The Federal Open Market Committee (FOMC) is widely expected to keep policy rates unchanged at the January meeting. We believe dovish Fed chairman Powell will leave the door open to a potential interest rate cut in March, depending on data.

Please find below what we expect :

• The target range for the Fed’s benchmark rate to remain unchanged at between 5.25% to 5.50%.
• The Fed Chair Powell to announce that the Fed will start to cut interest rates soon, eventually in March. The labor market is in better shape and the underlying inflation is slowing especially with the 3 and 6-month annualized core Personal Consumption Expenditures Price Index (PCE) (the Fed’s preferred inflation gauge) below the 2% target.
• The Fed to adopt a careful and data dependent approach to calibrate the magnitude of the rates cut.  
• On balance sheet reduction, as suggested by the minutes of the December 2023 FOMC, the Fed to confirm preliminary discussions guiding the end of Quantitative Tightening (QT) to ensure a sufficient supply of reserves to meet bank demand without clearly indicating what is the ample-reserves regime. We believe Chair Powell will underline that there are no signs of stress in the financial market and reserves are still ample. Consequently, Mr. Powell will probably indicate a gradual process to end QT without giving any timeline at this stage. 

In summary, we believe the Fed will allude to the timing of cuts at this meeting. Jerome Powell will probably keep his dovish rhetoric which surprised markets at the December 2023 press conference as the Fed is becoming more confident that inflation is moving back sustainably to the 2% PCE inflation target. Nevertheless, he will remain cautious relative to the magnitude of cuts in 2024 by reaffirming the 75 basis points rates cut as implied in the December 2023 projections even through the Fed will make monetary policy decisions on data. This meeting may lead the US interest rate curve to steepen, the dollar lower and support risky asset prices.

This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

However, the journey towards ‘Net Zero’ is complex. As the window of opportunity to keep global warming below 1.5°C narrows, investors are grappling with one of the most critical tools in their climate strategy toolkit: portfolio temperature assessment. This measure is more than a mere symbol of the environmental impact of a portfolio; it is a tangible reflection of the potential degree of global warming that the emissions from the underlying investments could cause.

The portfolio ‘temperature’ provides investors with insights that are crucial on several fronts. First, it offers a means to monitor and measure progress towards decarbonisation targets. Regular temperature assessments can serve as a performance tracker, allowing investors to gauge whether a portfolio is on track towards achieving ‘Net Zero’. Secondly, assessments help identify and mitigate climate-related financial risks. A portfolio skewed towards high-emitting assets is not only environmentally unsound but could also face significant financial risks – regulatory, market, reputational and litigation – in a world transitioning towards lower carbon alternatives. Lastly, a robust temperature assessment can enhance accountability and transparency, addressing the rising demand of stakeholders for comprehensive climate disclosures and ethical investments.

However, determining a portfolio’s temperature is not a straightforward task. The absence of a universally approved approach implies navigating a complex landscape of methodologies, each with its unique strengths, limitations and inherent biases. Be it the “Climate Disclosure Project (CDP) - World Wildlife Fund (WWF) Temperature Rating”, S&P’s “Trucost Portfolio 2°C Alignment Assessment” methodology, “The Paris Agreement Capital Transition Assessment” (PACTA), MSCI’s “Implied Temperature Rise” (ITR) model or Carbon4’s “Carbon Impact Analytics” (CIA) methodology, investors are faced with a diverse suite of tools to guide their journey to ‘Net Zero’.

But how do these methodologies compare, and what are their relative merits and potential pitfalls? How do we navigate the inherent uncertainties? And, as investors, what conclusions can be drawn from the various outputs relative to the contribution of portfolios to a low-carbon future?

Understanding the array of methodologies is a necessary first step. The choice of methodology will obviously shape investors’ climate strategies, thereby influencing divestment decisions, capital allocations, shareholder engagements and policy advocacy. In a world facing unprecedented climate challenges, these decisions could make the difference between a future char- acterised by runaway climate change and a ‘Net Zero’ world. 
 

• The European Central Bank (ECB) to maintain its key interest rates at 4.0% for the deposit rate, 4.5% for the Refi rate and 4.75% for the marginal lending facility.
• The GC to maintain the meeting-by-meeting approach. 
• President Christine Lagarde to underline that the ECB does not want to cut interest rates too early because of the underlying price pressures. However, the ECB does not want to keep rates too high for too long because of the risks of excessive tightening on growth and labor market.
• Christine Lagarde to reiterate that the central bank will cut interest rates this year once ECB members are totally convinced that the inflation outlook is close to the 2% target on a sustained basis (in 2025 according to ECB December 2023 economic projections). 

In summary, and given what was shared at Davos, we expect that President Lagarde will continue to push back against bets on early and extensive rate cuts. At this meeting, with no fresh macro-economic projections, we do not expect any clear guidance on the timing or size of rate cuts this year due to the ECB’s data dependent approach and uncertainty (i.e., especially related to wages development). Nevertheless, we believe that the ECB communication will be balanced, evoking risks of overtightening and risks of premature easing. This committee may lead to a slight steepening of the interest rate curve and a moderate weakening of the Euro currency.

This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

The acquisition concerns a nineteenth century private hotel, former home of the painter Dunoyer de Segonzac. The villa, which is surrounded by green spaces, offers a surface area of 310 m ² spread over 4 levels and will be transformed into shared senior housing with services (house master and living aids), which can accommodate 8 residents (8 rooms, each with a bathroom). Renovations to convert the space, which include the installation of an elevator, and investments to achieve very good energy performance will be financed by the buyer. 

The Chez Jeannette concept is a new way of caring for the elderly, by offering an alternative to existing solutions to support seniors who are losing their autonomy and by developing a shared and supervised housing model. The goal of Chez Jeannette is to provide support services, create social ties and develop a home living environment. 

Jérôme VALADE, Director of La Française REM's Healthcare Real Estate Division, concluded: “The ageing of the population combined with longer life expectancy is a long-term trend observed throughout Europe. It is naturally accompanied by growth in the demand for assets in line with new uses, including coliving assets for seniors. This is La Française Real Estate Managers' first investment in a coliving asset dedicated to seniors and we are pleased to have permitted the opening of a new site operated by Chez Jeannette, whose founding values are perfectly compatible with our investment strategy.” 

For this acquisition, La Française REM was advised by 14-PYRAMIDES for the notarial audit, ARCHERS for the legal audit and DELPHA Conseil for the ESG and technical audit.

About La Française

The major changes linked to environmental and societal challenges are opportunities to consider the future. Identifying the drivers of change and understanding how they will shape global growth and ultimately influence the long-term performance of financial and real estate assets is at the heart of La Française's mission. It is in this spirit that the asset manager forges his/her investment beliefs and develops his/her mission.

The group uses its innovative capacity and customer-focused technology to design investment solutions that combine performance and sustainability.

Structured around two business lines, "Financial Assets" and "Real Estate Assets", La Française Group serves institutional and wealth management clients in France and abroad.

La Française manages over €45 billion in assets through its offices in Paris, Frankfurt, Hamburg, London, Luxembourg, Madrid, Milan, Seoul and Singapore (30/06/2023)

La Française is a member of Crédit Mutuel Alliance Fédérale, which has long-term ratings of A+/Aa3/AA- from S&P (11/2023), Moody's (07/2023) and Fitch (10/2023).

The asset, which is expected to be delivered at the end of the first quarter of 2026, will provide 6,200 m2 spread over 4 floors and will include 130 housing units, ranging from one to three room apartments. For the well-being of occupants, it will offer many services including a dining room, a fitness room, a hairdresser, a multimedia lounge and an environmentally friendly garden. 5 parking spaces for people of reduced mobility are planned. The residence will be operated by Happy Senior under a long-term lease. The Happy Senior Residences of the Groupe Duval offer all the day-to-day services and quality support for independent and healthy seniors.

The serviced residence for seniors aims to obtain the NF Habitat HQE Niveau Très Performant certification, which attests to the overall quality of the housing and a performance of RT2012-20%, thanks in particular to the installation of a solar hot water production facility.

Leslie VILLATTE, Director of Institutional Real Estate Investment and Development - France at La Française Real Estate Managers - Institutional Division, concluded : “We are delighted to have been able to acquire this asset on behalf of Crédit Mutuel Nord Europe, a responsible player, committed to the development of its territories. This asset is also perfectly in line with La Française Real Estate Managers' sustainable approach and presents all the fundamentals necessary to preserve its value over time.” 

For this transaction, La Française REM was advised by Cheuvreux, Reed Smith and Theop.

The ground floor will feature an auditorium, while the upper levels will offer classrooms and conference rooms. It will also have a parking space for people with reduced mobility and two charging points for electric cars.

In terms of energy and environmental performance, the building, with its timber-framed facades, is aiming for NF HQE Bâtiments Tertiaires Neuf Très Bon certification, the E+C- level E2C2 label and savings of 35% compared with RT2012 requirements, thanks in particular to its use of the district heating network.

Leslie Villatte, Director of Institutional Real Estate Investments and Development – France of La Française Real Estate Managers – Institutional Division, concluded: "The asset's location in the heart of Bordeaux, its energy efficiency targets and the tenant's long-standing ties with Bordeaux all point to a favourable valuation outlook for an asset that perfectly complements the existing portfolio." 

For this transaction, La Française REM was advised by the notary firm Allez & Associés (Maria-Hélène Kremer) and by Emenda as project manager.

This mechanism may be triggered by the fund management company when exceptional circumstances so require and if the interests of the unitholders/shareholders or the public so dictate. This mechanism allows redemption requests to be spread over several net asset values if they exceed a certain level, as determined in the objective manner laid out in the fund documentation. When redemption requests exceed the trigger level, the management company may however decide to honour redemption requests in excess of the limit, and thus execute some or all of the orders that might otherwise be blocked.

• Swing pricing mechanism :

This mechanism aims to protect the UCI unitholders/shareholders in the event of significant subscriptions or redemptions of the UCI’s liabilities, by applying an adjustment factor to unitholders/shareholders who invest or redeem significant amounts of outstanding assets. This is likely to generate costs for unitholders/shareholders entering or leaving that would otherwise affect all unitholders/shareholders in the UCI.
These two mechanisms are described in the regulatory documentation of the relevant UCIs listed in the Appendix.

***

These updates are not subject to approval by the Autorité des marchés financiers and do not require any specific action on your part.

The other characteristics of the UCIs – in particular their investment strategies, risk/return profiles and all their charges – remain unchanged.

We draw your attention to the necessity and importance of reading the regulatory documentation of investment funds (KID PRIIPS, prospectus, regulations, and SFDR annex) available on the website www.la-francaise.com.

Thank you for your trust

Fully renovated in 2021 by architects Ory and Saguez & Partners, the 8-storey building is one of three composing the M7 property complex. It develops 14,415 m2, including 10,059 m2 of office space and 4,239 m2 of retail space, and offers many green outdoor spaces (two terraces and a rooftop of 400 m2) and services (café, restaurant, concierge, “cool working” space, bicycle garages).

The Memphis building is BREEAM Excellent certified and has the WiredScore Gold label. It underwent major renovations to improve its energy performance, including the installation of high-performance fan convectors and energy efficient lighting, and the replacement of air handling units. A plan to improve the energy performance of the retail space is also planned in 2024.

The asset is fully leased to eight tenants operating in a variety of sectors such as biotechnology research and development, cosmetics, the agri-food industry, digital transformation consulting and sports equipment.

Philippe Depoux, President of La Française Real Estate Managers, concluded : “We are extremely satisfied with the conclusion of this investment which associates our collective real estate investment vehicles and EDF Invest. We sincerely thank EDF Invest for its confidence. The Memphis building summarizes well all the fundamentals expected by La Française REM. Its centrality and the quality of its renovations and services are all factors that should support the attractiveness and valuation of the asset.”

Assia Oudni, Investment Director - Real Estate, EDF Invest, added : “This acquisition is consistent with our belief in the necessity for high quality and flexible office space for tenants and reflects our confidence in the market fundamentals of the zone. EDF Invest is delighted with this partnership alongside La Française REM.”

La Française REM and EDF Invest were advised by the notarial office Allez & Associés, Fairway on the transaction and financing and Artelia on technical aspects. The firms Mayer Brown and Lacourte Raquin Tatar respectively supported La Française REM and EDF Invest.

The Loss & Damage (L&D) Fund, initially agreed at COP27 and intended to compensate countries which do not have the means to adapt to climate change, saw somewhat of a breakthrough in Dubai with the agreement of its “operationalisation” in 2024. However, important details regarding who should pay and who should benefit (with China’s status being a key point of disagreement) remain. Additionally, the Vulnerable 20 Group reported that its members (68) had lost USD 525bn over the last twenty years due to climate change²  whereas the initial amount of pledged funds was less than USD 1bn³ . Envisaged financing is grossly short of what is required. While compensating the relevant countries for their losses is long overdue, the level of uncertainty around the Fund’s functioning and therefore its efficiency remains significant in our opinion.

Eagerly anticipated by many were the negotiations around the Global Goal on Adaptation (GGA), a collective commitment under Article 7.1 of the Paris Agreement. Unfortunately, many developed countries were reluctant to discuss adaptation financing following their commitments to the L&D Fund. We find the final output of the GGA Framework to be anticlimactic. Parties were “urged” to reach goals which, in our view, are not sufficiently specific to actually meet the needs of the most vulnerable (e.g. “Attaining resilience against climate change-related impacts” or “Reducing climate impacts on ecosystems and biodiversity”). In parallel, COP28 decided to launch a two-year work programme on indicators for measuring progress achieved towards the above targets. We look forward the outputs.

While the lukewarm outcome of GGA negotiations was expected to some extent, some of the discussions around Article 6 of the Paris Agreement came as a surprise. Some Parties even called for the moratorium of carbon markets in the Agreement. The elements to consider for the “authorisation” of internationally transferred mitigation outcomes (ITMOs) (Art. 6.2) were watered down with each new draft. The final text merely “encourages” Parties to include the elements… at their discretion. We believe this puts the credibility of ITMOs under question. Furthermore, the absence of a decision regarding emissions avoidance (Art. 6.4) further emphasises the lack of necessary consensus to find a clear path towards Net Zero.

Amidst the frustration, there are some glimmers of hope. For the first time, the final agreement refers to the objectives of ‘tripling renewable energy’ and ‘doubling the global average annual rate of energy efficiency’ by 2030. Initially endorsed by the G20 in September, these targets were adopted by a coalition of 130 countries under the COP28 Global Renewable and Energy Efficiency Pledge. Around 50 oil and gas producers and 29 other national oil companies have signed an agreement to “zero-out” upstream methane emissions and to end routine flaring by 2030. As investors, it is crucial that we continue to engage with these companies in order to understand their associated action plans and hold them accountable for their implementation. We also warmly welcome the Declaration on Climate and Health, signed by 123 countries at the Summit, which highlights the importance of preparing healthcare systems to cope with ever-increasing climate-related health issues. Similarly, we welcome the UAE Declaration on Sustainable Agriculture, Resilient Food Systems and Climate Action, which was signed by 134 countries. It includes a landmark, new sustainable food systems pledge which has already mobilised USD 2.5bn.

While the debate around the success of COP28 seems to be ongoing, one evident and critical concern looms: to support transition and adaptation and to compensate damages, it remains unclear where the necessary capital, especially for developing countries, will come from in the medium to long term. Of the ca. USD 83bn mobilised at the Summit (including USD 30bn pledged by the UAE in an investment vehicle which, it claims, could mobilise USD 250bn in investment by 2030⁴), it remains to be seen what will be channelled where. The past two weeks have shown that the true challenge lies not only in raising capital, but also in ensuring its just and efficient allocation. Furthermore, a 2022 OECD report⁵  revealed that between 2013 and 2020, overall climate finance consistently fell short of the USD 100bn annual goal defined at COP15⁶ , with a >45% gap at its worst. Hence, COP28 ends with a deal on fossil fuels, but the hardest part is not behind us. As the world grapples with the escalating impacts of climate change, the ability of the international climate summit to bridge the gap between promise and practice will be crucial in determining the global community’s capacity to mitigate and adapt to these challenges.

By Océane BALBINOT-VIALE, Senior ESG Analyst, La Française AM

¹ Cop28 president says there is ‘no science’ behind demands for phase-out of fossil fuels | Cop28 | The Guardian

² NEW: Climate Vulnerable Economies Loss Report - CVF (thecvf.org)

³ Estimated USD 792 million. The World Bank will host the Fund for an interim period of four years.

⁴ UAE commits US$30 billion in catalytic capital to launch landmark climate-focused investment vehicle at COP28

⁵ Aggregate Trends of Climate Finance Provided and Mobilised by Developed Countries in 2013-2020 | en | OECD

⁶ It was later reiterated at COP21 and extended to 2025.

Co-developed by GCC Real Estate and WYHO Promotion, the project is on the right bank, in the Deschamps Belvédère district, which is an old industrial site undergoing considerable change, situated between the Pierre bridge and the Saint Jean bridge. The site is less than 10 minutes from the left bank and 20 minutes from Saint Jean Station. Urban development plans are advancing well and include the construction of residential properties, offices, schools, hotels, business parks and retail space as well as a variety of green spaces by 2024/2025.

The project will be carried out by the general contractor GCC Aquitaine, and delivery is expected in the 2nd quarter of 2025. The facility will develop a total surface area of 5,427 m2, spanning over seven floors and will include a healthcare center (consultations, radiology), a wellness center (rehabilitation), professional and research spaces, a restaurant and bicycle storage space. The design of the building will offer great flexibility to its occupants and distant conversion prospects. Equipped with 100% LED lighting, a hot water sanitation and heating system connected to the urban heating network and a dual-flow air treatment plant, the project aims for the BREEAM Very Good certification, “E+C- level E3C1” and “biosourced building level 1” labels and an energy performance level RT2012 -30%. All the criteria of La Française REM's New Building Charter are respected. The asset is pre-leased under a long-term agreement to Medicina, a company that creates and manages multi-disciplinary healthcare facilities, based on a new business model which aims to improve patient care by offering a comprehensive package of services covering prevention, care and well-being.

Jérôme VALADE, Head of Healthcare Assets at La Française REM, concluded: "After the acquisition of the first MEDICINA healthcare facility, avenue Rockefeller in Lyon in late 2021, we are delighted to renew our partnership with Medicina, a healthcare player whose development model is fully aligned with our objective to fight against the lack of healthcare infrastructures and to improve the quality of care. This asset matches perfectly with our overall investment strategy in healthcare and more generally speaking with La Française REM’s sustainable approach.” 

For the acquisition, La Française REM was advised by Archers, 14 Pyramides and ARC PM.

Investment volumes: the first signs of a recovery ?

The wait-and-see attitude of investors and lenders at the start of the year was reflected in a sharp fall in investment volumes over the first three quarters. The decline was particularly marked in the large transactions segment, given the greater recourse to financing.

Over the past twelve months, European investment volumes on a downward trend, with an average drop of 55%: -50% for the United Kingdom, -52% for France and -60% for Germany. At the end of September, offices accounted for 30% of investment volumes in 2023, compared to 51% in 2019. The proportion of diversification assets has continued to rise, reaching 24% at the end of September 2023.

There are a few exceptions, notably in Germany and the Netherlands, where investment volumes are back on the rise, with a rebound of around 30% over the quarter. Slower than its neighbours in the price adjustment phase, the French market is suffering from competition from other European countries that are beginning to present interesting opportunities.

Prime office yields keep pace with rising interest rates

In the wake of the European Central Bank's tenth straight interest rate hike, real estate yields continue to rise across Europe. In addition, the high cost of debt results in negative leverage in many European countries. Prime office yields rose by between 10 and 50 bps over the last quarter, bringing the year-on-year increase to between 35 and 170 bps (Dublin 35 bps, London 50 bps, Paris 75 bps, Brussels 75 bps, Munich 150 bps). In logistics, prime yields rose by an average of 7 bps over the quarter, suggesting an attractive entry point for an asset class with good rental fundamentals.

The rise in yields varies within a same market depending on the quality and location of the assets. An additional risk premium in excess of 150 bps is often expected by investors for assets located in peripheral areas. The trend is the same for "obsolete" assets, in terms of both durability and functionality.

A rise in supply, difficult to control

Following the example of Germany and confronted with the economic slowdown, cost-cutting is a key issue for companies. Take-up* in Europe's main office markets fell by 21% year-on-year, mainly due to a reduction in leased space. However, some markets, such as Paris, Lyon and Amsterdam, saw demand stabilise or even increase in the third quarter. Companies are primarily looking for quality assets, offering smaller spaces with good accessibility.

In Europe, office supply rose by 4% over the quarter, bringing the year-on-year increase to 14%. Some markets stand out, such as Brussels, Amsterdam and Milan, where supply fell in the third quarter.

Polarisation of rental markets with the emergence of a middle ground

The polarisation of rental markets is evolving in tandem with the emergence of a third segment. Until now, the rental market included :

• prime assets in central locations, where supply is becoming scarce, exerting upward pressure on rents. Across Europe, with the exception of the UK, prime rents rose in the third quarter; and
• secondary assets in peripheral locations, where the abundant supply continues to increase, driving down rental values

As the economic environment darkens, an intermediate segment is emerging: prime and environmentally friendly assets which are available at competitive rent levels due to their peripheral location.

The rise in vacancy rates across Europe highlights a problem of inadequate supply, both in terms of location and quality. Supply continues to increase in peripheral locations but is declining in central locations. The central business districts of Paris and Munich have vacancy rates of 2.1% and 0.6% respectively, while peripheral locations have vacancy rates close to 20%. Two opposing trends will determine future supply. The high volume of vacancies over the next 24 months will increase the supply of second-hand assets while new construction is falling sharply. In the Greater Paris region, for example, for every m² of good quality supply, there are 2.5m² of obsolete space.

By Virginie Wallut, Director of Real Estate Research and Sustainable Investment at La Française Real Estate Managers

Sources: CBRE, Trading Economics, MBE, La Française REM Research
*Take-up in the 12 main European cities: Brussels, Lille, Lyon, Paris, Berlin, Frankfurt, Hamburg, Munich, Dublin, Milan, Amsterdam, Madrid

As suggested by ECB members, the Governing Council (GC) will maintain its interest rates at the December meeting. The pivotal focus is on the updated macro-economic projections, particularly since the latest inflation data fell below the central bank's expectations. We anticipate these projections will indicate weaker forecasts for growth and inflation. Notably, the ECB is expected to unveil the inflation projection for 2026, aligning it with the 2% target. Additionally, we anticipate an ECB announcement regarding an accelerated pace of quantitative tightening (QT).

Anticipated outcomes include :

• The European Central Bank (ECB) maintaining its key interest rates at 4.0% for the deposit rate, 4.5% for the Refi rate, and 4.75% for the marginal lending facility.

• The GC maintaining its meeting-by-meeting approach and reiterating guidance that sustained restrictive rates will prompt inflation to return to target in due course. Christine Lagarde will emphasize that the ECB cannot claim victory yet.

• The ECB's probable announcement of the gradual conclusion of Pandemic Emergency Purchase Programme (PEPP) reinvestments next year, with details expected in January. We anticipate the ECB will likely rule out outright bond sales from either the asset purchase programme (APP) or PEPP portfolios, as suggested by Isabel Schnabel to Reuters.

• Projected weaker growth in 2023 and 2024. Inflation projections for 2024 and 2025 will be key; we expect those forecasts to be lowered from 3.2% and 2.1% to 2.7% and 2% respectively.

In summary, given the recent comments from most ECB officials, there seems to be a gradual shift towards a more dovish stance within the GC. President Christine Lagarde will likely emphasize the efficiency of monetary policy tightening, noting the slowdown in bank lending growth, economic weakening and the faster-than-expected decline in underlying inflation. She might caution against early 2024 interest rate cuts due to uncertainties in wage growth and weak productivity. However, market sentiments might overlook Lagarde's warning, and consequently, we do not anticipate a significant impact from this meeting. 

This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997. 

During the 12th United Nations Forum on Business and Human Rights, a diverse assembly of stakeholders, including representatives from NGOs, activists, companies and government officials, gathered in what was known as Room XX of the Palais des Nations in Geneva. The conference deliberated on the current state of human rights, recent progress and future endeavours. A compelling call was made to cease separating the climate crisis from the human crisis, emphasizing their interconnected nature. Against the backdrop of the 75th anniversary of the Universal Declaration of Human Rights, participants acknowledged the intricate links between these challenges, paving the way for discussions on how businesses can play a transformative role in crafting sustainable solutions. This affirmation underscored the vital role of decisive action in ensuring a just and sustainable climate transition.

Human Rights, state and violations

The conference delved into today’s global human rights landscape, where a triad of challenges – political conflicts, climate change and technological advancements – looms large. The interconnection between climate and human crises underscores the imperative of a just transition. Notably, the supply chain emerged as a focal point of discussions, revealing itself as a risk hotspot referencing human rights abuses. Indigenous communities, that safeguard 80% of remaining biodiversity¹ , bear the brunt of human rights violations, facing challenges such as discrimination, land-grabbing and resource exploitation, and are the most vulnerable to the negative effects of climate change. Strikingly, communities, already heavily impacted by climate change, are doubly burdened and victims of climate transition initiatives which involve large-scale infrastructure and renewable energy projects on their lands and intensified mineral extraction. The forum emphasized the significance, yet limited practice, of Free, Prior and Informed Consent (FPIC) rights, calling for companies to engage with indigenous communities. The shift in mindset from a moral consideration to a strategic allocation of resources is crucial for fostering responsible and sustainable business practices.

Additionally, the complexities of human migration, especially in response to climate change, bring to light significant gaps in legal and policy frameworks. The deepening crisis of forced labour and child labour poses a threat to men, women and children and is primarily fuelled by private economic interests. We estimate that today 50 million individuals are victims of modern slavery². A closer examination of workers’ rights within this context reveals pressing concerns, including freedom of association, access to remediation and fundamental workplace rights. Even in the most developed countries, workers face obstacles in safeguarding their rights and negotiating fair working conditions. The forum emphasized the need for robust protection mechanisms, access to justice and remediation for workers subjected to human rights abuses, including those stemming from climate-induced changes.

Future regulations and solutions

Celebrating the decade-long journey of the United Nations Guiding Principles on Business and Human Rights (UNGPs), the forum reaffirmed the global standard. Endorsed by the UN Human Rights Council in 2011, the UNGPs provide a comprehensive framework, “Protect, Respect and Remedy”, outlining the responsibilities of states and businesses regarding human rights. International Labour Organization and OECD³ standards were also discussed, emphasizing the imperative of strengthened due diligence, particularly concerning indigenous populations. The necessity for heightened transparency and risk assessment of supply chains was also underlined, illustrating the pivotal role businesses can play in respecting and safeguarding human rights.

In contemplating the future, the forum resounded with a call for innovative solutions and concerted efforts to address the intricate nexus between business activity and human rights. Discussions highlighted the efforts of the Open-ended intergovernmental working group (OEIGWG) to elaborate a “legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises”.  The Working Group on Business and Human Rights is poised to deliver a report to the UN Human Rights Council in June 2024, which will explore the alignment of Environmental, Social and Governance (ESG) practices in the financial sector with the UNGPs.

At the close of the forum, the UN High Commissioner of Human Rights concluded with “I urge you to put human rights at the centre of all climate decision making at COP 28 and beyond.”

By Claudia RAVAT, ESG Analyst, La Française AM

¹ The Role of Indigenous Peoples in Biodiversity Conservation, Claudia Sobrevila, The World Bank, May 2008

² Global Estimates of Modern slavery report, International Labour Organisation, September 2022

³ Organisation for Economic Co-operation and Development

After several years of stagnation or even disillusionment, this COP needs to demonstrate that climate negotiations remain relevant and capable of inducing real change, up to the climate challenge. Remember that the 1.5° C trajectory now requires global emissions to fall by 43% by 2030 vs. 2019 and by 60% by 2035 . For context purposes, since the Paris Agreement, CO2 emissions were higher in 2021 and must reach their peak before 2025 if the trajectory is to be conceivable.

The COP 28 presidency wants to mobilize public and private contributions in the following areas, which could generate more or less disruption : 

• Acceleration of the energy transition and reduction of emissions before 2030;
• Securing climate financing;
• Nature, just transition and people;
• Inclusion.

On more traditional topics of energy transition, attention will focus on accelerating the phasing out of coal, which is not expected to be the source of a positive surprise. Indeed, the AR6 (Sixth Assessment Report of the Intergovernmental Panel on Climate Change) projections show that an alignment with 1.5° C would require a 67 to 82% reduction in coal use by 2030 vs. 2019 . This alignment would require a fuller exit than what has been agreed, whereby there is still room for interpretation with ‘phasing down’.

On the other hand, it would appear that we could expect a commitment from the oil industry to halve Scope 1 and 2 emissions and target zero methane emissions throughout the value chain.

In terms of replacement capacity, we also expect a commitment to increase threefold the global renewables capacity by 2030. The trend is positive here and based on the massive fall in unit energy prices between 2010 and 2019; on average, an 85% unit price reduction for solar and 55% for wind.

Within the finance sector, one of the greatest disappointments has been the commitment to mobilizing public and private funding for the fight against climate change, which was supposed to reach USD100bn per year in 2020 and after falling short once, has never been achieved since. However, according to the 5th biennial high level ministerial dialogue on climate finance, there is hope that the target will finally be reached this year. There may be a light at the end of the tunnel given optimism surrounding financing, which is widely considered as an indicator of climate ambition. All parties now expect greater commitments to finance climate change adaptation and the most vulnerable countries.

The ‘Stocktake 'mentions that job creations related to the energy transition would be 3.5x higher than job cuts by 2030. Indeed, real progress could result from the notion of a just transition, which is inclusive of nature and people.

At COP27, oceans and forests emerged in negotiations given their fundamental link with climate change. Health, whether it affects humans or agriculture, is expected to be formally mentioned for the first time at the upcoming COP. Climate change is disrupting health systems: higher incidence of heat strokes, tougher working conditions, increased virus borne diseases, changes in crop nutrition and yields.

One thing is clearly different this year, and it lies in the general awareness of the inadequacy of action. Global Stocktake strives to suggest more ambitious policies that could be the basis for a promising future post COP 28. The key to keeping the 1.5° C target alive is international cooperation around coordinated domestic objectives, regardless of historical emissions. “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.

By Marie Lassegnore, CFA, Head of Sustainable Investments, La Francaise AM

David RENDALL, Managing Director of the International Division of La Française REM said, “After leasing out 32 000 m² in SO Ouest last year by way of a 12-year lease renewal for ca. 26 700 m² signed with SAP and long-term leases for ca. 5 000 m² with Industrious and Meiyume, this refinancing deal clearly reflects a high level of confidence in our asset management capabilities and the underlying value of the asset.”

Philippe DEPOUX, President of La Française REM said, “In an era of market uncertainties and high interest rates for longer, La Française REM is redefining real estate asset management to attract tenants, reduce vacancies, protect assets and ensure property values. I would personally like to congratulate our asset management team, Xavier BARREYAT, Cédrick BECKER and Valentin BIESSY on the management of SO OUEST.”

For this operation, La Française Real Estate Managers was advised by Ashurst on legal and Flusin Miralles Esteve on the notarial aspects.    

Thomas OSTRÉ, 34 years old, Head of Business Development – Middle East & Global Financial Institutions Relationship Manager of La Française

Thomas has nine years of experience in the asset management industry. He started his career with La Française as Marketing Product Manager in 2014 and shortly thereafter joined the distribution team of Fred Alger Management in London, as International Sales Manager.

Owing to his product expertise, Thomas was able to develop the Institutional and Wholesale segments in the UK while supporting the international development (Europe/Asia) of Fred Alger Management. After four years in London, he returned to Paris and was appointed International Real Estate Business Development Manager at La Française, developing the real estate range for institutional clients in Europe, EMEA and Canada.

Thomas OSTRÉ holds a Bachelor of Economics and Management from La Sorbonne University (Paris) and a Master's degree in Management from the Rouen Business School. He was top of his class in the Real Estate Management Masters at ESSEC Business School (Paris/Singapore). Thomas is a member of the RICS. 

The business park Technoparc de Lamirault encompasses seven buildings (representing a total surface area of 16 690 m2). La Française REM had already acquired six buildings which are today fully let. The acquisition of building F, which will offer 3 793 m2, marks the completion of the operation. With delivery expected in 4Q 2024, the light industrial asset will meet HQE (high performance level) standards. A clean construction site charter imposes the safeguarding of biodiversity and the recycling of at least 70% of waste materials. Additionally, solar panels (covering 30% of the roof surface), a smart water meter and a charging station for electric vehicles will be installed.

Thierry MOLTON, Managing Director of La Française Real Estate Managers - Retail Division, concluded, “The good location of the asset (East of Paris), in a zone already well developed and home to a hundred businesses, the taking into account of La Française ESG prerequisites from the outset of construction, etc. are all factors that underline the quality of this investment.”

This acquisition, for a transaction volume of just over €7 million (deed in hand), was closed on behalf of a collective real estate investment vehicle.

La Française REM was advised by 14 Pyramides.

Guillaume GENTINA, 53, Head of European Assets for La Française Real Estate Managers

Guillaume has twenty years of experience in finance and real estate, intervening at every stage of the value chain: acquisition, asset management, arbitrage and fund management.  In 2001, Guillaume joined General Electric Medical Systems, first as Finance Manager, then as Financial Planner and Analyst Manager. In 2005, he was named Senior Financial Planner of General Electric Real Estate and was responsible for a pan-European portfolio weighing USD14 billion. After two years, Guillaume was poached by DTZ Investors as Client Relationship and Investment Manager. He was later promoted to Deputy Finance Manager of DTZ Investors France, where he was in charge of third-party fund management on a European level.  Prior to joining La Française REM, Guillaume was Associate Director of DTZ Investors France, whereby for close to thirteen years, he managed a commercial real estate portfolio (€4 billion in assets) and led the implementation of an energy consumption reduction program. 

Guillaume GENTINA holds a Master of Business Administration from Manchester Business School and a Master of Science from Ecole Polytechnique Universitaire de Lille. 

The balance between fiscal policy and monetary policy will ultimately determine the future of inflation: As long as the US government continues to pursue an expansionary fiscal policy, the Fed will have no choice but to continue its restrictive monetary policy in order to prevent the economy from overheating and inflation from continuing.

At the end of September, US inflation stood at 3.7%, after having reached over 9% in June 2022, with many disparities between the various sectors of activity (Source: Bloomberg). The fall in raw material prices and negative base effects account for the vast majority of this decline, but they are not the only factor. The end of the supply shock linked to the Covid crisis has also allowed inflation on goods to slow sharply, with the figure now close to 0 over the last 12 months. Here too, the fall in energy commodities helped to contain the rise in prices through second-order effects. It should also be noted that base effects will now have a positive impact on inflation, which should lead to a rise in energy and goods inflation.

The part of the economy that is still posing problems is the services sector, with price rises remaining high at 5.7% over the past year. This is due to the "OER" (owner equivalent rent) component, whose variations lag behind those seen on the property market. However, this is not the only explanation. While the services sector requires far less product processing than the goods sector and is therefore less dependent on fluctuations in the price of raw materials, it does, on the other hand, account for far more jobs. Wage inflation and inflation in the services sector are therefore intrinsically linked, as we have seen historically.

It is thus logical for the Fed to want to rebalance demand and supply on the labour market, a necessary condition on the journey to driving inflation back to close to 2%. But Fed policy does not have much impact on job supply, which is affected by migration policies, demographics and the preferences of each category of jobseeker. The Fed's only leverage is therefore to try and influence job demand, which is what it seeks to accomplish by pursuing an increasingly restrictive monetary policy to slow down the economy.

The Fed is therefore right to pursue a restrictive monetary policy in order to curb inflation by moderating wage inflation, but this is not the only factor that will determine the future of inflation.

Political resolutions will also undoubtedly be more important, whether they be decisions to increase the job supply or not, or more or less expansionary fiscal policies. 

On the supply side, after migratory flows came to a halt during Covid, they have now picked back up in a fairly vigorous manner, which should help to rebalance the market in the months ahead. Similarly, the rise in the participation rate in recent months, particularly among the 55+ population, is also pushing up supply-side employment. This should help the Fed, even if there is still a long journey ahead.

As far as budgetary policies are concerned, however, it is difficult to be very optimistic insofar as it is electorally suicidal to pursue so-called restrictive policies (tax increases, cuts in subsidies, etc.), all the more so in an election year, which is the case in 2024. If history is any guide, we can also note that periods of geopolitical instability, such as the one we are currently experiencing, often go hand-in-hand with major budget deficits. 

By François Rimeu, Senior Strategist, La Française AM

The information is provided for information purposes only.

Thierry Molton, Managing Director of La Française Real Estate Managers - Retail Division, concluded: "The final stage of this three-phase operation was completed in 2022. As a result, we reap the benefits of the running ten-year guarantee on the asset, which meets the latest energy standards. In addition, the fact that the tenants have been in place since 2010 helps to mitigate rental risk. The geographic location of the asset, a couple of miles outside of Bordeaux, is a real strong point given the boom in e-commerce.” 

This acquisition, for just over €4 million, was made on behalf of a collective real estate investment vehicle. 

La Française REM was advised by 14 Pyramides Notaires ; the seller was advised by the notary office Meyssan et Associés. Both parties were advised by BNP PARIBAS REAL ESTATE TRANSACTION France's regional investment team.

Banks never really “die” or go into bankruptcy. They are too economically relevant and prone to contagion risk to really go bust, as a regular non-financial company would do. Banks can be placed “into resolution”, “under supervision by the central bank”, be “nationalized” or sold at a symbolic price to another bank. There are many laws and regulations overseeing how banks could die in an orderly fashion, but they have quite often been circumvented (e.g., several German banks these past few years) or laws have been changed overnight to accommodate regulators (e.g., Credit Suisse).

Bank resolutions (that is the official designation of when a bank goes bust) never resemble one another for a reason that has always been underestimated by analysts and investors: they are first and foremost political decisions, aimed at preserving financial stability. This is our own “whatever it takes”2. However, it has a consequence for bond investors: depending on which kind of bond layer you are invested in (classified by subordination, i.e., how likely you are to suffer losses), the outcome of a resolution may not always be logical, nor easy to estimate.

To illustrate that, let’s take two examples :

• Banco Popular : although the fundamental and corporate governance woes of the bank were quite well known for some time, things escalated very quickly when rumors emerged that some local Spanish politicians were advising others to withdraw their deposits from Popular. While its solvency metrics were still optically fine, the bank endured a liquidity crisis in only a few weeks, when the ECB decided to step in and sell it to Santander for €1. All shareholders and subordinated debt holders were completely wiped out with absolutely no recovery. Senior debt was preserved and transferred to Santander.


• Credit Suisse : the bank had been largely affected by corporate governance issues and controversies that arose as soon as 2020 and which peaked in 2022 when the bank lost close to a third of its deposit base between Q2 and Q3 2022. A capital increase and abysmal Q4 2022 results failed to restore confidence, and Credit Suisse was then fatally wounded by the contagion arising from the deposit flights of three US banks. Its solvency and liquidity metrics were still sound a few weeks before its ultimate collapse though. UBS bought the bank and, while equity holders of Credit Suisse got heavily diluted, they fared somewhat better than Additional Tier 1 bond holders, who lost everything, due to a change in the law passed one day before the regulatory decision.

These two examples serve to show that bank failures can arise relatively quickly and surprise a lot of investors, as they cannot pursue a classic “corporate restructuring” process. We have several other examples where all stakeholders were spared and some others where most stakeholders were hit, and to very different degrees.

Why do banks die and how can we predict that, or at least protect ourselves from that ?

You can feel a pattern emerging when discussing the examples of Banco Popular and Credit Suisse. Banks always die because of bank runs (i.e., deposit flights) and not because of solvency nor profitability issues.

After what happened in the US these past few months, where three banks collapsed in a matter of weeks due to fast deposit flights, it could be argued that all European banks could be at risk. Yet, there is no fire without smoke. Deposits should not disappear overnight just because customers are better remunerated elsewhere. The usual deposit base of European banks is stickier, as other opportunities come at a cost. The three US banks had deeper balance sheet issues and poor risk management, which then led to bank runs.

There is one problem though : how can you know whether a bank will collapse due to a liquidity crisis or not ? How reliable are all those nerdy figures given by bank analysts on solvency and liquidity metrics, when banks can still collapse in a few weeks ? We can split that issue into several categories :

• Profitability issues and risks on assets : turning a net profit is the most usual way to build stronger capital ratios, which, in turn, enable banks to sustain harsher macroeconomic or idiosyncratic shocks. Of course, it matters way more for shareholders than bondholders, who just want the bank to stay afloat in the future. Some banks can have negative net profits for several years and still stay alive (Natwest, formerly known as Royal Bank of Scotland, had been loss-making for 8 straight years without any liquidity crisis !).


• Controversies & legal issues : several banks have been involved in miscellaneous scandals over the past 15 years. Deutsche Bank was infamously known at some point for being involved in most of them, which even led them to the verge of collapsing in 2016. BNP Paribas also got a hefty $9bn fine by US authorities in 2013 and still managed to cope with it. These issues have more in them than just being hindrances to profitability: they show a lack of good corporate governance and a potential inability to restore confidence, unless strong responses are taken.


• Solvency issues: European banks have been heavily forced by regulators and governments to build stronger capital ratios over the past ten years. Those who could not do that have been forced to merge with other institutions, which led to a much higher degree of sector concentration (Spain is a very good example of such a trend). Should a bank fail to respect its solvency requirements, the regulator will push it to raise capital, sell activities or force it to merge with someone else. A bank with low solvency metrics poses a threat to its investors, who may become more reluctant to lend money to it on bond markets. But the central bank is always there to provide liquidity, if need be, unless...


• Liquidity issues & deposit flights: now, that’s where things can turn sour very quickly. A bank can have as much capital and profit as possible, but it cannot sustain the distrust from its clients and counterparties. Deposit flights are a self-fulfilling prophecy and a vicious circle, whereby clients want to jump out of the train as quickly as possible. A central bank can act as a “lender of last resort”, but it will be reluctant to burn hundreds of millions of cash everyday just to keep a bank afloat. Moreover, regulators and central banks want contagion risks to be contained as fast as possible, in order to avoid a systemic crisis. This is why most banks die during weekends, just to let governments, regulators and central banks find the right solution.

Conclusion: are we really that powerless ?

Looking at credit metrics (profitability, asset quality, solvency and liquidity ratios) is insufficient to assess whether a bank can bear the risk of a liquidity run. Do not get me wrong, these metrics do matter, as the root of a collapse can always be traced back to poor corporate governance, leading to balance sheet issues and/or controversies. However, the health of a banking system is too tied to politics and monetary policy to let investors be solely reliant on quarterly figures given by financial institutions.

Investors and analysts are not powerless though. Going beyond financial metrics is more than ever mandatory, as deposit flights arise from distrust, which comes from corporate governance. It takes time and effort to analyze such matters, so you have two choices: sticking to “good quality names” or pushing your luck to pursue higher yields, but at the risk of losing something, or everything, if you are not careful enough.

By Jérémie BOUDINET, Head of Investment Grade Credit Portfolio Management, La Française AM

• The target range for the Fed’s benchmark rate to remain unchanged at between 5.25% to 5.50% even though the latest economic data reflects robust 3rd quarter activity. 
• Fed Chair Powell will emphasize that given FOMC tightening actions since March 2022 and the rapid rise in long-term Treasury rates since September, the US economy is poised to slow in the coming months. However, Mr. Powell will likely leave the door open to a potential rate increase after November if policymakers see further signs of resilient economic growth.
• The Fed to pursue its balance sheet reduction plan at $95bn per month.

In summary, Fed Chair Powell’s recent comments, ahead of the current blackout period, echo those of other Fed officials:  rates will have to remain high for an extended period of time until the Fed is confident that inflation will drop down to the 2% target rate. Consequently, we do not expect any surprises. FOMC announcements should have a limited impact on financial markets. 

This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

The retail space is 100% leased to the Roche Bobois group, a company specialised in the design and distribution of contemporary furniture.

Thierry Molton, Managing Director of La Française Real Estate Managers - Retail Division, concluded: "This acquisition is a good addition to our retail portfolio because of the quality of the tenant, its visibility and the prime location of the property and, more generally, its proximity to a number of well-known retailers". 

This acquisition, for ca. €9 million "deed in hand", was carried out on behalf of a collective real estate investment vehicle. 

La Française REM was advised by 14 Pyramides Notaires; the seller was advised by Flusin & associés. Both parties were advised by Catella Property.

• The European Central Bank (ECB) to maintain its key interest rates: 4.0% for the deposit rate and 4.5% for the Refi rate. Underlying inflation (i.e., excluding energy and food) is trending downwards but remains far from the 2% target rate. The latest rise in European bond yields, linked mainly to the surge in US treasuries since September, is tightening monetary conditions and should weaken the growth trajectory of the Eurozone. 
• The GC to maintain the meeting-by-meeting approach given the high level of uncertainty (wage growth dynamics, energy price pressure namely due to the impact of the Middle East conflict on oil prices). Hence, President Lagarde will likely warn that the ECB is ready to hike rates again if necessary.
• Christine Lagarde to reiterate that the central bank will keep interest rates high for as long as necessary until ECB officials are ‘sufficiently confident’ about reaching the 2% inflation target within the projected horizon (by 2025). 
• On quantitative tightening, discussions will likely intensify given the latest comments from ECB hawkish officials. However, we do not expect further details concerning the reinvestment of securities under the Pandemic Emergency Purchase Programme (PEPP), especially before the ECB has concluded its review of the operational framework in the spring of 2024. 

In summary, we expect :

(i) that the ECB’s communication will focus on higher-for-longer interest rates in order to achieve the central bank's key objective of bringing inflation back to its 2% target by the end of 2025; 
(ii) that the European Central Bank will keep the door open to further rate hikes in the future, given upside risks on inflation. We also believe that this intermediate meeting will have a limited impact on financial markets. 

This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.
 

Designed by leading London architects Rolfe Judd, the office building was originally constructed in 1992 and provides 62,587 sq. ft. of flexible office and ancillary accommodation arranged over Lower Ground, Ground and six upper floors.Located on a virtual island site, the property is one of the very few self-contained headquarters office buildings (with shower facilities, a staff canteen, an electric vehicle charging station, gated bicycle spaces) in the Victoria submarket. The building is fully let under a 15-year lease expiring in 2038 to an Italian multinational energy provider as their long-standing London headquarters for what has been over thirty years.

The building benefits from 3.6 metre slab to slab heights and largely column free floor plates. These features align with contemporary occupier demands. The office space also enjoys good natural light from all sides with views across London on the upper floors, in addition to a large central atrium which provides landscaped courtyards at ground and lower ground-floor levels, offering external amenity space for occupiers. Refurbishment works, due to be completed imminently, have been undertaken by the tenant to enhance the sustainability credentials of the buildings (Energy Performance Certificate Rating of C, compliant with the compulsory 2025 deadline) and to elevate the quality of the workspace to meet current occupier demands.

Peter Balfour, Head of Real Estate UK for La Française Real Estate Managers said, “As one of the few self-contained headquarters office buildings in Belgravia, the rarity factor, as well as the strong covenant, long unexpired lease term and potential for conversion to other commercial uses, should sustain the long-term value of the investment. Furthermore, as our first acquisition in the West End of London, the asset is complementary to our existing London portfolio.”

La Française Real Estate Managers was advised by RX London, Ashurst on legal, tax and financial aspects and CS2 on technical and environmental due diligence. The vendor, Grosvenor, was advised by JLL.

Andrea BERTOCCHINI, 50, Head of Benelux & Nordics, La Française

Andrea benefits from twenty years of international experience in asset management and brings to investors a solid knowledge of real and listed assets, as well as an acute understanding of cross-cultural relations. He began his career with Carmignac in Luxembourg in 2003, before joining Chahine Capital in 2006 as Institutional Sales Manager. In 2010, he joined BNP Paribas Real Estate Investment Management as Business Development Manager - Benelux, Switzerland and UK, acquiring a real estate expertise, a necessary asset for supporting institutional investors’ allocation strategies. Andrea then embarked on a nine-year career with La Francaise, during which he developed the group's business first in Benelux, then in the Nordics and finally in Italy. Before rejoining La Française in 2023, Andrea spent two years with TOBAM as Managing Director, Head of Sales EAFE. 

Andrea is a graduate of Einaudi, Italy.

• The situation is explosive, and it arises in a world already plagued by numerous imbalances: climatic, migratory, diplomatic between China and the United States, linked to the conflict between Russia and Ukraine, etc. All of these imbalances militate in favor of financial markets volatility during the months ahead.
• The conflict is unlikely to have a direct impact on oil production, but it could have an indirect impact :
• Hopes that relations between Israel and Saudi Arabia would normalize in the short term have likely disappeared. The United States has been working on this for months, which could have led to an increase in oil production by Saudi Arabia early next year. This is unlikely to happen.
• The United States has reduced the level of sanctions applied to Iran over the past year, which has led to an increase in Iranian oil production. This increase is estimated at 700,000 barrels/day (source: Bloomberg). Given the ties between Iran and Hamas, it is possible that US sanctions will resume, resulting in a drop in oil exports from Tehran.
• Discussions have been difficult in recent months between US Republicans and Democrats over support for Ukraine: they are likely to be even more so if the US government has to "arbitrate" between support for Israel and Ukraine.  

Fortunately, we have not reached this level of escalation yet, but it is always worth remembering that a war is by its very nature “inflationary”, and more often than not, results in higher commodity prices. The weekend's events could therefore make the mission of central banks even more difficult.

This commentary is provided for informational and educational purposes only. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

The commentary is provided for information and education purposes only. The views are expressed by the La Française Group. These views may differ from those of other investment professionals. Published by La Française AM Finance Services, whose registered office is located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de contrôle prudentiel as an investment services provider under number 18673 X, an affiliate of La Française. La Française Asset Management has been authorised by the AMF under number GP97076 since 1 July 1997.

sources

1. https://unglobalcompact.org/news/5143-09-14-2023
2. UNGC _ SDG _ Stocktake _ Report _ 2023
3.  Report of the World Bank and the World Health Organisation (WHO), 2017
4.  UNGC _ SDG _ Stocktake _ Report _ 2023
5. UNGC _ SDG _ Stocktake _ Report _ 2023
6. 9.7 billion on Earth by 2050, but growth rate slowing, says new UN population report | UN News
7. OECD Health Statistics 2023
8. UNGC _ SDG _ Stocktake _ Report _ 2023
9. Bloomberg, Exclusive report on Telemedicine industry, April 2023

The programme offers very good environmental credentials, both for winter and summer thermal comfort, with accommodations meeting the requirements of the RE 2020 and the amenities meeting the requirements of the RT 2012-20%. The project aims to obtain ‘Very Efficient’ NF Habitat HQE certification. Heating and sanitary hot water production will be provided by a boiler unit powered by wood pellets and by 300 m2 of solar panels.

With regards to biodiversity, the project includes a green roof, replanting the lining river banks, installing birdhouses and more broadly the ecological management of the site. The resort aims for the Biodivercity® “Performant” label.

The delivery date is set at the end of 2025 and the asset will be fully leased under a long-term lease to an experienced operator, MMV. A subsidiary of Compagnie des Alpes, MMV has been operating in the French Alps for more than 30 years, with 21 sites in 16 prestigious stations in the Alps.

Leslie VILLATTE, Director of Institutional Real Estate Investments and Development - France at La Française Real Estate Managers - Institutional Division, concluded, “In the current macroeconomic context, tourism assets, with their defensive profile, are taking on their full meaning. The resort’s prime location, sustainability characteristics as well as its experienced operator, are factors that should support its valuation over the long term.”

For this operation, La Française REM was advised by Lexfair (Virginie Blanc), Reed Smith (Carole Steimlé) and Domeka (Damien Becquart).

Allfunds Blockchain enables streamlined order routing and provides real-time viewing of all related processes to its participants, increasing transparency, efficiency and reducing costs of distribution for asset managers. In addition and once operational (target date: 1 semester 2024), this new setup will allow La Française’s professional investor client base to benefit from more accurate cut-off times and improved reporting.

With a clear initial focus on international distribution, La Française and Allfunds Blockchain are planning to leverage further on blockchain technology. They will explore options, using the same approach, based on concrete and scalable “use cases” with a demonstrable ROI, combined with a strategic view of how the Allfunds Blockchain value proposal can open the door to new applications in the finance industry and new distribution models around tokenization.

Thierry Gortzounian, Managing Director of La Française AM Finance Services, said: “The cooperation between Allfunds Blockchain and La Française will allow us to continue to improve the array of services that we provide to our clients, namely by processing their orders more efficiently in a simplified yetsecure framework. The blockchain platform deployed by Allfunds Blockchain will facilitate access to La Française's securities asset management expertise and provide value to professional investors.”

Christophe Descohand, Head of Innovation of La Française AM Finance Services, added: “This partnership marks a first step in La Française’s overarching strategy to associate technology and asset management. As such, we will be capable of offering improved operational processing at a reduced cost to our clients. We are delighted about the partnership with Allfunds Blockchain and looking forward to being operational.”

Ruben Nieto, Managing Director of Allfunds Blockchain, added: “We are thrilled and deeply honored to embark on this collaboration with an asset manager that has consistently been a pioneer in innovation. This new expression of trust reaffirms our vision for blockchain within the industry: unlocking its potential to streamline existing inefficient processes and using these initial strides as a springboard to expand its adoption.”
 

Antoine VINCKE explains that: "Frédéric brings a wealth of experience to La Française Real Estate Managers in property and technical management, both in France and abroad. Working in tandem with La Française REM's Asset Management teams, he will create synergies with our tenants to improve the carbon footprint and sustainability characteristics of our real estate portfolio. With Frédéric's arrival, the Real Estate SRI team is now structured around four areas of expertise: technical issues, stakeholder engagement, regulations and data management.

Frédéric ROCOLLE, 32 years old, Real Estate SRI Manager at La Française Real Estate Managers

Frédéric has almost seven years' experience in technical property management. He began his career in 2016 with the Economat des Armées in Abu Dhabi as a facility manager, overseeing the maintenance and renovation of a portfolio of residential and tertiary buildings. After nearly three years in that role, he joined Nexity Property Management in 2019 as a technical property manager, bringing his expertise in environmental regulations to a portfolio of more than 250 retail properties across France. 

Frédéric ROCOLLE holds a Master of Science from Glasgow Caledonian University and a master’s degree in civil engineering from the Ecole Spéciale des Travaux Publics.
 

The asset is 100% leased to an inter-professional outpatient care company, comprising 11 practices that work closely with the TENON hospital. It offers a comprehensive, coordinated care package to improve patients' care pathways: GPs, ENT specialists (vertigo and hearing problems), endocrinologists, physiotherapists, midwives and nurses.  

Jérôme Valade, Head of Healthcare Assets at La Française REM concluded: "This fully refurbished multi-disciplinary health clinic is centrally located within Paris, close to transport links and in the vicinity of the TENON hotel - enabling a strong transfer of activity from the hospital. It is a good illustration of our investment strategy, which gives priority to well-located, multi-disciplinary urban medical assets that can be converted to meet the need for local primary care. 

For this acquisition, La Française REM was advised by the firm 14 Pyramides for the notarial audit, by Jeantet for the legal audit and by ISOME for the technical and ESG audit.
 

• Policy rate to remain unchanged at 5.25%-5.50%. 
• Consistency in the message delivered by Mr. Powell; he should repeat what he already said at the Jackson Hole conference: "the fight against inflation is far from over", the Fed "will keep at it until the job is done" and "restoring price stability will likely require an extended period of elevated interest rates". 
• Even if the Fed is and remains "data dependent", we believe that Jerome Powell will start preparing the market for a potential rate increase before the end of the year due to economic growth which is still above its potential level (overheating), a job market that shows little sign of moderation and a barrel of oil that has risen sharply since June. 
• Continued balance sheet reduction at a rate of $95bn per month. 
• A "dot plot" that should continue to show an additional rate hike by the end of the year, even if the changes in voters make forecasts difficult. The "dots" for 2024 and 2025 should be unchanged and the "dot" for 2026, which appears for the first time, should be in line with the long term “dot”. With regards to the latter, it does not seem impossible to us that it will be revised upwards. 
• Macroeconomic forecasts to evolve as follows: 
  • Growth revised significantly upwards in 2023, from 1% to 2% but unchanged in 2024 and 2025. Growth in 2026 is expected to be close to potential growth at 1.8%. The 2023 unemployment rate is also expected to be revised slightly downwards from 4.1% to 3.9%. 
  • A rate of inflation that should not be significantly revised. 

In summary, we expect the Federal Reserve to keep a hawkish bias at this press conference and reiterate the message that rates will have to remain high for an extended period of time in order to bring inflation down to the 2% mandate. This meeting could therefore lead to higher rates and a moderate flattening of yield curves.

This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

• Maintain the deposit rate at 3.75% and the Refi rate at 4.25% given weakening growth and slightly slowing underlying inflation. 
• Continue with a meeting-by-meeting approach with the possibility of maintaining or raising rates after September. President Lagarde will emphasize the ECB’s dependence on incoming data for subsequent meetings.
• Reaffirm that the ECB will keep policy rates in restrictive territory for a longer period to ensure inflation converges to the ECB's 2% target. 
• Reiterate that the outlook for inflation is uncertain. Price pressures and wage increases remain, but risks are viewed as more balanced. President Lagarde will highlight that underlying inflation has likely passed its peak.
• Potentially signal that the ECB will begin discussions on an earlier end to Pandemic Emergency Purchase Programme (PEPP) reinvestments. They will need to strike a balance in their press conference by incorporating some hawkish elements to satisfy hawkish members.
•  Indicate lower growth rates in 2023 (revised downwards from 0.9% to 0.7%) and 2024 (from 1.5% to 1.3%) due to weaker demand. We anticipate that growth will remain unchanged at 1.6% in 2025. 
• Revise inflation upwards in 2023 by 0.2% and downwards in 2024 by 0.1% while keeping 2025 unchanged. 

In summary, we expect the ECB to maintain an overall tightening bias despite the pause. During the press conference, President Lagarde will make strong efforts to avoid a dovish communication, clearly indicating that further tightening is possible. This meeting may result in a modest steepening of the yield curve. 

This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

From the outset, the private sector has been recognised as a key partner in the pursuit of these goals. Leveraging on its inherent strengths, being agility, innovation and investment capabilities, the private sector possesses the potential to drive transformative change. By aligning their strategies and operations with the SDGs, companies can generate positive social and environmental impacts whilst unlocking new opportunities for sustainable growth.

The private sector’s engagement with regards to the SDGs extends beyond mere philanthropy or corporate social responsibility. Rather, it represents a strategic imperative for businesses to future-proof their operations and secure long-term value creation. Embracing the SDGs enables companies to enhance their competitiveness, attract investment, foster innovation and build resilient business models capable of navigating the evolving global landscape.

This report aims to provide insight into the pivotal role of the private sector in driving the achievement of the Sustainable Development Goals (SDGs). It further explores how investors can effectively incorporate these goals into the investment decision-making processes, thereby contributing to the overall progress towards a sustainable future. 

For investors, recognising the importance of the SDGs in shaping the future investment landscape is paramount. Integrating the SDGs into investment decision-making processes allows investors to align their portfolios with sustainability principles and contribute to positive social and environmental outcomes. This approach involves incorporating environmental, social and governance considerations into the investment analysis, actively seeking out companies that demonstrate strong commitment and progress towards the SDGs and engaging with portfolio companies to drive sustainability practices.

• Simplified investment processes,
• Auto-settlement capabilities with reporting and custodian booking,
• Enhanced analytics and reporting.

Thierry GORTZOUNIAN, Chief Operating Officer of La Française AM Finance Services said, "As a client-centric and innovative asset manager, La Française relentlessly pursues all venues capable of democratising access to its securities asset management expertise while creating value for the end investor. As a platform designed to simplify the daily cash management of institutional investors, Cachematrix by BlackRock is an additional milestone in the right direction.” 

La Française Trésorerie ISR

Asset Class:    Standard money market fund with variable net asset value
Share class:     I share / FR0010609115
Objective:     The Fund's management objective is to seek market opportunities on short-term maturities in order to offer the same performance 
    as the capitalised €STR, less management fees, by investing in a portfolio of issuers screened in advance according to 
    Environmental, Social and Governance criteria.
Synthetic Risk Indicator:     1 on a scale of 1 to 7, 7 representing the highest risk
Investment Horizon:     3 months
Minimum initial subscription:     €500,000
Main associated risks:     risk of capital loss, interest rate risk, ESG investment risk, sustainability risk, discretionary risk, counterparty risk.

The SRI Label does not guarantee the Fund's performance.

Christine Lagarde’s message was more neutral, which is reasonable considering the less favourable European economy. Some members of the European central bank (ECB) reaffirmed their respective biases, Martin Kazaks’ and Joachim Nagel’s were rather “hawkish”, while Mario Centeno took a more neutral stance.

Finally, Kazuo Ueda, the governor of the Bank of Japan, emphasized Japan’s accommodative monetary policy and his belief that the actual pressures linked to inflation would not last.

There were no big surprises globally, especially regarding the worries of the market surrounding a potential increase in “R-Star” in the US. The market feared the Fed’s insistence on it, but it has not been the case. It also needs to be noted that Mr Ueda was more accommodating than the market expected.

This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

Water recycling - a long time coming

Wastewater reuse, also known as water reclamation or water recycling, is increasingly recognised as a sustainable solution to the world's growing water crisis. Rather than considering wastewater as a product to be disposed of, it can be treated and purified to limit freshwater consumption. The treated water can be used for agricultural and industrial purposes or for groundwater replenishment. Some countries have already taken action on a large scale. In Italy and Spain, for example, respectively 8% and 14% of wastewater is reused. In Israel, 85% of wastewater is recycled.

 As a consequence of climate change, many regions around the world are seeing their water resources diminish drastically. The United Nations even estimates that global demand for freshwater will exceed supply by 40% by 20303 . In France, a record period of 32 days without rain was recorded between January and February 2023, delaying the replenishment of groundwater and impacting available water resources. In South Africa, the severe drought suffered between 2018 and 2021, combined with the rise in population, has further exacerbated the crisis.

Despite the many benefits of wastewater reuse, its uptake has been slow and primarily restricted to countries the most exposed to water stress, in other words the most vulnerable. In France, for instance, only 1% of wastewater is reused. This figure is far behind Spain and Italy, which are exposed to recurring droughts. Another obstacle is the stigma associated with recycled-water use, even though numerous reports show that recycled wastewater is not only as safe as conventional potable water but can even be less toxic than certain natural water sources4 . A recycled-water safety communication campaign would be a prerequisite to overcome public objection. However, the primary obstacle to implementing recycling methods is no doubt the lack of technology and expertise in the field.

As a staunch and responsible participant of this project, La Française is involved in a number of initiatives that fall directly in line with its principles surrounding sustainability and is committed to supporting companies in their transition by ensuring that regular and constructive dialogue remains firmly in place.

This new engagement is consistent with La Française AM's diversity voting policy, which includes voting against the election or re-election of male members of the Board of Directors if less than 40% of the Board members are women.

Marie Lassegnore, CFA, Head of Sustainable Investments:

"La Française Group is continuing its active engagement to helping businesses make the transition to a more socially responsible society. By joining Club 30% France IG, we will be helping to promote increased gender diversity and greater transparency between companies and investors".

The publication of the Club 30% France Investor Group's second annual report looks back over the 2022 engagement campaign, highlighting good practices in favour of professional and financial equality for women in SBF 120 companies, as well as a MEDEF study on the commitment to equality among these companies, while also criticising unhelpful preconceptions surrounding the issue.

For more information on the actions and engagements of the Club 30% France IG coalition, download the 2022 annual report below.

As part of its CSR policy, the La Française Group is reaffirming its ambitions and engagements in its role as investor as well as in the actions it is taking as a company. In terms of gender equality in the workplace, La Française group launched the FurtHer programme at the end of 2020, an initiative working towards equal opportunities with the aim of promoting female leadership, accelerating the rise of female talent and encouraging a cross-sectoral approach and gender diversity at all levels of the company. With a number of conferences, workshops, feedback sessions and a mentoring programme set up in 2021, this programme is making a real contribution to the equality goals set up within La Française.

For nearly 15 years, La Française group has been developing and employing an approach to responsible investment through new initiatives and engagements, helping to improve and promote the consideration of ESG factors in its third-party asset management business.

To find out more about La Française Group's engagement policy and report, as well as La Française AM's specific 2022 voting policy:
https://www.la-francaise.com/en/who-we-are/our-expertise/sustainable-investment/sustainable-documentation/

• The FOMC to hike rates by 25 bps to a range of 5.25%-5.50%. 
• Chair Powell to signal that the Fed could “ skip ” a hike at their next meeting in September. However, he will warn that the pause may not be the end of the Fed's tightening cycle, i.e., the June dot plot for 2023 projected the fed funds rate peaking at 5.6% this year.  
• Jerome Powell to indicate that the increase could come later in the year, leaving time to evaluate how the U.S. economy is evolving. In addition, he is expected to reiterate that the Fed will not rule out more rate hikes, if needed. The Fed will not allow inflation expectations to become unanchored. 
• Fed chairman to signal supply and demand are coming into better balance, with inflation decelerating and positive but slowing job growth. However, he will emphasize that ‘wage growth is still running at a pace that is well above what would be consistent with the Committee’s 2% objective’.  
• Mr. Powell to reiterate that the Fed needs to keep interest rates high for a while to make sure inflation comes down to its 2% target. 
• The Fed to continue its quantitative tightening at $95bn per month. 

In summary, we believe that the FOMC will not overreact to the latest encouraging data on price pressures as the labor market remains tight. We expect the Fed to continue with its June dot plot plan (i.e., one further 25 bps rate hike). Fed chair Powell will indicate that the FOMC is satisfied with progress so far while Fed policy makers will remain very cautious with falling, but still elevated (underlying) inflation. We do not expect this committee to come as a surprise for investors. Consequently, it should have a limited impact on financial markets.  

This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

• The ECB to increase its key interest rates by 25 bps, bringing the deposit rate to 3.75% and the Refi rate to 4.25%.
• The Governing Council (GC) to maintain the meeting-by-meeting approach with the possibility of pausing rate hikes in September as data since the June meeting showed the eurozone economy losing steam and inflation falling for a third straight month in June.
• President Lagarde to indicate that the monetary policy stance for September is conditional on new data and the updated assessment of economic projections.
• Christine Lagarde to reaffirm that the ECB will maintain policy rates in restrictive territory for a longer period in order to break the persistence of inflation.
• The ECB to leave Pandemic Emergency Purchase Programme (PEPP) forward guidance unchanged; maturing securities will be reinvested in a flexible manner at least until the end of 2024. We believe President Lagarde will indicate that the GC is not considering an early end to PEPP reinvestments at this stage or even discussing the outright sale of bonds held on its balance sheet to accelerate its quantitative tightening (QT) despite some recent comments from hawkish ECB members. 

In summary, we expect the ECB to continue its strategy that is a “data-dependent approach and meeting-by-meeting optionality” as the GC approaches the potential peak rates. It is unlikely that President Lagarde will pre-commit to any explicit guidance for September and beyond. However, she will likely warn that the ECB tightening cycle is not over. Nevertheless, the ECB’s communication may be more balanced, especially after surprisingly dovish comments from two ECB-member hawks (Klaas Knot and Joachim Nagel). Consequently, this meeting may push the Euro currency and eurozone interest rates slightly lower. 

This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

Ideally located just a 10-minute walk from the Old Port of Marseille, a few minutes from Les Docks Village shopping centre and near the historic Panier district, the development is situated in a prime location. Easily accessible by public transport (Metro Line 2 - Joliette stop, Tram Lines 2 and 3 - République Dames stop), the mixed-use development will include a 237-room hotel with 7,582 sqm and a 945 sqm co-working space spread over three floors, as well as a 251 sqm pharmacy, which already exists and will not be altered by the project.

Designed by the GENSLER / Claire FATOSME & Christian LEFEVRE consortium and entirely redesigned by BNP Paribas Real Estate Property Development, the hotel will offer a host of upmarket services, including a rooftop terrace and lounge bar on the ninth floor. Delivery is scheduled for the end of 2025. After handover, the hotel and co-working space will be operated by the hotel operator Ruby Hotels. Established in 2013 and with sixteen existing properties and twenty more in planning or under construction, Ruby Hotels bases its offering on the concept of "Lean Luxury", with the aim of providing guests a high-end experience at an affordable price.

The complex will be certified BREEAM "Very Good" and will be connected to the Thassalia urban marine geothermal network. The project will be integrated into the "Booster du Réemploi" to promote the circular economy, and at least 5% of site hours will be reserved for the integration of vulnerable groups or populations that are excluded from the labour market, making it an exemplary project from both social and environmental perspectives.

Leslie Villatte, Director of Institutional Real Estate Investments and Development – France of La Française Real Estate Managers – Institutional Division, concluded: "The asset benefits from an ideal location that is consistent with the positioning of the Ruby Group, a first-rate tenant. It boasts a host of top-of-the-range facilities and excellent accessibility thanks to its location in the heart of the Marseille city centre. Moreover, this investment strengthens the diversification of our portfolio of tourism assets with the addition of a first-rate operator.

The 5 290 m² building was completed end of 2022 and will be LEED Gold certified. The property also features strong environmental credentials with namely solar panels on the rooftop, a connection to the district heating system, a planted roof, 10 charging stations for electric vehicles and an external area for 55 bicycles.

The office building is fully rented under long-term leases to five tenants, including two companies specialized in cybersecurity and Landmarken AG.

Mark Wolter, Managing Director of La Française Real Estate Managers Germany, commented: "We are pleased to have acquired our first office building in Bochum. This acquisition is perfectly in line with our strategy to diversify our German real estate portfolio with properties that perform very well in terms of ESG criteria, as well as to expand our footprint in economically strong regions and urban centers other than the 'top 7'. We are convinced of the long-term attractiveness of the new neighborhood and the sustainability of the property."

La Française Real Estate Managers was advised on legal aspects by Görg Partnerschaft von Rechtsanwälten mbB and on the technical due diligence by TA Europe GmbH. Cushman & Wakefield handled the marketing of the property on behalf of the seller.

The portfolio includes three medical and rehabilitation centres (centres de soins médicaux et de réadaptation – SMR) and two clinics specialising in medicine, surgery and obstetrics (médecine, chirurgie, 
obstétrique – MCO), all of which will be let to ELSAN under long-term leases. A key player in the French healthcare landscape, ELSAN is present in all areas of the hospital sector and in every region of France. Its social utility is an integral part of its mission to offer quality care to everyone, everywhere. The aim of ELSAN's corporate social responsibility initiative is to foster the implementation of its values (caring for others, social cohesion and team spirit), in line with its strategic objectives. It reflects their efforts to meet the societal challenges they face and the expectations of all of its stakeholders, both internal and external. As a major player in the healthcare sector, the responsible and committed Group is fully integrated in public service assignments and contributes to the teaching of doctors, continuous learning, clinical research and technological innovation. ELSAN’s purpose is to act responsibly and innovatively to provide healthcare everywhere.

As part of this strategic partnership, La Française Real Estate Managers and ELSAN have agreed to set up a modernisation fund for healthcare establishments, financed jointly by ELSAN (the operator) and La 
Française REM (the lessor). This fund will help finance projects to modernise and improve reception conditions and work to improve the energy and environmental performance of all the establishments 
concerned. 

Description of assets:

• Clinique Supervaltech - SMR (rue Arnaud de Villeneuve, Saint Estève), located in the Greater Perpignan area. Clinique Supervaltech employs more than 135 staff and 9 doctors who treat more than 1,600 patients a year. The facility, which is EMAS (Eco-Management and Audit Scheme; 2017) registered, has a total surface area of 7,254 m². The 178-bed clinic specialises in the care and support of the elderly and has a technical platform dedicated to geriatric rehabilitation (occupational therapy, physiotherapy, rehabilitation room) to help patients regain their independence and return home. Supervaltech also offers out-patient care for cardiorespiratory rehabilitation in a modern, well-lit setting. As part of the transaction, the purchaser is planning and financing the creation of new accommodation capacity and the installation of photovoltaic panels for self-consumption.
• Clinique du Sud - SMR (Chemin de la Madeleine, Carcassonne), strategically located in the immediate vicinity of the Carcassonne hospital. The Clinique du Sud has more than 73 staff and 8 doctors who treat more than 1,400 patients a year. The 5,181 m², 64-bedroom facility is the only one in the Aude department to be 100% dedicated to acute care and rehabilitation. It specialises in the rehabilitation of disorders related to the musculoskeletal, nervous, cardiovascular and respiratory systems. The healthcare facility was the only one in the Aude region to be accredited by the regional health agency at the end of 2021 for the treatment of long Covid. As part of the transaction, the purchaser is planning and financing the installation of photovoltaic panelsfor selfconsumption.
• Clinique Valdegour - SMR (772 Chemin de Valdegour, Nîmes), is located in the immediate vicinity of the Nîmes University Hospital, in the department of Gard. The Clinique Valdegour specialises in disorders of the musculoskeletal system and the rehabilitation of the elderly. It has 87 staff and 6 doctors who treat more than 1,200 patients a year. The healthcare facility has been certified by the Haute Autorité de Santé (HAS) since 2021 for its confirmed quality of care. The 8,166 m² complex includes a new building dedicated to the Nemoscan medical imaging centre, equipped with a state-of-the-art scanner and MRI unit, soon to be complemented by a radiology and ultrasound platform. As part of the transaction, the purchaser is planning and financing modernisation works and the conversion of double rooms into single rooms.
• Clinique du Cambrésis - MCO (102 Boulevard Faidherbe, Cambrai), located in the city centre close to Cambrai TER station, which links it to the department's major towns, including Lille which is 80 km to the north. The Clinique du Cambrésis has more than 41 staff and 19 doctors who treat more than 4,089 patients a year across a wide range of medical specialities. The clinic has a total surface area of 3,666 m². As part of the transaction, the purchaser is planning and financing the creation of an open-door, out-patient care unit within the clinic.
• Clinique Les Lauriers - MCO (147 rue Jean Giono, Fréjus), located in the Var department. The Clinique Les Lauriers has more than 80 staff and 59 doctors who treat more than 30,000 patients annually. There is a bus stop in front of the building. The complex covers a total of 4,787 m² and has 71 beds and day-patient places. Since 26 April 2018 and for a period of six years, the Clinique Les Lauriers has been V2014 certified by the HAS with the highest level "A" for the quality of patient care. As part of the transaction, the purchaser is planning and financing the extension of the operating theatre with the creation of a new operating room. 

Jérôme Valade, Head of healthcare assets at La Française REM concluded: "The acquisition of this portfolio of five clinics marks the start of a long-term partnership with ELSAN, and we look forward to 
repeating this type of operation together. Indeed, the joint modernisation fund which will support these assets in the climate transition towards a better energy and environmental footprint reflects our shared 
commitment to responsible real estate asset management."

Simon Levy, Chief Executive Officer of the ELSAN Group: "This new strategic partnership is in line with ELSAN's desire to continue developing the activities of its establishments by joining forces with a major 
player in the healthcare real estate sector. We also want to continue to work with La Française REM to invest in modernising and improving conditions for our patients, while ensuring the energy and 
environmental transition of our facilities.”

For this acquisition, La Française REM was advised by ALLEZ & ASSOCIES, MAYER BROWN for legal, ARTELIA for technical and ESG due-diligence and by ADAMA CONSEIL ET TRANSACTIONS for the 
operational audit.
 

• Restrictive monetary policies take longer to materialise than expansionary policies.
• The effects are not linear, which means that short-term effects may differ from the longer-term effects. For example, an initial rise in interest rates may lead to a stronger immediate reaction in certain interest-sensitive sectors, such as real estate or consumer loans, before the effects gradually spread to the economy as a whole.
• The time lag can vary from three to six months to even three years, depending on financial stability and the efficiency of monetary transmission channels.

Given the characteristics of the current cycle, it seems fairly logical to assume that the lag will be extensive, maybe up to three years. We are coming out of ten years of highly accommodative monetary policy, which have enabled the vast majority of private-sector actors to enter this new phase with healthy balance sheets and very low financing costs. As a result, the rate hikes have had a fairly limited impact on these actors. We should also bear in mind that while monetary policies have become restrictive, this is not at all the case for fiscal policies, which have been and remain very generous: the more governments protect their economies by limiting the negative effects of inflation, the harder it is to defeat inflation, forcing central banks to adopt increasingly restrictive monetary policy.

Taking all these factors into account, it is logical for the ECB to think that the effects of its monetary tightening will be more palpable in 2024 than in 2023.

If we take into account the current strength of the labour market, the shortage of available labour and the eagerness of employees to regain all or part of the purchasing power lost over the last two years, it is likely that wage inflation will continue over the coming months or quarters. Moreover, if fiscal policies continue to offer support to households and in turn consumption, which accounts for just over half of eurozone growth (51.6%; Source: Eurostat), we may even see wage inflation continuing for longer. Assuming wage inflation remains at around 4 to 5%, i.e. the current rate, it will be extremely difficult to see core inflation fall significantly in the eurozone.

Markets are anticipating that inflation will be around 3% at the end of the year and higher core inflation of around 4% (Source: Bloomberg). It is interesting to note that the dispersion around core inflation forecasts is currently fairly high, which is not illogical given macroeconomic uncertainty. If we assume that wage inflation persists, it will be difficult to bring the rate of inflation down significantly in the eurozone, which will lead to rising inflation expectations. At present, the market is working on the assumption that the ECB will cut interest rates by around 80 basis points in 2024. However, in a climate of persistent inflation, these rate cuts would no longer serve any real purpose.

Ultimately, everything will also depend on the resilience of the European economy, whose growth is currently close to zero at best, and on the dynamics of credit supply and demand. A credit event could undermine financial stability – which the ECB holds dear– thus sharply increasing the speed of monetary transmission, but we are not there yet.

• The FOMC to maintain its policy rate unchanged within a range of 5.00%-5.25%.
• Jerome Powell to reiterate that the Fed needs to keep interest rates higher for longer. He will likely emphasize that this is not the end of the tightening cycle, and that future monetary policy decisions will be based on growth and inflation outlooks.
• The Fed to continue quantitative tightening at a rate of $95bn per month.
• Referencing the dot plot, we expect to see the median dot revised upwards for 2023 (compared to March projections at 5.4%) and 2024 (March projections at 4.5%). We anticipate no change for 2025 or over the longer-run.
• Regarding revised economic projections, we expect to see higher growth for 2023 (from 0.4% to 0.7%) and no change for 2024 and 2025 (remaining at 1.2% and 1.9% respectively). We expect the committee to keep its median headline and core inflation expectations broadly unchanged for 2023 (at 3.3% and 3.6% respectively) and the next two years (at 2.5% and 2.6% for 2024 and at 2.1% for both for 2025). We also expect unemployment rate expectations for 2023 to be revised downwards from 4.5% to 4.2-4.3%.

In summary, we expect that the FOMC will choose to adopt a wait and see approach at this meeting, unless there is a significant positive inflation surprise on June 13 which would coincide with the start of this meeting. However, despite this pause, Chair Powell is expected to signal that Fed policy rates might not be sufficiently restrictive given the persistent nature of inflation and the resilience of the U.S. labor market. We believe this committee could push U.S. interest rates moderately higher.

This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

What does it mean for the NZAM and other Net Zero initiatives ?

The Net Zero Asset Managers initiative (NZAM), Net Zero Asset Owner Alliance (NZAOA) and Net Zero Banking Alliance (NZBA) are the other major coalitions, all part of the Glasgow Financial Alliance for Net Zero (GFANZ) umbrella. Interestingly, despite having left NZIA, AXA and AXA Investment Managers are both still members of NZAO and NZAM, respectively.

Regrettably, the GFANZ, its associated initiatives and their members have been facing increased criticism and antitrust accusations from U.S. Republican senators. On October 19, 2022, 19 Republican state attorneys general served six U.S. banks with civil investigative demands, seeking information related to their involvement with the NZBA and raising antitrust concerns. At the end of last March, 53 of the largest asset managers in the US received a letter from 21 state attorneys general, cautioning them against engaging in what they referred to as “woke” environmental and social initiatives. Notably, this letter was directed to large asset managers such as BlackRock, Franklin Templeton and Goldman Sachs, all members of the Net Zero Asset Managers initiative. Compared to their insurance counterparts, these asset managers exert a strong influence on the U.S. political landscape, which makes them less vulnerable and better equipped to navigate through difficult times. This is no doubt why we have not witnessed a similar flee.

Nevertheless, there have been exits. Last April, Green Century left the NZAM initiative, following in the steps of Vanguard. Green Century, the fossil-free fund manager, mentioned compliance challenges as the motivation of their departure. On the other hand, Vanguard, the second-largest asset manager in the world, cited the need for independence and a desire to provide clarity on its investment views.

The various alliances are already responding to these challenges by watering down their rules to retain members. The GFANZ amended its membership rules by dropping its requirement to commit to the UN-supported Race to Zero campaign after major U.S. banks were considering withdrawing from the group. Similarly, the NZBA refused to impose restrictions on fossil-fuel financing on its members. However, such compromises have led to criticism from green activists which fear that alliance objectives are being unduly diluted. On the regulatory side, the EU commission also joined the effort and relaxed its antitrust guidelines for companies which team up to solve climate challenges. The objective is to help companies engage in legitimate and genuine sustainability co-operation while creating a safe harbour from prosecution.

The mass exodus from the NZIA and staggered exits from other initiatives raises questions on the credibility and effectiveness of collaborative groups, including the GFANZ and beyond. It is still debatable whether climate leaders, in many cases, are withdrawing from these alliances due to concerns about potential business losses in the U.S. or actual legal jeopardy. It is important to combat antitrust claims against climate action, and it remains crucial for the financial community – insurers, asset managers and asset owners – to strengthen and uphold their climate commitments. However, doubts will persist regarding the true impact of their actions if they operate independently. There will be challenges, no doubt, from legal, political and operational points of view. However, collaborative efforts can be more effective in driving meaningful change and addressing the planetary emergency.

This commentary is provided for informational and educational purposes only. The opinions expressed are by La Française Group. These opinions may differ from those of other investment professionals.

Developed by PRD and delivered in February 2022, this Class A warehouse is located in the “Plaine de l'Ain” Industrial Park, in the Greater Lyon logistics market, the second largest logistics market in France. The site has excellent access to the A42, A40 and A6 motorways, covering a large catchment area. Fully leased to three tenants, the warehouse has a total surface area of 50 405m2, including 1 047m2 of office space, and offers 229 parking spaces, including 15 for heavy goods vehicles. As a new asset aiming for the BREEAM Very Good label, it meets the latest technical standards (Grade A). Additionally, the roof is entirely covered with solar panels.

Leslie VILLATTE, Director of Institutional Investments and Real Estate Development – France of La Française Real Estate Managers – Institutional Division, said: "This acquisition was completed in the context of a renewed mandate. It constitutes the first logistics warehouse in the real estate portfolio that we manage on behalf of ERAFP, who we would like to thank for their renewed confidence. In Lyon, the logistics market is very competitive given the limited stock, well below take-up over the past five years. This scarcity of supply, together with the technical and environmental characteristics of the asset itself, should sustain the value of this prime logistics warehouse over time.”

The breakdown of expenditure reveals weaknesses in both private and public consumption. In Q1 2023, household consumption contracted by 1.2% quarter-on-quarter, primarily due to the burden of high prices. Real household disposable income decreased in both Q4 2022 and Q1 2023. Consumers were reluctant to spend across various sectors, despite government support for energy costs.

In Q1 2023, government consumption declined by 4.9% quarter-on-quarter, marking the largest drop since 1970. This decline reflects the normalization of public consumption as pandemic measures, such as vaccinations and testing, were phased out in Q1. However, this decrease in government spending is punctual in nature and will no longer weigh on GDP in Q2.

On the other hand, fixed investment experienced a strong rebound, driven by private investments. This recovery suggests a sustainable improvement in business investment, particularly in machinery and equipment. Additionally, unusually warm weather in January boosted construction activity in Q1. However, these weather effects have reversed, resulting in a negative carryover for construction in Q2.

Net exports made a positive contribution to overall growth, with exports rebounding by 0.4% quarter-on-quarter and imports declining by -0.9% quarter-on-quarter (Q1 2023 vs Q1 2022). The decrease in imports partly reflects lower energy imports.
Production-side data deviates notably from expenditure-side data, with gross value-added expanding by 0.8% quarter-on-quarter compared to the contraction measured on the expenditure side. This positive gap between the measures is unprecedented.
Construction and industry recorded the highest growth rates, likely supported by favorable weather conditions and lower wholesale energy prices. Private and public services experienced slower growth.

Looking ahead to the end of the year and 2024, a period of renewed economic weakness is anticipated as higher interest rates, reduced savings and a slowdown in the United States begin to take effect. 

Gradual fiscal tightening is expected, along with a continued focus on energy policy in the short term, as 2025 elections approach. The combination of higher energy prices and wage growth presents a significant challenge to Germany's export-oriented manufacturing sector, which may require increased investment and moderate wage growth to maintain competitiveness. Alternatively, failure to address these issues could result in a structural decline, inflationary pressures and a need for government support. The post-pandemic and changing geopolitical landscape suggest that Germany's traditional model, characterized by high current account surpluses, may undergo transformation.
 

Source: Bloomberg

What is the TNFD?

The TNFD is a global, market led initiative that seeks to develop a framework for the disclosure and risk management of developing nature-related risks, opportunities, impacts and dependencies. It was launched in 2021 with the goal of moving financial flows towards nature positive outcomes and away from nature-negative outcomes through standardised disclosures. The taskforce currently has over 40 members including corporates and financial institutions representing $20 trillion in Assets Under Management. There are also 1,000 organisations globally supporting the TNFD Forum, with 18 core knowledge partners representing global scientific, conservation and standards development organisations. (2)

What has changed between v.0.3 and v.0.4?

Whilst the main structure and components of the framework are similar to the previous release, there are now 14 TNFD recommendations, of which 11 are directly adapted to the commonly used TCFD framework for climate. The 3 new additions are on the Risk Management and Strategy pillars, with an emphasis on stakeholder engagement, value chain and location specificity – topics that are specifically important in the context of nature. This is a significant change from TCFD where these details are not as well specified.

This is also the first release to include guidance on data & metrics and sector-specific guidance frameworks. TNFD has provided a first set of metrics that can be used for nature-related disclosures. These are divided into three tiers: core global metrics that apply to all sectors, core sector metrics that apply to certain sectors and additional disclosure metrics, which are recommended but not required. Examples of core global disclosure metrics include: extent of land/freshwater/ocean use changes by ecosystem type and business activity; total pollutants released into the soil split by type; and, total non-GHG air pollutants by type. In this version, TNFD has also provided sector-specific guidance for Food & Agriculture and Financial Institutions, which includes additional draft disclosure guidance, as well as additional guidance on biomes.
 

What can still be improved?

There are still areas of the draft disclosure which we believe can be improved. For example, there is potentially too much freedom with scoping. Given that the level of discretion allowed for organisations to determine materiality and scope of their analysis is broad, it is plausible that companies in the same sector have significantly different levels of disclosure.

Although TNFD has provided a set of tools, such as ENCORE, which make disclosures a lot easier, we still believe the set of core metrics is still not applicable for all sectors. From a financial institution (FI) perspective, it is highly unlikely that an FI will be able to report and disclose on all 14 Core Global Disclosure Metrics, simply due to a lack of scope and reported data (for Scope 3). For example, soil pollution, to be disclosed as ‘Total pollutants to soil split by type’ is often not a readily available data point and companies in sectors which do have a high exposure to soil pollution will need time and resources to start reporting it. There is also the danger that FIs could be pigeon-holed into using one methodology or data source to comply with standards and regulations until there is consensus on the best way to describe impacts and dependencies.

The final release will be issued in September 2023. Nevertheless, we believe that it is important for market participants to be proactive and to start integrating the TNFD framework now. There is increasing focus on a nature-positive transition, combined with the net-zero transition too, and where focus starts to tilt, regulation will likely follow.

This commentary is provided for informational and educational purposes only. The opinions expressed by La Française Group. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

1 www.weforum.org/press/2020/01/half-of-world-s-gdp-moderately-or-highly-dependent-on-nature-says-new-report/
2 tnfd.global

• The ECB to increase its key interest rates by 25 bps, bringing the deposit rate to 3.25% and the Refi rate (or refinancing rate) to 3.75%. The inflation figures published this week, still too high especially regarding "core" inflation, could have led the ECB to continue rate hikes by increments of 50 bps. However, we expect the ECB to opt for a less aggressive approach because of the latest "bank lending survey" which reports an already significant tightening of credit conditions.
• The ECB to reaffirm the meeting-by-meeting approach dependent on the inflation outlook (next forecast in June), the dynamics of underlying inflation and the strength of monetary policy transmission. Christine Lagarde might also reaffirm that in the ECB’s base case, more rate hikes are to be expected. 
• The ECB to announce the end of APP reinvestments from the end of June while continuing to reinvest the proceeds of Pandemic Emergency Purchase Program (PEPP) redemptions. 
• Considering the still very high level of excess liquidity (more than €4 trillion), we do not expect any announcement on a new TLTRO, in replacement of the one expiring in June.

In summary, we think Christine Lagarde will adopt a rather hawkish tone to offset the shift from 50 bps to 25 bps increases and not appear too accommodative given that inflation is still very far from the target. All other things being equal, it could push European short-term rates and the Euro higher. 

This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

• The FOMC to hike rates by another 25 bps to a range of 5.00%-5.25%.
• Chair Powell to indicate a pause in June in order to assess the cumulative effect of the tightening of monetary policy to date, while keeping the door open to more rate hikes. 
• Chair Powell to signal that monetary policy is conditioned on the outlooks for both inflation and real economic activity. 
• The statement will provide as much as flexibility as possible.
• Jerome Powell to reiterate that the Fed needs to keep interest rates high for longer given the risk of persistently high underlying inflation, and that Fed policymakers do not anticipate rate cuts this year.  
• The Fed to continue its quantitative tightening at a rate of $95bn per month.

In summary, we expect that the FOMC will indicate a pause in June to gauge the extent of the tightening of lending standards. Nevertheless, Chair Powell is not expected to signal that the Fed tightening cycle is over: the statement language is important because the Fed does not want to prematurely ease financial conditions. We believe this committee will have limited impact on U.S. interest rates, even if we acknowledge that finding the right balance might prove to be difficult for Mr Powell.

This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.
 

1/ The results of European banks will not matter for bank bondholders.

It may sound bold to make that claim as we are still in the middle of the Q1 results announcement season, but we already have enough evidence so far to state that nothing tremendous is happening in Europe. 

Bank equity and bondholders and analysts are subject to passing fads when it comes to assessing balance sheet robustness. In the past few years, we were mostly looking out for solvency ratio and non-performing loans trends, which were improving dramatically. All eyes are now turning to customer deposit trends, liquidity ratios and exposures to commercial real estate. This too shall pass. 

Santander unveiled its results on April 25 with quarter-on-quarter Spanish customer deposits dropping by 5.6% and its stock price largely underperformed other bank stocks on that day due to this headline (along with poorer profitability in Brazil). Could that be the sign of upcoming liquidity stress? No, definitely not.

Here is why: (i) customer deposits on a group basis were down only 1% on a QoQ basis and were up by 4% YoY, (ii) customer deposits in Spain were up by 7.9% YoY, (iii) management stated that most of the QoQ Spanish deposit decline was driven by corporates and CIB in January mostly, before the onset of the banking crisis. Customer deposits can be and are volatile, are subject to seasonal adjustments and depend on both customer-type lending and geographical mixes, and it seems like investors have forgotten about that.

Anecdotal evidence from other bank results in Europe has shown so far that there was nothing significant to see here. 

As a conclusion, long-term trends on banks matter more than quarterly figures. Do not hold your breath on this season of results from European banks.

Delivered last February, the warehouse is fully let to a key e-commerce player on a long-term lease. The asset has a total surface area of approximately 7,935 m², including approximately 5,756 m2 of warehouses and 2,179m2 of offices, as well as eight delivery bays and 571 parking spaces (of which 448 are for vans).

Located in the Espirito Santo industrial zone, the warehouse has excellent motorway access (AP-9, AG-13, N-V1), enabling it to cover a very large catchment area. The asset meets the latest technical and environmental standards, with a BREEAM Very Good certification, thanks in particular to the inclusion of 400 m2 of roof-mounted solar panels. In addition, the property meets the main sustainability criteria of the new investment charter defined by La Française Real Estate Managers.

Thierry MOLTON, Managing director of La Française Real Estate Managers - Retail Division, concluded: "Ideally located on the north-western coast of the Iberian Peninsula, this logistics warehouse provides rapid links to the main towns and cities in Galicia. The asset has attractive valuation prospects, particularly in view of the tenant's reputation, its strategic location and the scarcity of available land. This acquisition is a continuation of the partnership with VECTURA that has been developed by the institutional division of La Française Real Estate Managers, represented by Arthur Brizard, Deputy Investment Director." 

La Française REM was advised by Ashurst, ETYO and BNP Paribas Real Estate over the course of this transaction. Vectura was advised by Cuatrecasas.

About La Française

The major changes linked to environmental and societal challenges are opportunities to consider the future. The new levers which have been identified will constitute the growth and the financial and real estate performance of tomorrow. La Française management group’s forward-looking investment strategy is built upon this conviction and mission.

The group uses its capacity for innovation and its technology to serve its customers and to design its investment solutions that combine performance and sustainability.

Organised around two business lines, "Financial Assets" and "Real Estate Assets", La Française is developing its business with institutional and heritage clients in France and abroad.

La Française has over 49 billion euros in assets under management with operations in Paris, Frankfurt, Hamburg, London, Luxembourg, Madrid, Milan, Seoul and Singapore (as at 31/12/2022).

La Française is a subsidiary of Caisse Régionale du Crédit Mutuel Nord Europe (CMNE), a member of Crédit Mutuel Alliance Fédérale (LT ratings A+/Aa3/AA- from S&P (12/2021) / Moody's (02/2022) / Fitch (05/2022). 

About VECTURA
Vectura is the holding company of the CHICHE family. Vectura includes:

• A real estate activity specialised in the development and management of industrial and logistics assets (700,000 sqm in assets, €50 million in annual rents, 230 tenants);
• A real estate development activity focused on the development and sale of industrial and logistics assets;

• A logistics services business dedicated to industrialists, retailers and e-tailers who demand a quality turnkey logistics service.

VECTURA (50 professionals) masters the entire logistics and real estate value chain: land acquisition, land development, new construction, major renovations, financing, leasing, rental management and logistics services.

La Française contact persons
La Française: 
Pascale Cheynet: +33 1 43 12 64 25 | pcheynet@la-francaise.com
Debbie Marty: +33 1 44 56 42 24 | debmarty@la-francaise.com

Disclaimer: 
Issued by La Française AM Finance Services, whose head office is located at 128 boulevard Raspail, 75006 Paris, France. It is regulated by the "Autorité de Contrôle Prudentiel" as an investment services provider under number 18673 X, an affiliate of La Française. 

La Française Real Estate Managers, a company accredited by the Autorité des Marchés Financiers under number N GP07000038 on 26 June 2007, accreditation ("Professional Licence") issued by the Chamber of Commerce and Industry of Paris Île-de -France under the number CPI N 7501 2016000 006 443, authorised to carry out transactions on buildings and commercial assets as well as property management and AIFM approval under Directive 2011/61/EU 24 June 2014.

The Environmental Objectives are the backbone of the EU Taxonomy, the very foundation of an endeavour that seeks to build a common language around what can be considered « sustainable ». To be defined as such, an economic activity must first and foremost either significantly contribute to, or enable other activities to significantly contribute to, at least one of these 6 Objectives. Furthermore, an activity pursuing one or more of these Objectives must meet the Do No Significant Harm (DNSH) criteria relative to the remaining Objectives and Minimum Social Safeguards (MSS). On 5 April, the European Commission launched a four-week consultation period on a new set of EU Taxonomy criteria for economic activities making such a substantial contribution to one or more of the non-climate Environmental Objectives. The deadline for feedback is May 3rd and the Delegated Act could be adopted as soon as this year for implementation on 1 January 2024. 

Taxo4 is the missing link to the Climate Delegated Act that will contribute to ensuring the speedy implementation of the European Green Deal. As with Climate Change and Mitigation criteria, the details of the remaining Objectives will undoubtedly spark heated debate across the market. Defining Taxo4 also comes with an additional layer of complexity: as opposed to climate-focused Environmental Objectives, Taxo4 cannot rely on already-established climate scenarios aligned with the Paris Agreement. Biodiversity protection and restoration in particular is a multi-faceted undertaking, encompassing issues of natural habitats, endemism, species coexistence and the ecosystem services ultimately derived from those. Apprehending the ambition of the substantial contribution criteria of Taxo4 – further complicated by the inevitable overlap of the Objectives – cannot be done via a single metric. That being said, the interconnection of the Environmental Objectives serves as a reminder that a holistic approach is the only realistic path to Net Zero – which is precisely the spirit of the EU Taxonomy. 

Importantly, an early 2024 implementation of the Delegated Act would coincide with the coming into force of the Corporate Sustainability Reporting Directive (CSRD), which replaces the less ambitious Non-Financial Reporting Directive (NFRD). The synchronised application of the two has substantial positive implications for asset managers: companies will integrate a broader scope of activities into their sustainability reporting, which in turn, will allow investors to have more granularity and visibility regarding the impact of investment decisions on the real economy. 

We acknowledge and welcome the significant work undertaken to complete this draft Delegated Act, including some of the much-needed granularity it includes on topics such as in-situ conservation and the associated ecological mapping and definition of progress indicators. The next two weeks of consultation promise to be weeks of both scrutiny and deliberation. 

This commentary is provided for informational and educational purposes only. The opinions expressed by La Française Group. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

La Française Carbon Impact 2026 (distinguished with the French SRI Label  and classified Art. 9 SFDR ) has a yield to worst  of 5.87% (gross of fees and net of hedging costs). 

“In our view, La Française Carbon Impact 2026 is well positioned to navigate in the current market environment and even weather a deteriorating market outlook. The fund has a short duration and high convexity. A very defensive mix,” concluded Marie Lassegnore, La Française AM
 

La Française Carbon Impact 2026

Asset Class    International bonds and other debt securities
Unit / ISIN code    I / FR0013431194
Investment horizon                to maturity on 31/12/2026  
Synthetic Risk Indicator (scale from 1 to 7)    3
Main associated risks: 

• Risk of capital loss,  ESG investment risk, sustainability risk, discretionary risk, exchange rate risk,  risk arising from techniques such as derivatives, equity risk associated with convertible bonds, interest rate risk, credit risk, default risk relating to issuers of debt securities, risk associated with investments in high yield securities, risk associated with investing in non-OECD countries, ounterparty risk, potential risk of conflict of interest, liquidity risk, risk associated with holding convertible bonds

The SRI Label does not guarantee the Fund's performance.
The French SRI label distinguishes “investments that aim to bring together economic performance with a social and environmental impact by financing companies and public entities that contribute to sustainable development regardless of their sector of activity”. (www.lelabelisr.fr)

About La Française

The major changes linked to environmental and societal challenges are opportunities to consider the future. The new levers which have been identified will constitute the growth and the financial and real estate performance of tomorrow. La Française management group’s forward-looking investment strategy is built upon this conviction and mission.

The group uses its capacity for innovation and its technology to serve its customers and to design its investment solutions that combine performance and sustainability.

Organised around two business lines, "Financial Assets" and "Real Estate Assets", La Française is developing its business with institutional and private clients in France and abroad.

La Française manages over €49 billion in assets through its offices in Paris, Frankfurt, Hamburg, London, Luxembourg, Madrid, Milan, Seoul and Singapore (31/12/2022)

La Française is a subsidiary of Caisse Régionale du Crédit Mutuel Nord Europe (CMNE), a member of Crédit Mutuel Alliance Fédérale (LT ratings A+/Aa3/AA- from S&P (12/2021) / Moody's (02/2022) / Fitch (05/2022). 
 

Disclaimer:

PROMOTIONAL DOCUMENT FOR PROFFESIONAL INVESTORS ONLY (domiciled in ES) AS DEFINED BY MIFID II

Published by La Française AM Finance Services, with registered office at 128, boulevard Raspail, 75006 Paris, France, regulated by ACPR (“Autorité de contrôle prudentiel et de résolution”) as an investment services provider under no. 18673.
La Française Asset Management is a management company approved by the AMF under number GP97076 on 01/07/1997. 

For any complaints, please contact the Customer Service Department at the following address: reclamations-clients@la-francaise.com

The La Française Group's policy for handling requests for information or customer complaints: Politique_de_traitement_des_reclamations.pdf (la-francaise.com)

The marketing of the fund may be stopped at any time by the management company and/or the marketer.

For more detailed information about the investment fund, please refer to the prospectus -Available in French and English) and to the Key Information Document (KID – available in Italian, German, Spanish, French, Dutch), which all interested parties should read before making any investment. The latest prospectus, the Key Information Document and the annual and semi-annual reports, which contain all the necessary information about the product including the costs and risks, are available free of charge upon request to La Française AM, 128 boulevard Raspail, 75006 Paris - France: contact-valeursmobilieres@la-française.com, at www.la-francaise.com or from:

• Spain: Allfunds Bank SA, Calle de Los Padres Dominicos, 7 28050 Madrid, Spain

• Historically, the small cap S&P 600 Growth Index has traded at an average premium of 12%, relative to the large cap S&P 500 Index as shown in the chart above. This makes sense given the faster growth that should be inherent in small cap growth fundamentals.
• As of March 31, 2023, the small cap growth index presented a P/E discount of about -20%. Moreover, small cap growth stocks are currently trading at a P/E discount below February 2001 levels.
• We believe investors may want to review their equity allocations to small cap growth stocks, considering what is a historically big discount to large cap stocks.

La Française AM Finance Services, in accordance with the terms of an agreement signed with Alger Management, Ltd, is a distributor of the Alger SICAV in Europe.

• All living things have a genetic blueprint (DNA) consisting of chemical building blocks called nucleotides. The order of these blocks determines the biological characteristics of living organisms. In the chart above, the cost to read or sequence the three billion bases of the human genome cost over $20 million in 2004, fell to $100,000 in 2009 and with recent new technology iterations is on track to be around $100-200 in the next year or two.1 The noticeable drop in sequencing costs after 2009 was the result of innovation in next-generation sequencing technologies, enabling high-throughput and parallel sequencing.2
• Sequencing is not just about DNA but encompasses RNA (ribonucleic acid, the molecule tha ttranslates DNA code into proteins), proteomics (the study of proteins), and spatial genomics to understand how gene activity varies across different areas of a tissue. For example, by sequencing the COVID-19 virus’s genome, scientists were able to identify its unique characteristics and develop targeted vaccines in a much shorter time frame than traditional methods.
• We believe there are many areas for potential investment opportunities that are tied to genomics. This includes corporations that make DNA sequencing tools and molecular diagnostic products, companies that provide reagents for other consumables, for research and development, DNA testing companies including those in the pre-natal space, select biotech drug development companies, and biologic transportation companies, in our view.

La Française AM Finance Services, in accordance with the terms of an agreement signed with Alger Management, Ltd, is a distributor of the Alger SICAV in Europe.

A general consensus has been reached on the energy front: if energy prices remain at current levels, the worst is behind us. Gas prices have returned to where they stood prior to the Russia-Ukraine war and have even reached record lows. The price of oil remains significantly higher than in 2020 or 2021, but far from the peaks of June 2022. The surprise decision by OPEC+  countries to cut production by more than one million barrels per day from the beginning of May could cause a price rally. However, in our opinion, a number of factors should mitigate this risk, i.e., weak global growth, highly resilient Russian production and US strategic oil reserves. Ultimately, energy price inflation in the US (or deflation in this case), which stands at -6.4% (compared to 41.6% in June), is not a major risk in our opinion even if the negative base effects will likely fade away gradually; based on current energy prices, we anticipate that energy inflation will turn positive again around the end of 2023.

Food inflation, which dropped from 11.4% in August to 8.5% in March, is expected to continue its slow but gradual decline. Historically speaking, food prices have been closely linked to price changes in gas and fertilisers. Given that the latter have already fallen sharply, we believe that food prices are likely to continue to fall.

Service sector inflation is much more complex and is where Federal Reserve Chairman Jerome Powell is focusing his attention. Services inflation remains close to record highs at 7.1% in March, mainly due to the importance of real estate and more specifically to one of its largest components, Owners’ equivalent rent (OER). OER inflation however moves relatively slowly, and it could be several months before we see a significant fall. The Federal Open Market Committee has communicated widely on the fact that it analyses inflation without taking the "OER" component into account precisely because of this lag. Beyond the residential services component, there are other sectors to monitor closely, i.e., the transport sector, which is being hit hard by inflation (airfare in particular). Nevertheless, we believe these risks should gradually diminish as wage pressures subside. On this crucial point, the future seems to be less concerning for a number of reasons:

• Household purchasing power has stopped decreasing,
• Inflation expectations have been revised downward,
• According to the NFIB’s  monthly job report, there is a declining number of planned new hires (See chart below).

Goods inflation, at 1.5% over 12 months, does not seem to be of particular concern, After a sharp hike in prices due to temporary supply chain disruptions (Covid, Ukraine), price increases are more moderate. However, negative base effects are coming to an end (much like with the oil market), which could lead to a more complicated path moving forward for the Fed. The car market for example is of particular interest for several reasons:

• New car prices continue to rise at a rate of 6.1% over 12 months (to late March 2023). There are several reasons behind this: the ecological transition and the trend towards more expensive electric vehicles, tax incentives linked to the purchase of these vehicles, inventory issues persisting with certain models, etc. If we add to the equation excess household savings (which should be the case until the end of the year) and hence sustained demand, prices could remain high. Indeed, new car prices have been rising relative to wholesale prices for several months now, which is a sign of tension on this market.

• The corollary of new car prices rising significantly (almost +50% since the pre-Covid period) is that used car prices are once again rising. New cars are unaffordable for many; hence inventories of used cars are down. It seems logical that we will see used car prices rising, and that this will be reflected in inflation figures in the coming months.

This may seem trivial, but cars represent 7.6% of the inflation basket, so this is an important point.

In the future, US inflation should experience disinflationary pressures coming from the services and food sectors and more inflationary pressures from energy commodities and goods. Goods inflation could therefore be the variable to watch during the 2nd half of the year, even though the current focus seems to be on services. 

Data sources: Bureau of Labor Statistics

The information contained in this document is provided for information purposes only. The specific information, opinions and figures that are provided are considered to be well-founded or accurate on the date when they were drawn up and they reflect the La Française Group's current opinions regarding the markets and market trends. The information has no contractual value, is subject to change and may differ from the opinions of other management professionals. Published by La Française AM Finance Services, with its registered office at 128, boulevard Raspail, 75006 Paris, France, licensed by the ACPR (“Autorité de contrôle prudentiel et de résolution”) is an investment services provider under no. 18673. La Française Asset Management is a management company licensed by the AMF under no. GP97076 on 1 July 1997.
 

Marie Lassegnore, CFA, Head of Sustainable Investment La Française AM: "We need to go further than EU regulations do. It is our responsibility to act to limit the risks associated with the chemical industry. Our objective is twofold: to have more transparent information available to allow for a better understanding of the exposure of financial positions in portfolios and to advocate for investment in R&D in order to develop safer alternatives".

La Française group is also committed to low-carbon initiatives in the chemical sector by extending its collaboration with the NGO ShareAction . The chemical industry is a sector that has made little or no inroads into reducing its carbon emissions. This means that something needs to happen before it is too late. The sector needs to be pushed into being more proactive and addressing the issue to limit the current trajectory of global warming and to contribute to fulfilling the objectives of the Paris Agreement.

This collective action will lead La Française AM to enter into active dialogue with numerous companies in order to support them in their transition. It aims to achieve this goal by encouraging them to set targets and implement more ambitious carbon reduction strategies.

In the end summary of its sixth report, the IPCC highlighted: "The hottest years we have experienced so far will be among the coolest within a generation". 
The time for talking is over. We need to take action.

As a responsible stakeholder, La Française is convinced that long-term engagement contributes to improving the creation of value. Its investment teams focus on supporting issuers in their transitions through constructive dialogue to create investment solutions that combine performance and sustainability.
In 2022, the group strengthened and extended its commitments, both collective - Finance for Biodiversity Pledge, 30% Club France Investor Group, etc. - and individual, with a particular focus on the following areas: climate change, natural capital, social capital and governance.

To sum up, La Française Group has entered into active dialogue that has led to real action with 52 companies (vs. 17 in 2021) through direct action or in association with other organisations and/or investor groups.

The asset, classified as a “public-access building” (category 3, U-type), is operated by the OC Santé group, the leading independent health group in Occitanie (region of southern France). Firmly committed to a quality approach in order to provide the best possible service to patients, more than a hundred doctors and surgeons work at the Clinique Mont-Louis, where some 19,000 operations are carried out each year. In order to improve the ESG (Environmental, Social and Governance) positioning of its asset, La Française REM intends to set in motion an action plan.

Jérôme Valade, Head of healthcare assets at La Française REM, said, "Medical, surgical and obstetrics clinics are the backbone of the healthcare system in France, alongside university hospitals. They play an active role in the medical care of the entire population. On the real estate side, the Medical, Surgical and Obstetrics market is a niche market. With this transaction, La Française REM demonstrates its ability to be a key player on this market, normally reserved for specialists. Alongside this highly positive development, we are strengthening our teams and we would like to welcome Nicolas Monnier as Asset Manager, specialising in healthcare assets."

For this acquisition, La Française REM was advised by ADAMA Conseil & Transactions (operational due-diligence), ALLEZ & ASSOCIES (notarial aspects), ARCHERS (legal) and ARTELIA (technical and ESG-related aspects).

• Does the collapse of Credit Suisse’s AT1 CoCos cast a shadow over the whole asset class?
• Will Deutsche Bank be the next domino to fall?
• How can the situation of US regional banks be resolved?

1/ Have AT1 CoCos become “uninvestable”?

Following the collapse of CHF15.8bn of AT1 CoCos from Credit Suisse on Sunday 19th, March 2023, which represented c. 6.2% of the universe as at the end of 2022 (ICE BofaML CoCo index), several voices were quick to claim that AT1 CoCos were “dead” and that the segment had become “uninvestable”.

a) The breach of “creditor hierarchy” could not have happened in Europe or in the United Kingdom.

The handling of Credit Suisse’s takeover by UBS was particularly messy, as FINMA and the Swiss government had to change the law during the weekend in order for AT1 CoCos to be permanently written-down to zero without having to put first equity down to zero as well. This was a breach in what we call “creditor hierarchy”, and was used as an argument that AT1 CoCo bond prospectuses or regulations could not be relied upon.

The ECB’s regulatory arm, along with the Bank of England, as well as Singaporean, Canadian and Hong-Kong regulators each published statements reminding investors that they would have handled a similar case differently. The ECB explicitly stated that “common equity instruments are the first ones to absorb losses, and only after their full use would Additional Tier 1 be required to be written down. This approach has been consistently applied in past cases and will continue to guide the actions of the SRB and ECB banking supervision in crisis interventions. Additional Tier 1 is and will remain an important component of the capital structure of European banks.”

b)  AT1 CoCos are still necessary for banks.

AT1 capital is a necessary layer of regulatory capital for banks from all over the world. In Europe & in the UK, AT1 capital forms a stack that usually has to stand between 1.5% to 2.5% of a bank’s risk-weighted assets.

Should banks be required by regulators of forced by investors to forego this capital stack, then, they would have to replace it with common equity, whose cost of capital is currently estimated at c. 15-16%. This would not be an efficient, nor a cost effective, replacement.

The AT1 CoCo format might evolve in the future, as the “CoCo” layer of complexity is made redundant by the fact that authorities can declare a bank as “non-viable” in order to trigger either the write-down of these instruments or their theoretical conversion to equity. We had written about this in April 2022 (“Does the ECB want to end CoCos?”). 

c)  AT1 CoCo investors will not disappear.

“Investors will never come back to the asset class or this issuer after such an event!” We have heard this several times on bond markets: after Greece’s debt restructuring in 2012, after the unequal treatment of bondholders from Banco Espirito Santo in 2015, after the nationalization of Banca Monte dei Paschi di Siena in 2016…

Yes, the collapse of Credit Suisse’s AT1s is significant for the AT1 market, but we do not really see why investors would be willing to leave altogether the space on AT1s from other banks, whose fundamentals were nowhere near those of Credit Suisse. AT1 buyers are (or at least are supposed to be) aware that these instruments can jump to default with no hope for recovery if the issuing bank is regarded as no longer viable. This story is a reminder that defaults rarely happen, but when they do, they come in with a bang. Again, Banco Popular Español was a similar case in 2017 and was eventually seen as idiosyncratic, while on a much smaller scale.

• Industry experience, particularly in banking and client industries
• Functional, technical or other professional expertise
• Gender, age or racial/ethnic diversity
• Other important attributes, such as veteran status and geographical diversity

It should be stated that banks, tech companies and especially the start-up community, which SVB served, are notorious for being non-diverse, and, in fact, have a long history of red-lining and systemic discrimination. According to the 2022 proxy filing, senior leadership of SVB was 38% female (globally) and 38% non-white (US). On its Board, 5 out of 11 Directors were women (45%). However, 10 out of these 11 Board Members were white and 7 were aged 60 and higher. Additionally, 11 out of 12 Executive Board members including the CEO, CFO and COO were male and all 12 were White. The bank has good targets to improve diversity but at the time, it was certainly not as diverse.

TIME FOR CHOICES AND A SENSE OF RESPONSIBILITY

With growing economic activities and GHG emissions, global surface temperature in 2020 was nearly 1.1°C above the pre-industrial level in 1900, thereby inducing unprecedented changes in recent human history to the earth’s climate: current concentrations of carbon dioxide are unmatched for at least the past 2 million years and oceans are warming faster than at any time since the end of the last ice age. Amidst these snowballing impacts, the AR6 Synthesis Report (SYR) reaffirms the inconvenient truth that communities which have historically contributed the least to current climate change are disproportionately affected, mainly Least Developed Countries, Small Island States and the Arctic. About half of the world’s population lives in geographic zones which are highly vulnerable to climate change, as higher temperatures are already fostering the proliferation of food-borne, water-borne and vector-borne diseases. Between 2010 and 2020, human mortality from floods, droughts and storms was fifteen times higher in highly vulnerable regions. Importantly, every additional 0.5°C of global temperature rise causes discernible increases in the frequency and severity of extreme weather events, further weakening the resiliency of the most vulnerable. Certain climate impacts are already so incredibly severe that they simply cannot be adapted to, leading to losses and damages.

GREENHOUSE GAS EMISSIONS MUST BEGIN TO DECLINE NOW

In order to limit global warming to 1.5°C with no or limited overshoot, the IPCC projects that GHG emissions need to peak immediately and before 2025 at the latest, and that reaching net zero CO2 emissions will need to happen in the early 2050s. In light of this forecast, a new interim target for 2035 (i.e., a 60% decrease in emissions) has been established, which we hope will shape COP28 Nationally Determined Contributions (NDCs). Global surface temperature rises by 0.45°C for every 1000 GtCO2 emitted by human activity. Furthermore, the IPCC finds that in 2019, approximately 79% of global GHG emissions came from energy, industry, transport and buildings together, implying that deep, system-wide shifts are needed urgently. This context is the underlying basis of La Francaise AM’s exclusion policies* and investments strategies towards the energy transition. Our funds no longer finance companies that are dedicating investments to coal expansion plans or ones that are still having electric capacity or production coming from coal for more than 10% or 20% depending on the funds’ strategy.

Over the past several years, Credit Suisse has been involved in several high-profile scandals raising questions about its corporate governance practices and overall corporate culture. Considering this situation, we excluded Credit Suisse from our open-end or dedicated funds due to its history of major operational incidents and business controversies, which revealed weaknesses in its risk management. While these incidents differ in nature and impact, their accumulation suggests that structural problems persist within the company.

WHAT has happened since 19 March 2023?

On 19 March, all of the above, as well as the stress experienced by the bank in recent days, particularly following the failure of the US regional banks, led FINMA to approve the acquisition of Credit Suisse by UBS. The deal resulted in the purchase of the bank for CHF 0.76 per share, or a total of CHF 3 billion. Unfortunately, AT1 holders were hit hard by this decision, as the value of their securities fell to zero.

What is surprising and precedent-setting here is the failure of creditor hierarchy against shareholder. In contrast to the shareholders, the holders of Credit Suisse's AT1 CoCos (CHF 15.8 bn) will see their securities fully written-off. The T2 CoCos (CHF 1.5 bn) will be spared, as will the senior bonds of HoldCo and OpCo. 
It should be noted that AT1 instruments with "permanent write-down" now offer less protection than "temporary write-down" or “equity conversion" notes.
 

Please find below what we expect: 

• The FOMC to hike rates by another 25 bps to a range of 4.75-5% to bring inflation down to its 2% target.
• Chair Powell will reaffirm that monetary policy is data dependent.
• Despite the failure of two U.S. regional banks and the risk of contagion in the banking industry (tighter financial conditions, credit supply, deposits flight), the Fed will continue its quantitative tightening at $95bn per month given their new backstop named Bank Term Funding Program (BTFP) to contain financial risks. The BTFP announced by the Fed on March 12 is an additional source of liquidity against high-quality securities marked at par, eliminating an institution's need to quickly sell those securities in times of stress.
• Mr. Powell will signal that the board is ready to adjust the rate and balance sheet path if conditions warrant.
• On the side of the dot plot, we expect to see the median dot up from 5.10% to 5.4% in 2023 and from 4.1% to 4.4% in 2024 but no change at 3.1% in 2025 with inflation declining.
• On the new economic projections, we expect minimal change in growth and inflation (Personal Consumption Expenditure, PCE) for 2023 (at 0,5% and 3,1%), 2024 (at 1,6% and 2,5%) and 2025 (at 1,8% and 2,1%).

As it was the case last week before the ECB meeting, the decision from the FED is highly uncertain. Our analysis is that the FED (like the ECB) is hoping that the mechanisms (BTFP, USD swap lines) put in place lately to contain risks will prove to be efficient. As of now, if we exclude US regional banks and the AT1 market in Europe, financial markets do not show a high level of stress. With the still very high level of inflation and a very low unemployment rate, the Fed will in our opinion choose to proceed with a 25bps hike.  

This commentary is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997. 

• Retail Division
• Thierry MOLTON, to be appointed Managing Director of La Française REM, in charge of Real Estate Assets for private clients, including investment, asset management and property disposal activities for all asset classes.
• Guillaume ALLARD, to be appointed Deputy Managing Director of La Française REM, in charge of Funds and Finances for the retail division, including fund management, real estate financing, accounting (funds and assets), reporting and financial communication of real estate products.
• Institutional – France & International Division   
• David RENDALL, Deputy Managing Director of La Française Real Estate Managers and Managing Director of the International Division, in charge of the management of real estate mandates, thematic funds and club-deals for institutional clients on Core/Core+, value added and opportunist strategies.

" Marc-Olivier PENIN has worked at La Française REM for more than 20 years and has been instrumental in the development of its real estate expertise, and I would like to thank him personally for his commitment throughout the years. From an operational trio – Thierry, Guillaume and Marc-Olivier, who have worked together for many years, particularly on innovative real estate solutions such as unit-linked vehicles – we will make the transition to a duo, with this new governance framework. Thierry and Guillaume will report directly to me and have my full confidence in ensuring continuity in the quality of the real estate offering for private investors," states Philippe DEPOUX, CEO of La Française Real Estate Managers.

Their professional backgrounds

• Thierry MOLTON, 55, to be appointed Managing Director, La Française Real Estate Managers, has 28 years’ experience in real estate.
  He started his career as an auditor in 1995 with the audit and accounting firm Vivian et Associé in the Real Estate Department before joining Foncière Bellecour as Financial Director.
  
  Three years later, with Management Business Property, Thierry became Director of Real Estate and Financial Operations. In 2008, he joined La Française Real Estate Managers, first as Director of Real Estate Operations and Financing and then as Director of Asset Management. Thierry is currently Director of Commercial Real Estate Assets at La Française Real Estate Managers, a position he has held since 2020.
  
  Thierry Molton holds a diploma in chartered accounting.
   
• Guillaume ALLARD, 38 years old, to be appointed Deputy Managing Director, La Française Real Estate Managers, has 16 years' experience in real estate. 
  
  He started his career in 2007 with DTZ Eurexi as a Project Manager and then joined La Française Real Estate Managers in 2011, first as a real estate portfolio manager and then as a real estate fund manager. In 2017, he was promoted to Director of Fund Management SCPI. Guillaume is currently Director of Finance - Retail Funds, a position he has held since 2021.
  
  Guillaume is a graduate of the Ecole Spéciale des Travaux Publics, du Bâtiment et de l'Industrie.

a)    A story of shadow banking exposure and depositor concentration

The US banking system is made up of more than 4,000 credit institutions, the overwhelming majority of which holds less than $10bn of assets. Regulatory oversight obviously differs whether you are JPMorgan Chase (more than $3,600bn of assets as at the end of 2022) or a small regional bank. Capital requirements are set at lower levels for smaller banks and they do not have to fulfill several liquidity constraints. Yet, this story is not about regulatory failure. 

This is a story about fast growth and depositor concentration that ends badly for three banks:

• Silvergate Bank (SI): assets grew from $2bn to $16bn between 2019 and 2021, then dwindled back to $11bn as at the end of 2022. This crypto-centric bank announced on Thursday that it was winding down its operations and liquidating the bank, which has been in financial turmoil since the collapse of crypto exchange FTX. Following a bank run in the fourth quarter, Silvergate leaned on the Federal Home Loan Bank of San Francisco for a $4.3 billion cash injection, which by the end of the quarter made up nearly all of its total assets.
• Signature Bank (SBNY): its assets went from $50bn to $118bn between 2019 and 2021 and was much bigger than now-defunct Silvergate Bank. In the wake of the demise of SVB and SI, Signature Bank, the bank was closed on Sunday by its chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.
• Silicon Valley Bank (SIVB): assets went from $71bn to $211bn between 2019 and 2021 and were stable until the end of 2022. As its name suggests, SVB was lending to companies mostly based in the Silicon Valley, with a focus on lending to technology companies, providing services to venture capital and private equity firms. It rapidly grew to become the 18th largest bank holding company in the US. During the 2019-2021 phase, SVB received significant inflows of deposits from venture capital firms that it needed to cover from an asset standpoint. As such, management sought to chase yield by buying long-duration bonds (Treasuries, MBS…). The bank started to lose deposits as VCs pulled cash through operating capital, which pressured management to sell some of its long-term assets. It seems like these assets were not really properly hedged, but we lack sufficient information thus far.

On March 9, 2023, shares of SVB Financial plunged more than 62% after the company proposed a share sale to shore up its balance sheet which had suffered fleeing deposits and a $1.8bn realized loss on the securities sale. According to a regulatory filing published on Friday, investors and depositors tried to pull $42bn from SVB on Thursday… A good old fashioned “bank run”. Despite being in sound financial condition prior to Thursday, the California watchdog said the run “caused the bank to be incapable of paying its obligations as they come due,” and it was now insolvent. The bank was then closed by the California Department of Financial Protection & Innovation and placed into FDIC receivership, marking the biggest failure of a US bank since the financial crisis.

On Sunday evening, a joint statement by the US Treasury, the Fed and the FDIC announced that “no losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer”. In other words, all deposits (even those that are uninsured by the FDIC above $250k) will be guaranteed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks. Subordinated debtholders and equity holders will very likely be wiped out, while senior unsecured creditors may recover part of their holdings (bonds were trading at c. 40 cents on the dollar at Friday close, but this is not a trustworthy indication of their final recovery).

In order to contain the fallout from these bank failures, the Fed said it would create a new lending program for banks: the Bank Term Funding Program, or BTFP. The facility will allow banks to take advances from the Fed for up to a year by pledging Treasuries, MBSs and other debt as collateral. By allowing banks to pledge their bonds, they can meet customer withdrawals without having to sell their bonds at a loss, which is what SVB did last week. Banks can borrow funds equal to the par value of the collateral they pledge, which means that the Fed will not be looking at the potential unrealized losses on the bonds. 

This mechanism, along with the guarantee that all depositors will be made whole, are very significant steps to ensure the safety of the US banking system.
 

A. Definition of “Business Day” and “Valuation Day” 

“Business Day” is currently defined in the Prospectus as being any business day on which banks are normally open in Luxembourg. 
The Board has decided to amend the definition of “Business Day” as follows: “any business day on which banks are normally open in Luxembourg and France” with effect as of the date of this notice. 
As a result of this change, the definition of “Valuation Day” (currently being on every business day in Luxembourg) will also be amended as follows with effect as of the date of this notice: “every Business Day in Luxembourg and France”. Therefore, trading in the Fund will be possible only when banks are open for business in Luxembourg and France. 
This change will not have an impact on the way the Fund is managed, the investment strategy, the asset allocation nor the risk profile. 

B. Investments in term deposits, debt securities and money market instruments 

The Prospectus has been updated in accordance with the provisions in relation to ancillary liquid assets of the CSSF FAQ concerning the Luxembourg Law of 17 December 2010 relating to undertakings for collective investments. As part of this update, it has been clarified that the Fund may invest up to 20% of its net assets in in term deposits, debt securities and money market instruments for treasury purposes or for achieving its investment goals. These changes are clarifications and will not have an impact on the way the Fund is managed, the investment strategy, the asset allocation nor the risk profile. 

*** 
The Prospectus will be updated to inter alia reflect the changes described in this notice. A copy of the updated Prospectus will be available free of charge upon request at the registered office of the Fund. The Board

• The ECB to increase its key interest rates by 50 bps, bringing the deposit rate to 3.0%, despite current turbulence coming from US regional banks.
• President Christine Lagarde to repeat that the Governing Council’s (GC) priority is to return inflation to the 2% target.
• The forward guidance will likely be as neutral as possible, keeping all options open, especially given the visible divisions within the Governing Council and the situation of US regional banks.
• Mrs. Lagarde will emphasize that the board will adjust its policy trajectory according to incoming data on inflation, the evolving outlook and the transmission of its monetary policy. 
• We do not expect the ECB to maintain its February assessment on the inflation outlook given the latest strong inflation data. - i.e., “the risks to the inflation outlook have also become more balanced”. 
• We do not expect any news on the pace of Quantitative Tightening. 
• On new ECB staff economic projections: 

1. We expect them to indicate higher growth in 2023 (from 0.5% to 0.7%) but lower GDP in 2024 (from 1.9% to 1.5%). For 2025, we expect growth will stay close to potential growth at around 1.8%. 
2. We anticipate the ECB’s global inflation projections to be revised lower over the  projection horizon given changes in technical assumptions (higher market rates, a stronger euro and lower energy prices) with 2,1% in 2025 (versus 2.3% in December projections). 
3. We expect the ECB’s core inflation to be revised higher in 2023 (from 4.2% to 4.6%) and remain broadly unchanged over the next two years, at 2.8% in 2024 and 2.3% in 2025.

At the time of writing, the market is no longer expecting a 50bps hike coming from the ECB (33bps priced). We think that the ECB will most likely “stick to the plan”, which means higher rates on the very short end of the curve.  

This commentary is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

A. Definition of “Business Day” and “Valuation Day” 

“Business Day” is currently defined in the Prospectus as being any business day on which banks are normally open in Luxembourg. 
The Board has decided to amend the definition of “Business Day” as follows: “any business day on which banks are normally open in Luxembourg and France” with effect as of the date of this notice. 
As a result of this change, the definition of “Valuation Day” (currently being on every business day in Luxembourg) will also be amended as follows with effect as of the date of this notice: “every Business Day in Luxembourg and France”. Therefore, trading in the Fund will be possible only when banks are open for business in Luxembourg and France. 
This change will not have an impact on the way the Fund is managed, the investment strategy, the asset allocation nor the risk profile. 

B. Investments in term deposits, debt securities and money market instruments 

The Prospectus has been updated in accordance with the provisions in relation to ancillary liquid assets of the CSSF FAQ concerning the Luxembourg Law of 17 December 2010 relating to undertakings for collective investments. As part of this update, it has been clarified that the Fund may invest up to 20% of its net assets in in term deposits, debt securities and money market instruments for treasury purposes or for achieving its investment goals. These changes are clarifications and will not have an impact on the way the Fund is managed, the investment strategy, the asset allocation nor the risk profile. 

*** 
The Prospectus will be updated to inter alia reflect the changes described in this notice. A copy of the updated Prospectus will be available free of charge upon request at the registered office of the Fund. The Board

In 2023, rental yields are expected to be the main impetus behind real estate performance. Growth in rental income will be driven by (i) rental indices, mostly correlated with inflation, (ii) market segments where demand exceeds supply, (iii) improvements in the environmental, social and governance (ESG) factors of assets to meet new uses or the latest regulatory standards.
Stakeholders who traditionally use leverage are likely to be particularly affected by the new financial climate, while equity-rich investors could take advantage of this scenario to seize fresh opportunities.

In 2023, a key objective for investors should be to develop a resilient portfolio as they continue to diversify their portfolios in favour of alternative assets (healthcare, managed residential properties) and regional markets which have a more defensive profile.
 

Investment volume down slightly year-on-year
 

In Europe, the volume of commercial real estate investment in 2022 totalled nearly €245 billion at the end of December 2022, led by the United Kingdom, Germany and France with €58 billion, €52 billion and €29 billion respectively.  The investment volume is marginally down (-4%) year-on-year due to a particularly sluggish Q4. In fact, investors adopted a distinct wait-and-see approach, due to the lack of convergence between sellers and buyers on prices and specifically for asset classes where yields were at their lowest.

As a consequence, the office and logistics segments showed a decrease in their respective investment volumes of -14% and -7% year-on-year. Diversification and retail assets posted increases of 23% and 2% respectively.

The fall in the overall volume of investment in Europe conceals contrasting trends on a country-by-country basis: the significant drop in Germany (-17%) and the United Kingdom (-5%) masks a slight increase in volume in France (+2%) and more marked increases in Belgium (+115%), Spain (+35%) and Ireland (+20%). 
 

A diverse decompression in office yields 
 

The upward trend in real estate yields accelerated in Europe in Q4, driven by further increases in rates and financing costs. Germany provides a good illustration of this, with the cost of financing good quality assets moving from less than 1.25% in January 2022 to more than 4% at the end of 2022, which represents its highest level since 2011. 

The decompression of yields varies by market. Office yields in Germany show the largest decompression, over 100 basis points (bps) across a period of one year (Hamburg +140 bps; Berlin +105 bps; Frankfurt +105 bps; Munich +105 bps), while Dublin recorded an increase of 35 bps, London 50 bps and Paris 65 bps. 

Office rental markets continue to experience robust demand. Most European markets are experiencing a two-tier market with (i) low vacancy exerting upward pressure on rents in central locations and (ii) over-supplied markets in the periphery where rents are falling. Users are leaning towards quality assets, particularly in terms of energy criteria. They favour central locations that allow them to benefit from their new working arrangements, retain and attract their talent in a labour market that remains tense, while simultaneously improving their carbon footprint. 

In total, 2022 saw take-up increase by 9%* year-on-year, reaching volumes above the ten-year average in markets such as Milan and Hamburg. However, some markets, such as Amsterdam, Brussels and Frankfurt, are witnessing a decline in demand.

New ways of working and the subsequent rationalisation of office premises are resulting in an increase in vacancy rates, particularly in secondary assets, with users renting less new space than they free up. 

Market polarisation
 

2022 carried on the rising trend in building conversions with changes of use. In fact, the release of premises deemed obsolete for the latest generation of assets has increased the supply of second-hand office space. 

Vacancy rates are increasing across all European markets, although the situation in each country varies a great deal. Germany continues to show a controlled or even low supply, while peripheral countries such as Spain, Ireland and Italy have average vacancy rates of over 10%.

The concentration of demand on the latest generation assets, meeting new uses and energy consumption standards, continues to prop up the rental income for prime assets. At the same time, rents for secondary assets are under downward pressure, although assets with excellent accessibility and competitively priced rents are showing some resilience.

User sustainability requirements are reflected in the levels of rent. Users now pay particular attention to energy costs and the concomitant increase in rental charges.

Sources: CBRE, Knight Frank, MBE, La Française REM Research
*demand in the 12 main European cities: Brussels, Lille, Lyon, Paris, Berlin, Frankfurt, Hamburg, Munich, Dublin, Milan, Amsterdam, Madrid
 

The information contained in this document is believed to be accurate at the time of publication and reflects the current views of La Française Real Estate Managers. The content of this document has no contractual value and may differ from the opinions of other management professionals. Published by La Française AM FINANCE Services, whose registered office is located at 128, boulevard Raspail, 75006 Paris, France and authorised by the ACPR ("Autorité de contrôle prudentiel et de résolution") under no. 18673 as an investment service provider. The portfolio management company La Française Real Estate Managers received AMF accreditation No. GP-07000038 on 26 June 2007 and AIFM accreditation on 24 June 2014 under Directive 2011/61/EU (www.amf-france.org).

Why does it matter? Economic studies have shown that female education and representation in the workforce contribute to social and economic well-being while their underrepresentation in the labor market and in managerial positions has an impact on overall labor productivity. This partly explains why the United Nations established gender equality as one of its sustainable development goals (SDG number 5 of the 17 objectives for the environment and society, to be achieved by 2030).

Closing the gap requires coordination at multiple levels, starting with access to equal education. Women must be empowered, given influence. Gender equality must be sought after in recruitment, compensation and career progression. And the list goes on.  As investors, one of our main tools is our influential capacity; through individual or collaborative engagement with companies we can make sure to raise the topics that are relevant to a company’s long-term sustainability profile.

One of the ways we choose to address this gap is through female representation at the board level. This is an indicator we systematically track referencing our investee companies, whether through equity or corporate bond investments. We believe that female representation at the board level will lead to not only greater corporate performance from an economic and sustainable standpoint but will also help enable change throughout the other layers of the employee base (executives, management, and total workforce). Research has also shown that change in practices can be detected once female representation on a board reaches 3 seats. That is why we have also joined the “30% Club France Investor Group” which aims to boost gender diversity at board and senior management levels among SBF120 companies by at least 30% by 2025.

Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997. The portfolio management company La Française Real Estate Managers received AMF accreditation No. GP-07000038 on 26 June 2007 and AIFM accreditation under Directive 2011/61/EU, dated 24/6/2014  (www.amf-france.org).
 

After the major recession of 2008-2009, falling unemployment rates in the U.S. did not lead to a significant surge in wages. According to the Bureau of Labor Statistics (BLS), the unemployment rate fell from 10% to less than 4% before the Covid-19 pandemic, while the wage growth rate remained stable at around 2% over the 2009-2015 period before rising to 3% over the 2016-2019 period. This weaker negative relationship between unemployment and wages could point towards greater excesses in capacity than might be suggested by unemployment rates. In March 2018, in France, a study by the National Institute of Statistics and Economic Studies (Institut National de la Statistique et des Etudes Economiques, INSEE) indicated that the correlation coefficient between wage changes and unemployment in the United States was even positive between 2011 and 2015. This analysis concluded that “unemployment has an impact on wage fluctuations, but productivity remains a major long-term determinant”. Persistently weak output per hour worked may reduce corporate profitability and ultimately impact wage growth, as companies become less willing to grant wage increases in quick succession. In September 2017, research by the International Monetary Fund (IMF) also indicated that the increase in people frustrated with only working part time (i.e., people who would like to work more) and a higher use of temporary jobs were restricting wage growth. Other frequently cited reasons are increased automation, lower medium-term growth expectations, growth in the service sector and increased labour supply against a backdrop of globalization which has increased competition between companies, particularly following China's entry into the World Trade Organization (WTO) in the 2000s. 

The Covid-19 pandemic has also altered the dynamics of employee relations within companies given the underlying developments in the global economy. The pandemic, alongside the subsequent massive stimulus packages, has accelerated the imbalance between supply and demand in the labour market. Currently, in the United States, there are 4.7 million more jobs available than there are people to fill them (Bureau of Labor Statistics, November 2022). This gap was 1 million people before 2019. The growing number of employers having recruitment difficulties stems from the ever-increasing mismatch between the skills, interests and experience of job seekers and the positions that employers want to fill. According to Lightcast (December 2022), the US workforce has fallen by 2 million due to declining immigration, the early retirement of baby boomers and an ageing population (according to the Census Bureau, Americans over the age of 65 will make up 21% of the workforce by 2035). It is therefore likely to take time to replace them or bring them back to the job market, all the more so if we consider the significant transfer of wealth from the baby-boomers to Generation Y (millennials) estimated at 68 trillion dollars by a study carried out in October 2019 by Coldwell Banker. However, the substantial decline in excess savings accumulated during the pandemic, two-thirds of which have already been used up (once adjusted for inflation) according to Alpine Macro strategists, should lead Americans to return to the labour market. Moreover, it is young people and jobs with the lowest qualifications that are the source of wage growth and of keeping the unemployment rate at historically low levels. The number of active 20–24-year-olds remains 1.7 points below its pre-pandemic level and wages among 16–24-year-olds have jumped more than 12% according to the Atlanta Fed's wage tracker (January 2023), while wages increased by 6.3% overall. Moreover, improvements in labour market conditions are more beneficial to the lowest paid workers. Hence, their bargaining power is becoming stronger. The Atlanta Fed's wage tracker shows that wages for the lowest-skilled employees rose by 6.6% in January compared to a year earlier, while wages for the highest-skilled employees rose by 6.1%.

Although the negative correlation between unemployment and inflation is not necessarily clear all the time, the question remains over whether the aggressive increase in interest rates - the main tool of central banks in the fight against inflation - is entirely justified, as it could drag the global economy into recession and unnecessary job losses? Is a wage-price spiral, so feared by central bankers, likely to take hold? 

In its October 2022 World Economic Outlook, the IMF's analysis of situations similar to 2021, when inflation was rising and wage growth was positive but real wages and the unemployment rate were stagnant or falling, was reassuring. The IMF showed that “given that inflationary shocks are originating outside the labour market, falling real wages are helping to slow inflation, and monetary policy is tightening more aggressively, the chances of persistent wage-price spirals emerging appear limited”. The latest report from the International Labour Organization (ILO) also noted that “in high-income countries, real wage growth has been lower than productivity growth since 2000. Whereas the sharp decline in labour productivity growth during 2020 momentarily reduced the gap, the erosion of real wages in the first half of 2022, combined with positive productivity growth, has once more increased the gap between productivity and wage growth”. This study states that in 2022, the gap between the growth in productivity and that of wages reached its highest point since the beginning of the 21st century, with productivity growth 12.6 percentage points above wage growth. It would therefore appear “to be scope in many countries for increasing wages without fear of generating a wage–price spiral”. Finally, economists point out that the decline in the working population will be a factor contributing to lower inflation over the long term. With lower income growth, consumer spending stands to fall, and the labour market should rebalance through a lower natural equilibrium unemployment rate (NAIRU, Non-Accelerating Inflation Rate of Unemployment, i.e., the lowest unemployment rate that can be sustained without causing inflation to rise). The NAIRU has declined gradually since the late 1980s, from 6.3% down to 4.4% as it currently stands. It should drop to 4.25% by 2032 according to the Congressional Budget Office. 

The information contained in this document is provided for information purposes only and it does not under any circumstances constitute an offer or invitation to invest, investment advice, or a recommendation relating to any specific investments. The information, opinions and figures are considered to be well-founded or accurate on the date of their establishment. They are based on the economic, financial and stock market conditions at the time and reflect La Française Group's current view of the markets and market trends. They have no contractual value and are subject to change, and they may differ from the opinions of other management professionals. Please also note that past performance is no guarantee of future results and that the level of performance is not constant over time. Published by La Française AM Finance Services, with its registered office at 128, boulevard Raspail, 75006 Paris, France, licensed by the ACPR (“Autorité de contrôle prudentiel et de résolution”) is an investment services provider under no. 18673. La Française Asset Management is a management company licensed by the AMF under no. GP97076 on 1 July 1997.

The premises covered by the sale, which also include a 101 sqm healthcare store at the foot of the building and four parking spaces equipped with charging stations for electric vehicles, will meet the latest environmental standards. The ground and first floors will be certified as "HQE Bâtiment Durable Tertiaire level Excellent" and "BREEAM International New Construction level Excellent", and the dedicated space in the basement certified "BREEAM level Very Good". The common areas of the real estate complex will include a bicycle room with showers and lockers, green roofs, wildlife-friendly facilities and 600 sqm of green space. Delivery is scheduled for 31 December 2025.

The healthcare centre will offer a multidisciplinary medical centre (G+1) as well as a sports-health centre (G-2) offering professional physiotherapy, osteopathy and sports medicine sessions. The centre will be leased to Vista Santé, a trademark of the REALITES Group, under a 12-year fixed lease. Vista Santé organizes with healthcare professionals, such as sports doctors, cardiologists and physiotherapists, personalized sessions around prevention through adapted physical therapy, return-to-sport preparation, recovery after injury, etc. REALITES is a regional development group which has a strong focus on people and acts as a bridge between innovative concepts of use and real estate solutions.
 

This appointment confirms the ambitions of Crédit Mutuel Alliance Fédérale, announced in September 2022, to fast-track the creation of a powerful Asset Management business line, which along with the La Française group would bring all the management structures1 of the Bancassurance group under a multiboutique model. It would therefore become a major player in the French Asset Management landscape, representing €166 billion in assets under management (as at 31/12/2022), located throughout Europe, active in Asia and offering a wide range of expertise including listed assets, real assets and alternative management.

Patrick Rivière, Chairman of Groupe La Française, stated: “I am very happy and proud to welcome Guillaume to the management team. He will bring a fresh and complementary perspective and will allow us to benefit from his rich experience in the public, industrial and financial sectors. In my mind, Guillaume has all the skills to support this formidable and ambitious project going forward".

Guillaume Cadiou, Chief Executive Officer and member of the Executive Board of Groupe La Française, stated: “I am delighted to join La Française and ready to take up this new challenge within Crédit Mutuel Alliance Fédérale, a benefit corporation whose values are dear to me. My priority will be to help to cultivate the most efficient organisation and to ensure the rapid rise of this new French asset management champion, as well as to showcase the renowned expertise of the group's various management companies

You are a shareholder in the " La Française Rendement Global 2025" sub-fund of the La Française SICAV (hereinafter, the "Funds"), and we thank you for the trust you have placed in us.

We wish to inform you that La Française Asset Management, the Fund's management company, has decided to allow the fund to utilise up to 15% of its net assets in options on CDS.

This change, which will take effect on 15 February 2023, is not subject to AMF approval and has no impact on the management method, the maximum exposure ranges in force, or the investment strategy and fees of the Funds, which remain unchanged.

The prospectus and PRIIPs KID of the Funds will be modified accordingly. The other characteristics of the Fund remain unchanged.

We would like to draw your attention to the need and importance of reading the key information document of the Fund. This document is available at www.la-francaise.com.

Some of the most common SaaS applications include customer relationship management (CRM), enterprise resources planning and e-commerce. SaaS has many potential advantages including  flexibility, scalability, predictability, and affordability. Not only can SaaS providers give access to users anywhere in the world, but it is also a cheaper alternative for many businesses. This is because SaaS customers no longer need to invest in expensive on-premises software products up-front and can instead opt-into a recurring payment stream which can grow with their needs.

As a result, this recuring revenue model has allowed SaaS companies to scale quickly thanks to the low incremental cost of servicing additional customers. Referencing the chart above, the overall SaaS market from 2015 through 2021 saw a compounded annual growth rate (CAGR) of 29%, according to Gartner. Moreover, the global SaaS market is projected to reach $702 billion by 2030 (or a 20% CAGR), according to Allied Market Research. 

Innovative industries, such as SaaS, tend to experience growth during challenging economic environments, making them potentially less impacted by a recession (see our note on what is recession resistant). We believe SaaS, in particular, should be more impervious to economic weakness because once applications and workloads are implemented, customers are likely to avoid the headache of switching providers or paying the high cost of on-premises software deployment. With potential strong long-term growth and valuation multiples less expensive than they have been in years, SaaS companies appear attractive, in our view.

Ideally located a few minutes walk from all basic amenities and the train station, the residence has been 100% pre-let to Happy Senior (Groupe Duval) under a long-term lease.

Leslie Villatte, Director of Institutional Real Estate Investments and Development – France of La Française Real Estate Managers – Institutional Division, concluded: “This new senior housing unit completes the portfolio of our long-standing institutional investor. The limited supply of senior housing units coupled with competitive pricing will support the occupancy rate of the residence and contribute to the valuation of the asset."

For this operation, La Française REM was advised by Lexfair (Virginie Blanc), Reed Smith (Carole Steimlé) and Egis.
 

“As a signatory and enthusiastic supporter of the Workforce Disclosure Initiative, La Française AM seeks to engage with companies on key issues impacting their sector and workforce, thereby promoting transparency, and improving the quality of jobs. The data collected by the annual WDI survey aims to fill the gaps and lack of comparable data on the workforce disclosures and enables investors to address issues collectively and systematically. It is also vital in preparing companies and financial institutions for increasingly stringent regulations like the social taxonomy in EU. The WDI provides companies with key insights into their own practices and gives them the unique opportunity to benchmark themselves against peer organisations, allowing them to identify data gaps they have not considered before. This gap analysis and helpful iterative process is key preparation for any form of workforce legislation. I’m thrilled to take on a more active role regarding this initiative and thank WDI for their confidence,” concluded Deepshikha SINGH.
 

Please find below what we expect:

• We expect the ECB to increase its interest rates by 50 bps, bringing the deposit rate to 2.5% and the Refi rate to 3.0%.
• We expect the Governing Council (GC) to reaffirm that interest rates still need to reach a sufficiently restrictive level and remain elevated long enough to bring down inflation to its 2% target in a timely manner. 
• We expect ECB President Christine Lagarde to reiterate the meeting-by-meeting approach to calibrate monetary policy. We believe she will indicate that the pace of policy tightening will be reassessed at the March meeting as economic projections will be updated.
• We do not expect Christine Lagarde to reaffirm that “based on the information that we have available today, that predicates another 50-basis-point rate hike at our next meeting.”
• We expect the ECB to announce the details of Quantitative Tightening (QT).

In summary, the Governing Council will most likely try to maintain strong communication in order to avoid inflation expectations becoming de-anchored. However, with energy prices falling, the rising Euro and a worrying Bank Lending Survey, it is going to be difficult to keep this same message at the following meeting in March. We expect interest rates to decrease after this week’s meeting.
 

This commentary is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

• The FOMC to hike rates by 25 bps to a range of 4.50%-4.75%.
• Fed Chair Powell will reiterate the Fed’s commitment to restore price stability despite the deceleration in the pace of rate increases. He will reaffirm that rates will probably need to go higher (i.e., for a peak within a range of 5.00%-5.25% by the end of 2023 according to the policymakers’ last median forecast). Chair Powell will also reiterate that the Fed will keep rates high until “the job is done” (i.e., bringing down inflation to the 2% target). 
• We expect Jerome Powell to keep the door open for a pause in rate hikes at the March meeting subject to the outlooks on both inflation and real economic activity. He might underlign that over the last 3 months, the annualized inflation rate has been in line with their objective, which is obviously good news.  As Fed Vice Chair Lael Brainard recently said, “the FOMC moved policy into restrictive territory at a rapid pace, this will enable us to assess more data as we move the policy rate closer to a sufficiently restrictive level, taking into account the risks around our dual-mandate goals”. 
• The Fed will continue its quantitative tightening ($95bn/month since September 2022). 

In summary, we expect the Fed to try to keep flexibility and optionality open as monetary policy moves to a more restrictive stance. At this committee, we believe risks are on the dovish side with U.S. interest rates lower.

Disclaimer
This commentary is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

• The price-to-earnings (P/E) multiple of the S&P 600 SmallCap Growth index was one of the lowest that we have observed at the end of December 2022.
• As the chart above suggests, there is a strong historical relationship between P/E and subsequent annualized returns. Historically, below-average P/E multiples in small cap growth, which we observe currently, have led to above-average returns.
• We’ve also observed that small growth (S&P 600 SmallCap Growth) appears attractive on a relative basis to the S&P 500 (more than a 17% discount based on price-to-next 12 months consensus EPS estimates as of the end of December 2022). As a result, we believe that U.S. small cap growth may be an attractive area of the stock market for long-term investors. 

• In addition to regional landfill dominance, successful waste companies have gone through a technological revolution that has helped reduce operating costs and improve their environmental footprint. For example, investments in automation and collection software that optimizes trucking routes have significantly improved operational efficiencies and worker safety. Further, investments in the utilization of landfill gas – a natural byproduct of the decomposition of organic material in landfills – have the potential to convert waste into a viable fuel source for collection fleets and nearby communities.
• In our view, municipal and local governments are likely to continue to outsource waste operations due to regulatory and environmental complexities, potentially safeguarding the competitive advantage for larger waste companies. We believe public waste companies with vertically integrated operations, innovative collection technology, and an established regional landfill dominance are well positioned for predictable, long-term growth. 

Overarching goals have managed to cover the most pressing issues regarding nature and biodiversity loss.  It was encouraging to see the final text having much less ambiguity than what had been discussed over the past year in Open-Ended Working Groups. Targets are quantitative and measurable, incorporate the “whole-of-government and whole-of-society approach” and focus on making finance work for nature. The agreement also obligates countries to monitor and report every five years or less on a large set of "headline" and other indicators related to progress against the GBF's goals and targets. The CBD will combine national information submitted by late February 2026 and late June 2029 into global trend and progress reports.
 

The property is located at Grote Weide 2 in Berchem, in a mixed-use neighbourhood comprised predominantly of residential, educational and recreational facilities. Antwerp-Berchem train station is located 2.7 km from the property and is one of Belgium’s largest railway hubs providing convenient connection to all major Belgian cities as well as to Brussels Airport.

Built in 2008, the property consists of a single “L” shaped building with 5 upper floors. The design of the property mirrors the traditional Flemish architectural style, but with modern features. The property offers 7 251 m2 and is currently operated with 160 licenced beds. The property is operated, under a long-term lease, by Vulpia, one of the Belgium’s largest independent care homeoperators with over 2 800 employees, operating 40 care homes, representing more than 4 000 beds.

The property is well serviced with central social areas, balconies on each floor, a restaurant, pharmacy, hairdresser, lifts, gardens etc. The asset boats a good energy performance and is largely equipped with LED lighting. The asset is planned to undergo small renovation works including the installation of solar panels on the roof.

Jérôme Valade, Head of Healthcare Real Estate at La Française REM concluded, “De Veldekens is one of the few privately operated care homes in the area and is widely considered a quality care home given the variety of amenities, the good property maintenance and the competitive financial offer. In addition to the quality of the operator and the asset itself, restrictions on new care-home openings which are subject to licenses in Flanders until 2025, is very positive from a market positioning perspective and should contribute to ensuring a sustainably highoccupancy rate over the long term.”

For this acquisition, La Française REM was advised by the JLL BeLux Capital Markets team, Loyens & Loeff (legal), PwC (tax & financial aspects), Arcadis (technical due diligence) and Your Care Consult (operator due diligence). The seller was advised by the CBRE Brussels team.

The Company’s board of directors (the "Board") hereby informs you that the classification of the SubFund under the disclosure regime of the article 8 of the Regulation 2019/2088 on sustainability-related disclosures in the financial services sector (the “SFDR”) will change as from 1st January 2023.

The Sub-Fund currently pursues a sustainable investment objective and is consequently classifiedunder the disclosure regime of article 9 of the SFDR. The Commission Delegated Regulation (EU)2022/1288 supplementing the SFDR (the “CDR”), applicable as from 1st January 2023, now requires
that funds under this disclosure regime should make sustainable investments only (with a few exceptions).

The Sub-Fund will not be able to meet the characteristics required by the CDR to remain classified under the disclosure regime of article 9 of the SFDR, as from 1st January 2023. It has therefore been decided to reclassify the Sub-Fund under the disclosure regime of article 8 of the SFDR, which applies to funds promoting environmental, social and or governance (ESG) characteristics.

The change will not have an impact on the way the Sub-Fund is managed, the investment strategy, the asset allocation and the risk profile.

If you do not agree with the changes mentioned above, you may request the redemption of your share until 11:00 on 20 January 2023. Shareholders are reminded of the fact that in compliance with the prospectus of the Company no redemption fee is payable in case of redemption of shares.

The updated version of the prospectus reflecting among others the above change will be available at the registered office of the Company as soon as visa-stamped by the Luxembourg supervisory authorityof the financial sector.

Yours faithfully,

On behalf of the Board 

It is widely expected that the Federal Open Market Committee (FOMC) will slow down hike rates from 75 basis points (bps) to 50 bps at its December meeting. The Federal Reserve will update its Summary of Economic Projections (SEP) which will indicate lower growth and higher inflation for 2023. We expect the dot plot to show a higher terminal rate at 5.1% in 2023 which implies a range of 5%-5.25%.

Please find below what we expect:

• The FOMC to hike rates by 50 bps to a range of 4.25%-4.50%.
• Mr. Powell will repeat that future policy rate decisions will continue to be dependent on incoming data. More specifically monetary policy should focus on the labor market dynamic and wage growth consequences on services inflation (less housing component). 
• We do not expect Chair Powell to provide explicit guidance about the rate move in February, leaving options open for another 50-bps hike, a further downshift to 25 bps or even doing nothing at that meeting.
• Jerome Powell to postpone the possible pivot on monetary policy to 2023. 
• On the side of the dot plot, we expect to see the median dot up from 4.6% to 5.1% in 2023 given the resilience of the U.S. labour market. We do not exclude seeing one or two dots at 5.4%. By then, Fed policymaker projections will show the first rate cuts in 2024 with the median rate at 4.1% which will show dispersion in Fed members’ opinions.  The median dot will converge toward the median longer-term neutral rate (2.5%) at 2,9% in 2025. 
• On new economic projections, we expect them to indicate higher growth in 2022 (from 0.2% to 0.5%) but lower GDP in 2023 (from 1.2% to 1,0%) and 2024 (from 1.7% to 1.6%). For 2025, we expect growth will stay close to potential growth at 1.8%. 
• We anticipate the committee to revise upwards its 2022 inflation forecast (Personal Consumption Expenditure, PCE) from 5.3% to 5.6% in 2023. We expect median inflation expectations will be unchanged in the next two years, at 2.3% in 2024 and 2.0% in 2025. 

All in all, the Fed will conclude its last meeting of the year by a slower pace of rate increases which is justified by cumulative tightening and lags. The November CPI which was lower than expected is good news for the Fed even if it does not mean that the inflation fight is over considering the high level of wage inflation in the services sector in the US. But it will allow Mr. Powell to indicate that policy tightening is already having positive effects on the economy and that there is no rush now to overtighten. Considering the strong market reaction following the Inflation print and the fact that Mr. Powell will in our opinion insist that the fight is not over, rates could be somewhat higher after the press conference. 

Disclaimer
This commentary is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.
 

According to Philippe DEPOUX, CEO of La Française Real Estate Managers, "La Française Real Estate Managers has distinguished itself in 2022 thanks to our strategy of retaining and acquiring new tenant clients. This has involved the anticipation of their needs for contractual flexibility, services, control of energy consumption and long-term support. With 345 000 m2 leased or re-leased in 2022, the quality of our expertise in asset management makes all the difference. It enables us to maintain a high occupancy rate in our real estate assets, thereby delivering a performance in line with our investors' expectations. This is clearly reflected through the renewal and extension of our main French institutional mandate. This also allows us to preserve the value of our real estate portfolio. We thank our investors for their renewed confidence in these unprecedented times."

Dynamic collection

La Française REM announces forecasted gross inflows of more than €2.1 billion from private and institutional investors in 2022, driven in particular by investor interest in collective real estate investment vehicles and real estate unit-linked products. At the end of 2022, assets under management will amount to close to €31 billion, an increase of nearly 5% compared to 2021. 

As in 2021, La Française REM stands to achieve record gross inflows for its collective real estate investment vehicles with close to €1.5 billion of inflows in 2022, compared to €1.4 billion in 2021. More generally, the management company ranked in top place on the French market at the end of September in terms of net inflows for collective real estate investment vehicle(1).

Real estate transactions

La Française REM has taken on the challenge of geographical diversification through its real estate platform (presence in London, Frankfurt, Munich and Paris). At the end of November, almost 10% of assets under management were located outside of France: Germany, Belgium, Netherlands, United Kingdom, Luxembourg and Ireland. The asset manager has strengthened its local market investment and asset management teams in response to investor demand and to ensure better market coverage. 

By 2022, La Française REM will have completed nearly €2.2 billion in real estate transactions. It has completed €1.4 billion in acquisitions, paying particular attention to the location and Environmental, Social and Governance (ESG) credentials of the assets, and disposed of the equivalent of almost €800 million in assets. The majority of acquisitions (58%) were in the office sector, followed by light industrial (12%) and residential (12%). 67% of assets are located in Paris and Ile-de-France, while almost 13% of the acquisitions are outside France, mainly in Germany but also in the UK, Ireland and Belgium. Particular mention should be made of healthcare assets, a new sector invested by La Française REM since the early part of the year: 4 healthcare assets in France (portfolio of three assets in Paris and one asset in Lyon), 1 in Ireland and 1 in Belgium. Among the most emblematic and representative acquisitions of its European investment strategy:

• Bristol, UK, mixed use building,
• Bordeaux city centre (33), retail,
• Dublin, Ireland, healthcare asset,
• “Campus Cyber”, La Défense (92), office building,
• Nuremberg, Germany, light industrial property - 'life sciences',
• Antwerp, Belgium, two adjacent office buildings,
• "Alphabet", Bois-Colombes (92), office building (off-plan),
• Quimper (29), last mile logistics warehouse.

Sustainability & Services

With regards to its existing real estate portfolio, the asset manager continued to pursue its real estate strategy in 2022, focusing in particular on sustainability and services, with initiatives such as:
•    support for its tenants as part of the eco-energy scheme,
•    the development of strategic partnerships for energy consumption and
•    the launch of Wellcome by La Française, a new services offer with two major innovations: contractual flexibility (with the “Agile” lease – a flexible commercial lease with a six-month rolling notice period) and a programme of exclusive benefits for the occupier. 

Prospects for 2023

We still anticipate a period of high inflation in 2023. Even if inflation were to fall, it would probably still be too high to allow central banks to ease their monetary policies unless the Eurozone were to fall into a deep recession. In this context, real estate is defensive investment to the extent that rents are indexed to inflation. In this environment, fundraising and investments should remain dynamic. However, an analysis by asset type and sector of activity will be key in identifying those assets which offer the greater potential for protection. Bearing this in mind, La Française REM will continue to favour the acquisition of offices leased to users in growth sectors (luxury, energy, transport, etc.), healthcare assets or managed residential properties which are less impacted by economic cycles, as well as city centre retail properties with brands operating in growth sectors. All of this falls within the scope of an ambitious policy to limit the consumption of fossil fuels and reduce greenhouse gas emissions. The value of existing assets will be defended by vigorous asset management, geared towards the satisfaction of the tenant.

About La Française

The major changes linked to environmental and societal challenges are opportunities to consider the future. The new levers which have been identified will constitute the growth and the financial and real estate performance of tomorrow. La Française management group’s forward-looking investment strategy is built upon this conviction and mission.

The group uses its capacity for innovation and its technology to serve its customers and to design its investment solutions that combine performance and sustainability.

Organised around two business lines, "Financial Assets" and "Real Estate Assets", La Française is developing its business with institutional and heritage clients in France and abroad.

La Française manages over €50 billion in assets through its offices in Paris, Frankfurt, Hamburg, London, Luxembourg, Madrid, Milan, Seoul and Singapore (30/06/2022)

La Française is a subsidiary of Caisse Régionale du Crédit Mutuel Nord Europe (CMNE), a member of Crédit Mutuel Alliance Fédérale (LT ratings A+/Aa3/AA- from S&P (12/2021) / Moody's (02/2022) / Fitch (05/2022). 

Press contact:

La Française

Pascale Cheynet +33 1 43 12 64 25 | pcheynet@la-francaise.com
Debbie Marty: + 33 1 44 56 42 24 | debmarty@la-francaise.com

Legal notes:
Issued by La Française AM Finance Services, home office 128 boulevard Raspail, 75006 Paris, France, regulated by the “Autorité de Contrôle Prudentiel et de Résolution” as investment services provider under the number 18673. 

The portfolio management company La Française Real Estate Managers received AMF accreditation No. GP-07000038 on 26 June 2007 and AIFM accreditation under Directive 2011/61/EU, dated 24/6/2014 (www.amf-france.org).
 

At the December meeting, we expect the European Central Bank (ECB) to slow down the pace of interest rate hikes with a 50 basis points (bps) increase despite some debate over a 50 or 75 pbs hike. The central bank will update its macro-economic projections, including inflation projections for 2025, published for the first time. 

Please find below what we expect:

• We expect the ECB to increase its interest rates by 50 bps, bringing the deposit rate to 2.0%.
• We expect ECB President Christine Lagarde to reiterate a meeting-by-meeting approach. She will signal further rate hikes beyond December without providing guidance on the level of the terminal rate.
• We expect Mrs. Lagarde to be very cautious about the downside surprise on the November headline inflation print, considering that at the core level, consumer prices were unchanged at 5.0%. 
• As widely expected, we expect the Governing Council (GC) to announce the key principles regarding the reduction of their bond holdings related to the asset purchase program (APP). Quantitative tightening (QT) could in our opinion start in March 2023. QT will most probably be a gradual and passive process with partial reinvestment of the maturing bonds and not involve the active selling of bonds. The GC will reserve the right to adjust the timing and pace of QT over time.
• We expect the ECB to pursue reinvestments under its pandemic emergency purchase programme (PEPP) “until at least the end of 2024” and to apply flexibility to its reinvestments as the first line of defense against Eurozone fragmentation risk.
• We expect Mrs. Christine Lagarde to reiterate that fiscal policy support should be temporary and targeted at the most vulnerable households in order to avoid inflationary pressure. 
• On the economic front, we expect the ECB’s inflation projections to be revised higher in 2022 (from 8.1% to 8.5%) and 2023 (from 5.5% to 6.1%). Inflation would then be converging to the 2% target at the end of the forecast horizon (2024 at 2.3% and 2025 at 2.0%). On growth, projections will indicate slightly higher growth in 2022 (from 3.1% to 3.2%) but lower GDP in 2023 (from 0.9% to 0.3%) and 2024 (from 1.9% to 1.5%). We expect the new 2025 projection will show a trend of 1.5%.

In summary, we expect the ECB to confirm its intention to pursue interest rate hikes in 2023 but at a slower pace, as the central bank will move in restrictive territory. We do not expect this meeting to push interest rates higher although we expect the ECB to maintain its hawkish communication. We believe the Fed’s committee and the US inflation report could have a bigger impact on financial markets.

Disclaimer
This commentary is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.
 

Designed by Glaiman & Epstein and fully developed between 2009 and 2011, the office property has a total area of 33 252 m2 over 22 upper floors and is well serviced with a staff restaurant, cafeteria, conference room with 171 seats, meeting and reception rooms, accessible terrace and a concierge’s lodge. 

The highly visible property is situated in the heart of the Eiffel district and close to the main Parisian economic hubs (Paris, La Défense, Neuilly-sur-Seine, Saint-Denis). The dynamic business environment has attracted numerous international and national companies. The property offers good access to public transport with the metro line 3, the SNCF train line L and the RER line C within walking distance. So Ouest features good ESG (Environmental, Social and Governance) credentials with an HQE certification and a Low Energy Building-Renovation Label.

David Rendall, Managing Director of La Française Real Estate Managers - Institutional Division, said “We are pleased to have successfully negotiated a long-term lease extension with SAP, the major tenant of So Ouest, and welcome Industrious. In doing so, we have secured long term occupancy which will enhance the value of the asset. We thank both SAP and Industrious for their trust.”
 

Annual inflation rose in three eurozone countries (Slovenia, Slovakia and Finland) while dropping back in Germany (11.3%), Italy (12.5%), Spain (6.6%) and the Netherlands (11.2%). In France, prices remained stable at 7.1%. 

These figures are similar to the US data for October (7.7% compared to 8.2% in September). This should confirm the slowdown in the pace of the Fed's rate hike at the next FOMC (Federal Open Market Committee) on 14 December with a hike of 50 basis points (bps), bringing key rates to between 4.25% and 4.50%.

However, in Europe, will a single statistic lead the European Central Bank to slow down monetary tightening to 50 bps during the committee meeting on 15 December, following two consecutive increases of 75 bps? 

Despite this encouraging sign, we are not completely ruling out a 75-bps hike at the next Governing Council. The members most strongly opposed to higher inflation rates are worried about the knock-on effects and wage dynamics supported by a favourable labour market as well as the risk of destabilising inflation expectations. Last week, Isabel Schnabel, a highly influential member of the ECB's executive board, declared that "Data suggest limited room to slow hike pace". Elsewhere, on Monday, ECB President Christine Lagarde said, “I would like to see inflation having peaked in October, but I’m afraid that I would not go as far as that. There is too much uncertainty, particularly in one component, that is the pass-through in high energy costs at wholesale level into retail level, to assume that inflation has actually reached its peak. It would surprise me.”
            

The information contained in this document is provided for information purposes only and is considered to be accurate at the time of publication and reflects La Française Group's current view of the markets and their trends. The information has no contractual value, is subject to change and may differ from the opinions of other management professionals. Published by La Française AM Finance Services, with its registered office at 128, boulevard Raspail, 75006 Paris, France, licensed by the ACPR (“Autorité de contrôle prudentiel et de résolution”) is an investment services provider under no. 18673. La Française Asset Management is a management company licensed by the AMF under no. GP97076 on 1 July 1997.
 

¹ Purchasing Manager Index: an indicator of the economic state of a sector.
² Composite index showing the evolution of manufacturing conditions in the United States.
³ This indicator measures the expectations of analysts and institutional investors regarding the development of the German economy.
⁴ The index assesses the business climate in Germany.

Cloud based systems allow energy managers to access information with greater flexibility. By utilizing a cloud based system, users can store information from many different data acquisition systems and access and analyze this information from different sites with one application. In fact, such a system allows for easier portfolio management as it is possible to view all managed sites at once. Because energy managers are able to access information remotely, this also reduces on-site maintenance to only when absolutely necessary, saving time and expenses associated with manual maintenance.

Cost reduction proves to be one of the greatest benefits of cloud based energy management systems as it allows energy companies to curb costs for the development of local infrastructure. Software innovation however is crucial to remain competitive. Because these systems are generally sold as a service, the consumer does not need to take care of the maintenance and updating of the database and infrastructure which again reduces wasted time and money that could be spent on implementing energy and money saving practices based on the data received. Additionally, clients only need to pay for what they use thereby reducing excessive overhead costs. Cloud services not only do minimize costs of software development and maintenance but also direct monetary costs, the cost of time and resources on maintaining in-house IT professionals and infrastructure on gathering, storing and analyzing energy data. This proves most beneficial for sectors that do not or cannot prioritize in-house energy management software experts.

ENERGY EFFICIENCY AND ELECTRIFICATION
Energy efficiency improvements will remain an important objective for every company as it is a key option to reduce costs and emissions and increase productivity. Energy efficiency improvements can be incremental, like better insulation or more efficient equipment, or they can be based on novel technologies such as different separation principles that can reduce the steam used in distillation (or enzymatic processes reducing the demand for heat to arrive at high temperatures). With the increased penetration of renewables in electricity markets and the resulting
decrease in electricity prices, electricitydriven options to improve energy efficiency should become more attractive

FLEXIBILITY AND STORAGE
Changes in the energy system will inevitably lead to a higher volatility in energy prices, and most notably in electricity prices. Companies flexible enough to make optimum use of this volatility in prices will be the winners. Flexibility can be generated in various forms. Sometimes, there is flexibility in part of the process, for instance, in pulp and paper mills where the intermediate product, pulp, can be stored in large volumes. The level of pulp production can then be determined based on the price of electricity. Other flexibility options are connected to cogeneration units that can be operated depending on natural gas and electricity prices.
Cloud based systems allow for greater deployment flexibility, meaning that it is easy to either upgrade or downgrade resources which proves a great advantage for energy management systems compared to owned infrastructure. This allows the consumer to reduce or increase site data acquisition and maintenance much easier and in response to demand. For energy management specialists and consultants, this proves especially beneficial as clients evolve, i.e. more sites are easily implemented into the system for better facilitated management.
Furthermore, with the decreasing prices of batteries, electricity storage may become an attractive option for manufacturing companies. This is even more the case if freight fleets turn to full or hybrid electric: controlled charging can then be applied. Demand side management programs making use of intelligent control systems in a digitized environment will help to harvest the benefits of flexible production. All these options have the potential to use electricity
when it is cheapest and thus decrease operational costs, and even lead to a decisive competitive advantage in electricity intensive production processes.
Renewable Electricity and Renewable Heat energy have become the energy sources of choice for many companies; this choice is supported by RE100, an initiative of well over 100 companies, who have chosen to use 100% renewable electricity.
This can include local production, external sourcing via power purchasing agreements (PPAs), or buying guarantees of origin and renewable energy contracts. Renewable electricity is becoming increasingly available at prices competitive with conventional power generation. Renewable power procurement by industrial end-users has rocketed in recent years and will continue to grow as costs of renewable energy are competitive with fossil energy generation.
An important driver for this activity is the emergence of innovative PPA concepts, which offer manufacturers the possibility to hedge against the volatility of fossil fuels. Moreover, turning to renewable energybased production provides the opportunity to produce green products, which are becoming increasingly important for many market segments.

CYBERSECURITY IS KEY
Every business possesses sensitive, important information that is crucial to business operations and must be protected. Cloud-based services are the simplest way to keep information backed up and safe. Specifically, it is cited that small businesses are twice as likely as larger companies to implement cloud-based backup and recovery solutions. This solution saves time and large up-front investments. With cloudbased energy management software, energy data and savings analyses ares securely maintained and updated without much work from the customer.

Case study:
As part of its global Climate Commitment, Ingersoll Rand committed to a 35 percent reduction of its greenhouse gas (GHG) footprint by 2020. To deliver on this goal, the company targeted a 10 percent increase in energy efficiency compared to a 2013 baseline – and has achieved the goal two years ahead of schedule. Ingersoll Rand conducted an energy audit of its own large facilities and upgraded air conditioning systems, building controls and lighting, and eliminated energy leakage from its compressed air systems while measuring, validating and reporting the results. It reduced energy use by 109,000 MM BTUs and electricity consumption by 22,000 MWh, which is the equivalent of 26 million pounds of coal and the powering of 1,750 homes for one year. The company announced investments in renewable Energy technologies, further illustrating its Climate Commitment. At three large manufacturing sites in the U.S. and China, Ingersoll Rand initiated or commissioned on-site solar installations to address 15 percent of the energy load at these locations. This is equivalent to saving 560,000 gallons of gasoline and taking 1,000 cars off the road. In addition to on-site renewable energy sources, Ingersoll Rand has signed a power purchase agreement (PPA) for approximately 100,000 MWh of wind power annually.
The PPA replaces 32 percent of the company’s U.S. electricity consumption with green energy, and reduces U.S. Scope 2 GHG Emissions from Electricity by 32 percent.

Disclaimer
This document is intended for professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128
boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997

• The Carbon Impact Assessment is a deep dive into the climate change exposure of a company and its management of the respective risks and opportunities.
   
•  The LCT Methodology is a modelling approach allowing us to determine whether a company in a high emitting sector is in line with a given climate scenario. This methodology requires the selection of appropriate climate scenarios. We are using those provided by the International Energy Agency (IEA),  which provides us with the sectoral and regional activity and carbon emissions data for the period from 2014 to 2060 for three reference scenarios (2°, beyond 2° and above 2°). This is a dynamic process. It allows to capture past performance, current behavior and – most importantly – our evidence-based trend analysis. This forward-looking approach is a major improvement of our capability as an asset manager to assess climate change-related risks and opportunities for a given portfolio (equity and fixed income).We have built our proprietary de-carbonisation pathway to control the model design and the necessary assumptions. This is crucial as we are using the results in our investment process. We model sector-specific pathways for each scenarios used up to 2030. We then model Low-carbon Trajectories for companies and determine a confidence corridor which describes an area of potential outcomes. Finally, we contrast the sector pathway with the company-specific trajectory. This allows us to determine which warming scenario a company is currently aligned with. To determine this scenario, we compare for the period 2019 to 2030 the company’s annual carbon intensity level with each scenario level. We then sum the differences to see whether the company beats each scenario.
   
• Then, we are engaging with many of our portfolio companies to hold them accountable.

Nevertheless, given the importance of carbon data in our investment process we decided not to use carbon estimates provided by third-party data vendors – not least on account of the significant discrepancies which exist between data from different providers. In this report we address some of the challenges relating to inconsistent and missing disclosure and present our solution: the creation of a broad-based time series of carbon emissions covering all our equity holdings and most of our bond holdings.

As we continue to further integrate ESG information into our investment processes, we are going back to basics by looking at carbon emissions data as a key component of ESG datasets. Carbon footprinting is an established yet limited use case for carbon data. Therefore, we employ complementary analytical tools based on our carbon data and estimation model that allow us to look ahead and to assess climate-related risks and opportunities more comprehensively. Through this integration we can design investment solutions like our Carbon Impact strategies that help provide the capital to bring about the transition to a zero-carbon economy.

The figures are promising. After four quarters of uninterrupted decline (2020), the volume of office real estate investments continued to rise over the first two quarters of 2021, due in large part to accommodative financing conditions and favorable valuation perspectives. Across the board and with the United Kingdom in lead position, all European countries, apart from France, registered an increase in investment volumes. A rebound in France is expected in Q3 2021. Naturally, demand was focused on prime assets, with strong ESG performance. However, investors continued to shy away from dated assets given the capital expenditures necessary for renovation.

Diverging yields of Primary and Secondary assets

Prime office assets in Europe, particularly resilient, continued to offer attractive yields, especially in the low-for-long interest rate environment. However, investors are now demanding a risk premium, subject to local market conditions, on secondary assets.

The perceived risk on centrally located assets remained weak in markets with low vacancy rates or on assets with promising value-added perspectives in light of new user behavior. The context was however quite different for peripheral location assets!

During S1 2021 and across most European markets, prime asset yields registered a slight decrease. Alternatively, in certain markets, such as Madrid and Amsterdam, with high vacancy rates (over-supply), yields increased. Prime assets located in Paris and the primary German cities offered yields below 3%.

Rebound in take-up

The second quarter of 2021 was marked by a general rebound in take-up across European real estate markets. Some projects, liberating space, were even cancelled. Total take-up over twelve months ending Q2 2021 was slightly higher than year-end 2020. However, the rebound was not homogeneous across all markets. On average, the vacancy rate of European office real estate assets increased by 140 bps over the twelve-month period, ending Q2 2021.  No surprise that obsolete second-hand assets made up the bulk of supply. Conversely, vacancy remained low for centrally located assets that satisfy new user work habits. For example, the level of supply at the end of Q2 2021 amounted to only five months of take-up (based on average take-up over the past five years) in the central business districts of Berlin and Munich and nine months in Paris central business district. Supply remained weak in the main German cities and Luxembourg; vacancy rates were below 4%.

Supporting factors for prime asset rental values

The heavy demand for prime office assets in Q2 2021 should continue to support prime rental values. Alternatively, assets located in the suburbs of large cities such as Madrid or Milan or in sub-markets with excessive supply could suffer a correction in rental values. Across all of Europe, significant lease incentives have continued to widen the gap between headline and economic rental values. In the long-term, increasing construction costs and ESG performance booster measures could put upward pressure on rents.

We know what to do. According to the International Energy Agency (IEA), to reach net zero emissions by 2050, the world must invest $4
trillion in clean energy annually. In 2021, just $775 billion was invested in renewables technologies globally.2 

A clean energy world cannot be achieved without a clean power sector to ensure production and distribution of it. Power producers together account for 40% of all fossil-related carbon emissions (Figure 1) and Electric Utilities in particular have a key role in the transition to net zero: the share of electricity in the global energy mix increases in every IEA scenario.

According to the latest IEA energy outlook, in order to reach net zero by 2050, almost two-thirds of the energy consumed must be electric. In absolute terms, this means that electricity generation will grow from 26,762 TWh in 2020 to more than 71,000 TWh in 2050 (figure 2).

Global warming and the role of GHG emissions is a well-established fact.3 In response, carbon reduction efforts in the private sector have been made for decades. Such carbon reductions were reported, for example, as part of energy efficiency programmes.4 The goalposts have shifted in recent years due to the urgency of the climate crisis. Global warming has gained worldwide attention not least due to the Paris Agreement in 2015. Countries are now strengthening their commitments through setting Net Zero targets. Six countries have enshrined Net Zero reduction in law, five countries and the EU have proposed legislation, fourteen countries have targets in policy documents, while many more are discussing Net Zero targets.5

In the private sector, carbon reduction has since become a strategic objective for many businesses and has evolved well beyond the isolated environmental targets of the past. Today, carbon reduction is a priority for many companies and their stakeholders – including shareholders and creditors. Yet, the voluntary nature of most efforts means that targets can be set through arbitrary parameters. What is needed to solve the climate crisis are commitments to reduce GHG emissions that are aligned with scientific global warming scenarios. A study of companies with science-based targets shows that these companies reduce emissions at far greater rates relative to emissions trends in the wider global economy.6

1. These estimates include targets set by cities, regions, universities, investors and companies under the ‘Race to Zero Campaign’. See UN Framework Convention on Climate Change (2020).
2.  Financial Times (2020). The problem with zero carbon pledges.
3.  William D. Nordhaus (1976). Economic Growth and Climate: The Carbon Dioxide Problem. Yale University.
4. See, for instance, Unilever’s ‘Environmental Performance 2000’ report which shows CO2 reductions from 1995 due to energy saving measures.
5. See Energy & Climate Intelligence Unit for a detailed breakdown of country Net Zero commitments
6. See SBTi (2021). From Ambition to Impact: Science Based Targets Initiative Annual Progress Report 2020

From the start we built up internal resources, a research centre and experts to deal with an holistic analysis to appreciate the impact that ESG factors have on economic performance. This influence continues to grow stronger and we firmly believe it is more essential than ever to integrate these factors into our decision-making processes.

The climate crisis is a reality – we have already consumed a significant portion of our natural resources. On top of this, the COVID 19 pandemic has further strengthened our awareness of social and health issues. These issues represent significant changes that offer opportunities to re-imagine the future and to turn the act of saving into a means of action.

In this report you will discover how, in a very concrete way, that we are committed to innovation and sustainability ; they drive our investment solutions and allow each one of us to act individually and collectively and to engage.

The FNG-Label is the quality standard for sustainable investments on German-speaking financial markets: Germany, Austria, Liechtenstein and Switzerland. It was launched in 2015 after a three-year development process involving key stakeholders. The sustainability certification must be renewed annually. Successfully certified funds pursue a stringent and transparent sustainability approach, the application of which has been checked by the University of Hamburg by means of an independent review and assessment.

The quality standard comprises the following minimum requirements:

• Transparent and easy-to-understand presentation of the fund’s sustainability strategy in the context of the European SRI Transparency Code and the FNG Sustainability Profile,
• Exclusion of armaments and weapons,
• Exclusion of nuclear power (including uranium mining),
• Exclusion of coal (mining and low power generation),
• Exclusion of fracking and oil sands,
• Exclusion of tobacco (production),
• Exclusion in cases of systematically and / or severe violation of the principles of the UN Global Compact,
• The fund’s entire portfolio is checked against sustainability criteria (social and environmental responsibility, good corporate governance, United Nations Sustainable Development Goals or others).

La Française LUX-Inflection Point Carbon Impact Global and La Française Lux-Inflection Point Carbon Impact Euro were each awarded three out of three possible stars for their particularly ambitious and comprehensive sustainability strategies, which gained them additional points in the areas of institutional credibility, product standards, and portfolio focus (stock selection, engagement and Key performance Indicators).

Thomas DHAINAUT, Head of Equites – Small and Large Caps at La Française AM, concluded: "This year marks a milestone for La Française AM. Our inaugural “climate transition” strategy (La Française LUX-Inflection Point Carbon Impact Global), first launched in 2015, has acquired for the third consecutive year the FNG Label and for the first year, the 3-star stamp! The fund boasts three valid labels (FNG Label – 3 stars, Greenfin and French SRI Label). Both of our funds La Française LUX-Inflection Point Carbon Impact Global and La Française LUX-Inflection Point Carbon Impact Euro measure up to the stringent assessment criteria developed by the FNG Label. The 3-stars signify that they pursue even more ambitious sustainable investment strategies." 

La Française LUX – Inflection Point Carbon Impact Global: The fund aims to contribute to the transition to a low carbon economy while achieving long-term capital growth.

Asset Class            Global Equities
ISIN                I EUR C : LU1523323605 / R EUR C : LU1744646933 /
T EUR : LU1744646859
Investment horizon        5 years
SRRI / Associated risks    6 (Associated risks: capital loss, currency, investment fund, emerging markets, equity, management, market, liquidity, operational, ESG investments)

La Française LUX – Inflection Point Carbon Impact Euro: The fund aims to contribute to the transition to a low carbon economy while achieving long-term capital growth.

Asset Class            Euro zone Equities
ISIN                I EUR C : LU0414216654
Investment horizon        5 years
SRRI / Associated risks    6 (Associated risks: capital loss, credit, equity, ESG investment, investment fund, management, market, liquidity, operational)
 

This change will come into force on 30 November 2022.

The other features of the sub-fund remain unchanged. 
We would like to draw your attention to the necessity and importance of reading the key investor information document of the sub-fund "La Française Carbon Impact 2026" which is available at www.la-francaise.com.
 

The other features of the sub-fund remain unchanged. 

We would like to draw your attention to the necessity and importance of reading the key investor information document of the "La Française Carbon Impact Floating Rates" sub-fund, which is available at www.la-francaise.com.
 

Since the opening of its London and Frankfurt offices in 2014 under the leadership of David Rendall, the group has successfully developed its pan-European real estate business. Over 24% of real estate assets are managed on behalf of international investors (excluding France) and 10% of assets are located outside of France (France, Germany, Belgium, Netherlands, Ireland, UK and Luxembourg). 
David Rendall, Head of Institutional and International Real Estate, La Française Real Estate Managers said, “Given the current challenges in the global market, we believe that it is an opportune moment to strengthen our platform to enhance our capability to deliver real solutions to our clients both locally and internationally.   These new recruits will further boost our growth.”
►      Jonathan MANSIE, Director, Pan-European Transactions, La Française Real Estate Managers (London)

Jonathan has twenty-eight years of pan-European real estate business experience. He began his career with Jones Lang Wootton / JLL, first in the UK and then in France, before joining Constantine Land in 2004 as Acquisitions Surveyor and shortly thereafter Dunedin Property / Industrious Asset Management as Regional Property Director. In 2009, Jonathan joined London & Regional Properties as Senior Asset Manager responsible for a substantial, mixed-use portfolio located throughout the UK, comprising Central London offices, residential, retail, leisure, healthcare and PFI (Private Finance Initiative) properties. Prior to joining La Française, Jonathan was Managing Director, Origination & Acquisitions for Europa Capital in London where he was responsible for the origination of real estate opportunities in France and Southern Europe. Jonathan holds a Bachelor of Science in Land Management from De Montfort University (UK). As Director, Pan-European Transactions, Jonathan will pursue investment opportunities across Europe.

►     James HARMER, Asset Manager, La Française Real Estate Managers (London)

James has been working in the London real estate market since 2016. Having started out at GL Hearn, James moved to Knight Frank where he spent two and a half years within the Fund Valuation department prior to joining the firm’s Asset Management department. James acted as an Asset Manager on the Pollen Estate, who’s ownership comprised a significant portion of East Mayfair including Savile Row and New Bond Street with sector experience covering primarily Offices and High-end Retail. James holds a Master of Science from the Royal Agricultural University. As Asset Manager, James will work primarily on the UK and Ireland portfolio as well as assist the team with investment opportunities with a focus on the London West End and Industrial sectors. 

►   Adil MESTAN, Investment Manager, La Française Real Estate Managers (Germany)
Prior to joining La Française, Adil was an Associate with Goldman Sachs where he gained extensive experience across a variety of asset classes including office, retail and residential across multiple strategies, i.e., opportunistic, value-add and core + strategies. Adil holds a Master of Science in Real Estate Management and Investment from Napier University, Edinburgh. As Investment Manager, Adil will source real estate investment opportunities across Germany and the Netherlands.

►    Vanessa Mayer, Asset Manager, La Française Real Estate Managers (Germany)

Vanessa has six years of experience on the German real estate market beginning in 2017 with Knight Frank as an Investment Analyst, gaining extensive experience in transaction consulting. In 2019, Vanessa moved to Deutsche Immobilien Opportunitaten AG and was named Investment Asset Manager. Prior to joining La Française, Vanessa was an Asset Manager for publity AG. Vanessa holds of Bachelor of Arts from TH Aschaffenburg University of Applied Sciences. As Asset Manager, Vanessa will be responsible for the management of a German portfolio comprised of office, retail and mixed-use assets.

About La Française
Environmental and societal challenges are opportunities to consider the future. Identifying drivers of change and understanding how they will fashion global growth and ultimately influence the long-term performance of financial and real estate assets is at the heart of La Française’s mission. The asset manager’s forward-looking investment strategy is built upon this conviction.
The group uses its capacity for innovation and its client centric technology to design investment solutions that bridge the gap between performance and sustainability.
Organized around two business lines, financial and real estate assets, La Française serves institutional and retail clients in France and abroad.
La Française manages over 50 billion euros in assets and has operations in Paris, Frankfurt, Hamburg, London, Luxembourg, Madrid, Milan, Seoul and Singapore. (30/06/2022)
La Française is a subsidiary of Caisse Régionale de Crédit Mutuel Nord Europe (CMNE), a member bank of Crédit Mutuel Alliance Fédérale which has long term ratings of A+/Aa3/AA- from S&P/Moody’s/Fitch. 
 

Beyond the fluctuations in economic growth that guide tactical asset allocation, the most fundamental question for strategic allocation is the inflation regime that the developed world stands to experience in the coming years. For a variety of reasons, we may currently be at a major crossroads and at a time of radical change.For almost 25 years, from 1960 to 1983, the world lived through the consequences of the monetary disorder that led to the end of the Bretton Woods Agreement in 1973, which established just after the Second World War a fixed exchange rate system with the dollar-based "gold-exchange" standard. This system could only function due to a permanent influx of dollars into the international economy, which led to very accommodating monetary policies –an essential condition to ignite inflation. The oil crises of 1974 and 1979 acted as the triggers for the period of Great Inflation, which raised consumer prices in the developed world from around 4 to 10%, with automatic wage indexation to prices further fuelling the fire.

Then, for 40 years, from 1983 to the present, the developed countries changed their inflation regime to the Great Moderation, i.e., inflation between 0 and 3%. The man responsible was Federal Reserve System (FED) Chairman Paul Volcker, who raised the Fed's key interest rate to 20% in 1981 and adopted a strict policy of controlling the growth of the money supply, causing a severe recession. The lack of monetary fuel and the end of price-indexation schemes for wages have permanently broken inflationary expectations. Then came globalisation with the fall of the Berlin Wall in 1989 and China's entry into the World Trade Organisation (WTO) in 2001. The persistent deflationary pressures caused by the constant introduction of comparative advantages in the freetrade world have moderated wage demands while increasing household purchasing power. 

But globalisation has experienced serious headwinds over the past 15 years: the Global Financial Crisis of 2008, the clash between the United States and China from 2018, the pandemic in 2020 and the war in Ukraine in 2022. The world economy remains globalised, but fragmentation and segmentation are its new watchwords, with fewer competitive advantages and less of a network effect.

On the central bank side, it all started with the ultra-accommodating monetary policies put in place in 2009 in the United States and in 2015 in the eurozone to counter the effects of the global financial crisis, with the corollary of money supply growth of more than 20% at an annual rate over a long period. The fuel was in place. The onset of Covid then ignited inflation with a constraint impact on supply linked to containment and an overstimulation impact on demand linked to public support measures.

Then, comes the pressure for climate transition. The price of the carbon externality, which until now has not been taken into account, but which is the only truly effective instrument for passing through climate transition safely, will weigh heavily on energy prices. After all, economic activity is nothing other than the transformation of energy. The price of carbon will rise inexorably, as it reflects the present value of climate damage that is largely expected to occur after 2050, a date that is looming large ahead of us but closing in fast.

All this points to a rising trend in inflation. Other structural developments such as an ageing population could interfere with this trend in one direction or the other.

The investment comprises two contrasting and complementary office properties, C-Hive & Archimedes, located directly adjacent to one another:

• C-Hive is a modern, fully renovated (2019), long-term let, multi-tenant office building with a total surface of 4,820 m² spanning 10 floors (GF + 9). The ground floor consists of a high-end lobby and meeting and seminar rooms. The ninth floor of the building has a surface of 154 m² and has a terrace on three sides of the property offering impressive views of the city.

C-Hive offers regular, subdivisible floor plates of ca. 555 m² around a central core with good levels of natural light.

In the underground of C-Hive, the building provides a fitness room, shower facilities and archive space. Additionally, there are bicycle parking spaces and 13 charging points for electric vehicles. At the entrance of the building, there is a Velo docking station (Antwerp bicycle hiring scheme).

• Archimedes is a single tenant office building renovated in 2016 and 2020. The property has a total surface of 1,882 m² spanning 3 floors (GF + 2). Underground, the building provides 486 m² of mixed area including a fitness area, changing rooms, etc. 

Archimedes offers floor plates ranging between 560 m² and 690 m² and is the HQ building of CORES Development.

The building was fully redecorated by interior designer Living Projects. Every room has its own creative yet functional character. The facade of Archimedes was built in neo-rococo style and dates back to 1929.

Peter Balfour, Head of Real Estate UK for La Française Real Estate Managers said, “Both properties, given their exceptional location, the quality of the renovations and the diversity of the tenant mix, are exceptional additions to our real estate portfolio and offer long-term income generation potential.”

Alexander Vanheukelen, Business Developer for CORES Development, concluded, “We are very pleased with this transaction and look forward to our continued relationship with La Française as a tenant in one of Antwerp’s most beautiful office buildings.”

La Française Real Estate Managers was advised by Linklaters on legal, Arcadis on technical and environmental due diligence and PwC on tax and financial issues. JLL advised La Française REM on the acquisition. The vendor was advised by CBRE and KPMG Law.  

• The FOMC to hike rates by 75 bps to a range of 3.75%-4.00%.
• Chair Powell is not expected to provide any guidance on the size of the hike in December to keep all options open before the October U.S. inflation report. Decisions regarding the pace of hikes should continue to be dependent on the incoming data and the evolving outlook.
• Mr. Powell is not expected to rule out higher terminal rates to fight against inflation. Nevertheless, given recent comments from Fed officials and as federal fund rates move into restrictive territory, the central bank could consider less aggressive rate hikes in the future in order to assess the effects of cumulative policy adjustments on economic activity and inflation.
• Mr. Powell to discuss treasuries liquidity during the press conference given potential buyback program backed by Treasury Secretary Janet Yellen.

 
All in all, the Fed is expected to maintain its restrictive policy until inflation pressures are clearly decelerating. However, we expect Fed Chair Powell to signal a more gradual tightening instead of frontloading rate hikes. This meeting may lead to a modest steepening of the US interest rate curve.
 
Disclaimer
This commentary is provided for informational and educational purposes only. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.
 

Despite 2022’s challenging environment, we have seen more ambitious pledges from Australia (a revised emissions-reduction target, increasing from 27% to 43% by 2030 versus 2005 levels), India (a stepped-up emissions-reduction objective from 34% to 45% by 2030 vs 2005 levels and Net Zero by 2070) and the United States with the “Inflation Reduction Act”, the largest investment in climate and energy in American history ( a 50% emissions reduction target by 2030 vs 2005 levels and Net Zero by 2050).

Out of the wave of sectoral decarbonization initiatives announced at COP26, some have made progress: 

• the Industrial Deep Decarbonization Initiative (IDDI) whose members now account for 11% and 5% of global steel and cement consumption respectively.
• the Global Methane Pledge which aimed to reduce 2020 methane emissions by 30% by 2030 has evolved into the Global Methane Pledge Energy Pathway which can now boast $59 million in dedicated funding and in-kind assistance for the implementation of the key objectives: to capture the maximum potential of cost-effective methane mitigation in the Oil and Gas sector and eliminate routine flaring as soon as possible, no later than 2030.

After the chaotic management of the 2022 energy crisis across Europe, the elephant in the room is the feasibility and credibility of the Global Coal to Clean Power Transition Statement under which developed countries had pledged to eliminate coal power by the year 2030 and developing nations by 2040. 

What would constitute a positive outcome for COP27? Progress on meeting the $100 billion a year target on climate finance is paramount, as well as the definition of a new post-2025 target. In 2020 and according to figures announced at the COP26, but $83 billion were mobilized for Climate Finance; 98% from public funding and only 2% from the private sector, leaving ample room for growth. The Glasgow Financial Alliance for Net Zero (GFANZ) was created with just that aim, to close the climate finance funding gap. It mobilized more than 450 parties, representing over $130 trillion in assets under management at launch in 2021. While we have seen many more commitments since then, the ESG bashing movement in US republican states in recent months has started raising concerns around the positioning of banks with regards to climate change mitigation. There is fear in the market that the alliance could be fractured if US banks were to pull out, on the basis that Net Zero commitments pose liability risks that could be considered too high today.

This huge divide in the market is pushing financial actors in opposite directions and is counterproductive in mobilizing climate finance. Indeed, this is distracting the financial industry while we have a practical, more short-term challenge to address: how to ramp up spending on a pressing long-term issue, while acknowledging the weight of the looming economic recession. This question will not be answered the same way by corporates and governments

In times of economic contraction, corporates react by shrinking capital expenditure plans, freezing new hires (perhaps even letting off employees), maintaining operations undisrupted and maximizing efficiency. However, CEOs have a mandate which extends beyond the recession cycle and must bring a vision of long-term sustainable viability, which cannot be envisaged today without taking into consideration social and environmental externalities. From our experience at looking at investment opportunities in our climate change mitigation approaches, great leadership and efficient corporate governance is reflected in an executive teams’ ability to see beyond short-term turmoil while continuing to invest in what the business will need when brighter days are here, i.e., retaining talent, business reorganization, product mix shifts, etc.

On the other hand, governments of major economies are expected to provide support in difficult times: to design and pass new policies that can turn gloom into an opportunity. Moreover, governments cannot overlook what a short-term view would discard; social sustainability and meeting the basic social needs of citizens. With the mounting pressure on agriculture caused by extreme weather events, adaptation needs are front and center on the social agenda and could therefore gather more financial commitments. Adaptation finance as well as loss & damage provisions (for more vulnerable countries) are high on the list of priorities for this year’s COP.

2022 marked the second most damaging and expensive hurricane in the US. Hurricane Ian caused estimated damages amounting to more than $100 billion. Flooding in Pakistan and Australia, unseen levels of drought (among the worst in 500 years), heatwaves and wildfires in the northern hemisphere are climate catastrophes which are now expected to become 15 to 30 times more frequent. The direct implications are not only construction related but include food security, i.e., a drop in crop yields (30% drop in rice harvest in northern Italy last summer) and consequently in feedstock. Longer term effects are also to be expected on biodiversity and ecosystems which will have even greater repercussions. 

COP27 will convene against a very gloomy economic and geopolitical backdrop. While expectations may be low, positive surprises should not be excluded. We can only hope and advocate for our leaders to look beyond the looming recession and geopolitical tensions with Russia and promote more ambitious climate plans to protect our world.

Disclaimer

The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

Please find below what we expect:

•    The ECB to increase its interest rates by 75 bps, bringing the deposit rate to 1.50%.
•    The Governing Council (GC) to reiterate that inflation is far too high and inflation risks remain tilted to the upside. Hence, further rate hikes are coming despite recession risk. Nevertheless, ECB President Christine Lagarde will reiterate the meeting-by-meeting approach to calibrate policy rates.
•    The central bank to announce changes to remuneration on excess liquidity (Targeted long-term financing operations -TLTRO - terms, reverse tiering) to encourage banks to repay TLTRO loans early.
•    Christine Lagarde to indicate the GC’s intention to start quantitative tightening (QT) on asset purchase programme (APP) as the deposit rate moves into neutral territory. We expect the ECB to announce officially its plan for reducing APP bond holdings at the December meeting which should start in the first quarter of 2023. QT will be a gradual and passive process, not involving the active selling of bonds.
•    The ECB to pursue reinvestments under its pandemic emergency purchase programme (PEPP) “until at least the end of 2024” and to apply flexibility to its reinvestments as the first line of defense against euro fragmentation risk. 
•    Mrs. Christine Lagarde to reiterate that fiscal policy has to be compatible with monetary policy normalization.

The ECB will continue to be hawkish in order to maintain credibility and bring inflation back to the 2% medium-term target. Although October Governing Council announcements will not come as a surprise, we believe this meeting may push European Economic and Monetary Union (EMU) sovereign bond yield spreads to widen.

Disclaimer
This commentary is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.
 

• Firstly, could economic data push the Fed to take rates higher, causing more pain on the U.S. economy and foreign markets given the strength of the dollar? It is likely. According to the September “dot plot”, six of the Fed’s nineteen policymakers signaled 5% next year for their upper target boundary while the median range projection was at 4.75%. If the Fed increases rates by another 75 bps in December, markets could anticipate a terminal rate above 5%.  
• Secondly, could more rate hikes resolve inflation which is currently driven by supply shocks, rising energy costs and corporate margins? Probably not. As Fed Vice Chair Lael Brainard underlined recently: “The return of retail margins to more normal levels could meaningfully help reduce inflationary pressures in some consumer goods, considering that gross retail margins are about 30 percent of total sales dollars overall”. Additionally, the U.S central bank needs to significantly shrink its balance sheet to reduce inflation. 
• Thirdly, could a central bank act alone in the fight against inflation, i.e., without government support? The answer is no. Look for example at the UK’s attempt to boost its economy with fiscal stimulus which backfired and triggered a bond sell off this month. Fiscal and monetary policy need to converge towards less stimulus in order to win the battle against inflation.

Until the Fed ends its tightening cycle, which according to market anticipations will not happen before March 2023 at best, the rise in real yields will continue to weigh on risky assets and bonds. A slowdown in the pace of monetary tightening will offer but temporary relief for most asset classes. Given the real risk of a recession, we believe that investors will search mainly for duration.

It has been quite a turbulent autumn and the subordinated debt markets have come under increasing pressure as fears of high inflation and global recession continue to grow. Indeed, the month was strongly affected by a very hawkish tone from global central banks, leading to increased volatility in sovereign rates. Firstly, the European Central Bank announced a 75bp interest rate hike, bringing its benchmark deposit rate to 0.75% and revised its inflation expectations upwards to an average of 8.1% in 2022. The FED raised rates by 75bps and announced that it expects a further tightening of 1.25% before the end of the year and reduced its growth forecasts. The biggest surprise came from the Bank of England, which decided to raise rates by 50bps, but more importantly from the UK government, which proposed a radical £161bn fiscal stimulus package, including tax cuts, a corporate tax freeze and a subsidy for energy bills. These steps taken by the UK government have led to increased volatility in the Gilt (with variations of 100bps on one day for the 30-year Gilt, for example). The focus this month has again been on the macroeconomics that drive all global markets. Over the month of September, the AT1 CoCos € debt index posted a negative performance of -7.29%. Its equivalent in dollars is much the same, with a performance of -5.52% over August. The other subordinated debt classes also ended the month in negative territory: The iBoxx Tier 2 debt index fell by 3.62%, the iBoxx Subordinated Insurance Debt index by 5.50% and the iBoxx Corporate Hybrids by 4.02%.

The primary market was active at the beginning of the month and fell silent as volatility increased. In the Tier 2 market, Raiffeisen Bank International issued a €500m Tier 2 with a coupon of 7.375% (10.25NC5.25). Nykredit also issued a Tier 2 of €500m with a coupon of 5.5%. For its part, BPER Banca launched a Tier 2 of €400m with a coupon of 8.625%. On the Insurers' side, Coface announced the launch of a Tier 2 bullet 2032 with a coupon of 6%. After a long silence on the Corporate Hybrids market, two issuers have returned to the market. Indeed, Telia (a Swedish telecoms company) reopened the market with a €600m hybrid at 4.65% (60.25NC5.25). In addition, KPN (a Dutch telecom operator) issued a €500m green hybrid with a Perpetual Non-Call 5.25 structure with a coupon of 6%. At the same time, the month of August was once again marked by the theme of calls and non-calls on AT1s and Tier 2 bank debt. Bank of Nova Scotia (Canadian bank) decided not to exercise the call on its $AT1 4.65% (US064159KJ44). This is the second AT1 extension this year after Aareal Bank did not recall its AT1 for the third time (the bond is redeemable every year). On the Tier 2 side, Banco BPM recalled its €500m bond with a coupon of 4.375% on the last day of the call window.

September was an eventful month for Credit Suisse. First, the Financial Times reported on a possible split of their business into three parts – the group's advisory assets, a "bad bank" to be wound up, and the rest of the business. In addition, Reuters reported that the bank had canvassed investors for a possible capital increase and suggested that Credit Suisse was considering leaving the US market, which the bank "categorically denied". Credit Suisse issued a statement and said the bank was "on track with its comprehensive strategic review, including potential divestments and asset sales". This was without counting the outpouring of rumours about the bank's financial health on Twitter at the end of the month. Indeed, there has been a lot of speculation following the movements in CDS spreads (despite the fact that Credit Suisse is trading at the same level as the Italian banks) and the share valuation (remember: bank stock valuations are a very poor indicator of potential bankruptcy).

Some examples of these movements:

• UK 10-year rates jump 121bps
• Real US 10-year rates rise by 87bps
• European real rates close 90bps higher

To find movements of similar magnitude, we need to refer to the most volatile periods of the last decades, such as October 2008. While there are many explanatory factors, three events seem to have had a greater impact than others.
 

1. As from 1 October 2022, BNPP - Luxembourg Branch will take over BP2S - Luxembourg Branch’s role as depositary of the funds you invested in;
2. 2. As from 1 October 2022, BNPP - Luxembourg Branch will take over BP2S - Luxembourg Branch’s role as central administrator, including the role as transfer agent of the funds you invested in, to the extent applicable.

The prospectus of the Company will be updated to inter alia reflect the change described in this notice. A copy of each updated prospectus will be available free of charge upon request at the registered office of the Company. The Board

1. As from 1 October 2022, BNPP - Luxembourg Branch will take over BP2S - Luxembourg Branch’s role as depositary of the funds you invested in; 
2. As from 1 October 2022, BNPP - Luxembourg Branch will take over BP2S - Luxembourg 

Branch’s role as central administrator, including the role as transfer agent of the funds you invested in, to the extent applicable. 

The prospectus of the Company will be updated to inter alia reflect the change described in this notice. A copy of each updated prospectus will be available free of charge upon request at the registered office of the Company. 

From a practical point of view, this Merger will have no impact on the operational, organisational and commercial flows currently in place and will not cause any additional costs to you. It does not affect the commitments between BP2S and its clients as they are fully taken over by BNPP. However, this Merger has some practical consequences, which we would like to share with you:

1. As from 1 October 2022, BNPP - Luxembourg Branch will take over BP2S - Luxembourg Branch’s role as depositary of the funds you invested in;
2. As from 1 October 2022, BNPP - Luxembourg Branch will take over BP2S - Luxembourg Branch’s role as central administrator, including the role as transfer agent of the funds you invested in, to the extent applicable.

***

The prospectus of the Company will be updated to inter alia reflect the change described in this notice. A copy of each updated prospectus will be available free of charge upon request at the registered office of the Company. 

The Board

The prospectus, the key information documents or the key investor information documents, the articles of association as well as the annual and semi-annual reports may be obtained free of charge from the representative. 

Representative in Switzerland 
ACOLIN Fund Services AG, Leutschenbachstrasse 50, 8050 Zurich 

Paying agent in Switzerland 
NPB Neue Privat Bank AG, Limmatquai 1/am Bellevue, P.O. Box, 8024 Zurich
 

From a practical point of view, this Merger will have no impact on the operational, organisational and commercial flows currently in place and will not cause any additional costs to you. It does not affect the commitments between BP2S and its clients as they are fully taken over by BNPP. However, this Merger has some practical consequences, which we would like to share with you:

1. As from 1 October 2022, BNPP - Luxembourg Branch will take over BP2S - Luxembourg Branch’s role as depositary of the funds you invested in;
2. As from 1 October 2022, BNPP - Luxembourg Branch will take over BP2S - Luxembourg Branch’s role as central administrator, including the role as transfer agent of the funds you invested in, to the extent applicable.

***

The prospectus of the Company will be updated to inter alia reflect the change described in this notice. A copy of each updated prospectus will be available free of charge upon request at the registered office of the Company. 

The Board

• Crédit Mutuel Investment Managers would focus on internal clients of the group's network banks as well as corporate clients and employment/pension savings plans, 
• whereas La Française Finance Services would focus on external clients in France, namely institutional investors, and international clients.

Crédit Mutuel Alliance Fédérale intends to continue to rely on the reputation of the “La Française” brand which, in this context, would evolve to further reflect its affiliation with the Crédit Mutuel group.

In terms of asset management expertise, the objective is to strive for the greater specialisation of each asset management structure by drawing on the predominant and complementary expertise of each. This business-development oriented approach shouldallow the Group to maximise cross-selling, strengthen visibility and optimize the resources allocated to each expertise.

This specialisation would include a responsible and sustainable investment strategy common to all asset management companies. This strategy, which is the Group’s priority in terms of investment and development, would be in perfect harmony with the values of Crédit Mutuel Alliance Fédérale, the first banking group to have opted for the status of “benefit corporation”.

The objective is thus to become a major player in the French Asset Management landscape: the 6th largest French player with €160 billion under management, locations across Europe, a presence in Asia and a wide range of expertise covering listed assets, real assets and alternative management.

The Company’s board of directors (the "Board") would like to inform you about the contemplated merger of BNP Paribas Securities Services S.C.A. ("BP2S") and BNP Paribas S.A. ("BNPP") (the "Merger").

BP2S will be absorbed by BNPP. As a result of the Merger, all of the assets, liabilities and activities of BP2S will transfer to BNPP by way of universal succession of title, and BNPP will assume all the functions and services entrusted to BP2S and its branches. In the Grand Duchy of Luxembourg, the Merger will be materialized by the absorption of BP2S – Luxembourg Branch by BNPP – Luxembourg Branch.

From a practical point of view, this Merger will have no impact on the operational, organisational and commercial flows currently in place and will not cause any additional costs to you. It does not affect the commitments between BP2S and its clients as they are fully taken over by BNPP. However, this Merger has some practical consequences, which we would like to share with you:

1. As from 1 October 2022, BNPP - Luxembourg Branch will take over BP2S - Luxembourg Branch’s role as depositary of the funds you invested in;
2. As from 1 October 2022, BNPP - Luxembourg Branch will take over BP2S - Luxembourg Branch’s role as central administrator, including the role as transfer agent of the funds you invested in, to the extent applicable.

***

The prospectus of the Company will be updated to inter alia reflect the change described in this notice. A copy of each updated prospectus will be available free of charge upon request at the registered office of the Company. 

The Board

The BoJ ‘s decision came just after the Federal Reserve System (Fed) hiked rates for a third time by 75 basis points (bps). The Bank of Japan continues to maintain its forward guidance, short-term rates target at -0.1% and yield curve control (YCC) policy which caps 10-year Japanese government bond yields at around 0%. In the past week, the BoJ has spent around 2.9 trillion yen ($20 billion) to defend its 0.25% cap. 

Since the beginning of the year, the greenback has appreciated 16% against major developed currencies while the Japanese currency has dropped about 26% year-to-date against the U.S. dollar which hit a 24-year high of 145.82 yen this month.

Various factors have caused the yen to go into a free fall including the widening rate differential between the Fed’s aggressive interest rate hikes and the Bank of Japan's resolve to keep accommodative monetary policy. The current account balance is another factor. It totaled 229 billion yen ($1.6 billion) in July, down from a surplus of 1 715 billion yen ($15,6 billion) a year earlier, driven by the rise in import costs. Moreover, the U.S. dollar is widely considered a safe haven in a context of economic and geopolitical uncertainty. 

Consequently, the weakening yen is becoming a focus for Japanese officials. A currency intervention can only be decided by the Ministry of Finance (MoF) and carried out by the Bank of Japan.  Several times in 1991-1992 and in 1997-1998, the MoF has intervened on the currency market to defend the Japanese currency versus the U.S. dollar.  Since the beginning of September, Japanese authorities have become increasingly vocal to protect their currency. Officials from the Ministry of Finance have warned that Japan is ready to take action to halt the yen’s depreciation. The Bank of Japan reportedly conducted a foreign exchange check, a move seen as a precursor to a formal intervention to protect the yen. On September 22, just after the end of Governor Haruhiko Kuroda’s press conference, against all odds, the Japanese government announced that it had taken decisive action, supported by the U.S. administration, to counter speculators. The Japanese currency strengthened to 142.48 from 145.83 against the U.S. currency just after Kuroda’s briefing ended. 

Nevertheless, yen-buying intervention could give way to temporary market reaction. History shows that yen-buying intervention does not halt yen depreciation. In August 1998, the Japanese currency reached nearly 148 per dollar even after U.S. authorities joined the BoJ to buy yen. Also, in a context of economic, monetary and geopolitical uncertainty, the greenback dominates. Yen-buying intervention coupled with a normalization of the BoJ’s monetary policy could stop yen depreciation against the dollar. However, at the September 21-22 meeting, Governor Kuroda indicated that the central bank has “no need to change guidance for 2 or 3 years”. Consequently, the likelihood that Governor Kuroda changes significantly the BoJ’s monetary policy during his tenure which will end in April 2023 is low. Wage growth with this winter’s bonuses and next spring’s annual wage negotiation will be key for a stable and sustainable rise in inflation and by consequence, a normalization of monetary policy. At least initially, we expect the BoJ to tweak its yield curve control (YCC) from the 10-year yield to the 5-year yield in the first semester of 2023, before returning to conventional monetary policy (i.e., dropping its forward guidance and lifting its negative interest rate policy).  

The Fed’s dovish pivot is key to prevent further yen depreciation, but it seems highly premature at this stage. In addition, a major step will be for Prime Minister Kishida to show that his policy priority has diverged from late Prime Minister Shinzo Abe’s legacy and economic policies (Abenomics). Yesterday’s yen-buying intervention could be a first sign. 

By the end of the year, we expect the yen to depreciate further against the U.S. dollar as the Fed maintains its highly hawkish stance and the BoJ keeps unchanged its soft monetary policy. Moreover, keeping the yen weak is positive for the economy since it boosts exports. Over a longer horizon (end of 2023), we believe that the yen will appreciate thanks to a less hawkish Fed and BoJ monetary policy normalization. 

Disclaimer

The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.
 

The building was completed in 2020 and boasts good energy performance credentials with a DGNB Gold certification. The property also features an innovative and sustainable energy concept with an ice-storage system for cooling and heating.

The 6-story office building (R+5) is fully leased under a long-term lease to a single tenant, Küchen Quelle Holding GmbH, a kitchen design company.

Mark Wolter, Managing Director of La Française Real Estate Managers Germany, commented, “We are pleased to have acquired our first office building in Nuremberg; our second acquisition in Nuremberg in under a month. This acquisition is perfectly in line with our strategy to diversify our German real estate portfolio with properties that score very well on environmental, social and governance criteria. We are convinced of the property's long-term attractiveness and innovative energy concept.”

La Française Real Estate Managers was advised by Görg on the legal aspects, TA Europe GmbH on the technical due diligence and CBRE GmbH on ESG issues. Stonedeal GmbH advised the vendor.  

• We expect the FOMC to hike rates by 75 bps to a range of 3.00%-3.25%. We do not expect a 100 bps move despite the very strong August Consumer Price Index.
• We expect Chair Powell to reiterate that the Fed’s primary focus remains bringing inflation down to its 2% objective. He is unlikely to provide any indication about the terminal rates. The Fed needs to pursue rate hiking into restrictive territory despite the negative impact on the economy. The labor market is too tight with a risk of a wage-price spiral.
• We expect Mr. Powell to reaffirm that future policy rate decisions will continue to depend on incoming data and the economic outlook. He will no doubt remind markets that “history cautions strongly against prematurely loosening policy”.
• We expect the FOMC’s median dot for this year to move up from 3.375% to 4.125%, which reflects a 100 bps hike between the September meeting and year-end. The committee wants to mitigate risks of un-anchoring inflation expectations. For 2023, we expect to see the median dot up to 4.375% (early in 2023). The median rate projection will be at 3.625% in 2024 and at 2.875% in 2025. We do not expect a change in the terminal rate at 2.5%.
• We expect the Summary of Economic Projections (SEP) to indicate lower growth in 2022 and 2023 from 1.7% to 1% and from 1.7% to 1.3% respectively.  For 2024 and 2025, we expect growth to stay close to the potential growth at around 1.8%. 
• We expect the committee to revise its forecast for higher inflation figures (Personal Consumption Expenditure, PCE) with projections moving up from 5.2% to 5.4% in 2022 and from 2.6% to 2.7% in 2023. We expect median inflation expectations to be unchanged in 2024 at 2.2%, followed by decline in 2025 to 2.0%. 
• Chair Powell will likely confirm the doubling of the pace of quantitative tightening in September to $95bn/month as described in May ($60bn in Treasuries and $35bn in Mortgaged-backed securities).

In summary, we expect FED Chair Powell to reaffirm the Fed’s hawkish message. This meeting will in our opinion push interest rates higher and flatten the US yield curve.

Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

In short: not really in our opinion. Yes, higher rates usually translate into higher net interest revenues, as banks can increase their margins. Higher profitability metrics for banks would however not necessarily translate into thicker solvency capital ratios, as banks may be tempted to increase shareholder remuneration instead. Solvency buffers kept by banks are influenced by regulators and are unlikely to evolve much in the coming quarters, in our opinion, and should stay elevated in any case to avoid any systemic risk arising in Europe. It is worth noting that several national regulators (among which are French and Swedish regulatory bodies) are set to increase capital requirements next year for their local banks via the “countercyclical buffer” component. This buffer is intended to protect the banking sector from periods of excess aggregate credit growth but is currently being hijacked by regulators to deter banks from returning significantly more capital to their shareholders.

Higher rates are only a fraction of the profitability/solvency equation for European banks, because theyoperate in an over-regulated sector; over-regulation being good news for bondholders, but less so for shareholders. Moreover, the banking sector is very prone to government meddling, with several recent examples: (i) The French government forcing local banks not to raise fees by more than 2% in 2023, (ii) a new bank tax approved in Spain, (iii) Polish ruling party leader Kaczynski wanting Polish state banks to raise interest on deposits to “at least 7-8%”. Banks are an easy target for politicians, and the benefits of higher rates can easily be wiped out by non-recurring caps, taxes and regulatory impediments.

Higher rates are positive for profitability only as long as the other metrics remain consistent, which is not a given amid such macroeconomic uncertainty. Bank profitability is dependent on the bank’s ability to produce new loans, on the level of loan loss provisions required to protect its balance sheet against a recession and on the cost of its wholesale funding, which has increased in 2022. The banking sector is and will remain cyclical and a proxy for macroeconomic sentiment. Higher interest rates are positive in the long run for the European banking sector, but profitability and solvency metrics will stay geared to regulatory, political and macroeconomic decisions. As such, we do not expect any impact on subordinated bonds from higher rates.

The information provided is considered well-founded and accurate on the date of publication. The information reflects the opinions of La Française AM. This publication has no contractual value, and its contents are subject to change. The opinions may differ from those of other management professionals. Published by La Française AM FINANCE Services, whose registered office is at 128, boulevard Raspail, 75006 Paris, France, and which is regulated as an investment services provider by ACPR (“Autorité de contrôle prudentiel et de résolution”) under no. 18673. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.
 

• The ECB will most likely increase interest rates by 75 bps, bringing its deposit rate to 0.75%. The inflation picture has deteriorated further since the July meeting with core inflation rising to 4.3% YOY, a further broadening of underlying price pressures and slightly higher inflation expectations.  
• We expect ECB officials to retain their meeting-by-meeting approach and refrain from explicit forward guidance on the pace of future hiking. 
• We do not expect ECB President Lagarde to provide guidance on the level of the neutral or terminal rate.
• We do not expect an announcement on the end of Asset Purchase Programme reinvestments, but ECB President Lagarde could indicate that discussions will start soon.
• The ECB will most likely announce some changes to remuneration on excess liquidity given positive real rates. 
• New ECB staff projections will likely cut ECB growth projections sharply considering the slowing momentum and the ongoing energy crisis. 2022 projections will likely remain unchanged or include small changes (Q2 growth was strong), but we expect significant revisions on 2023 projections. 
• We expect the ECB’s inflation projections to be revised higher in 2022 (from 6.8% to 8%) and 2023 (from 3.5% to 4.5%) and then to decline close to the 2% target in 2024. 

We believe the ECB will deliver a hawkish message this week, reflecting its commitment to bring inflation back to its 2% target. At this stage, the Governing Council will in our opinion opt for a restrictive stance despite economic slowdown. It will likely push rates slightly higher and lead to a flattening of the yield curve.

Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

MARKET UPDATE

The summer period had ultimately been positive overall for the financial markets thus far, despite a still difficult macroeconomic situation, for several reasons. First, the perception by financial players of a lower inflation risk linked to a drop in commodities prices, particularly the price of the barrel of oil. This logically resulted in a widespread drop in sovereign rates, both on nominal rates, but also, and especially, for real rates. In our view, this played a key role in the risky assets’ good performance until recently. Moreover, the market positioning, which was very pessimistic in June, and a good earnings season that was deemed satisfactory also undoubtedly contributed to renewed investors’ risk appetite.

However, the macroeconomic situation remains at least difficult, especially in Europe. Consumer confidence is close to bottom in almost all Eurozone countries, in connection with the sharp rise in energy prices since the beginning of the year. In Europe, although the price of the barrel of oil fell back over the summer, this has not been the case for gas prices, which have jumped by more than 200% since the beginning of June. As a corollary, electricity prices continue to rise, with consequences for individuals and businesses that are currently difficult to assess due to the various government support plans in place. But is this fiscal support sustainable? The latest announcements suggest that, although this support will not disappear, it will at least be reduced, resulting in a potentially significant rise in energy costs for all economic players. A reform of the electricity market in Europe could also limit the shock.

Thanks to US energy independence, the same risks do not weigh on US consumers. While the latter are also affected by high inflation, they are also supported by higher wage growth than in Europe and a still buoyant labour market, although some signs of weakness are beginning to appear. 

China does not have inflation-related problems, but this does not make its situation more reassuring. The policies implemented in 2021 to rebalance certain segments of its economy continue to have a profound impact on the economy in general, and particularly on real estate. At the same time, the economy is also suffering from the government’s zero-Covid policy. 

In this context of continual downwards revisions of the global growth forecasts for 2022 (4.40% at the beginning of the year, 2.90% as of 19 August), the central banks nevertheless have no possibility of easing financial conditions. While the latest US inflation figure, which came out at zero month-on-month for July, was reassuring in the short term, we believe it is far too early for central banks to be satisfied with the current situation. The latter reaffirmed in Jackson Hole their desire to fight inflation by being less accommodating and by raising real rates.

Beyond the geopolitical risks, for which the future is uncertain by nature, it is undoubtedly the last point that makes us the most cautious for the coming months. It will be hard for the upcoming tightening of financial conditions to go smoothly in a context of deteriorating growth. We believe it is important to remain cautious in our allocations to risky assets, especially in Europe.

To end on a hopeful note, however, it is possible that the end of the year will bring some good news with a gradually lower inflation in the United States and a positive impact of the various Chinese stimulus plans.

The building is highly efficient from an environmental standpoint and was built to the latest environmental standards. It has top-level labels and certifications: NF HQE Exceptional, Effinergie +, Wiredscore Platinium, BREEAM level “Excellent”, Well Silver and its energy performance will be equivalent to RT 2012 minus 40%. 

The "Campus Cyber" is fully leased for a period of 10 years to a single lessee, 45% of which is comprised of the French state and 55% of large private groups.
 
This acquisition was made on behalf of investment vehicles managed by La Française REM. 

Philippe Depoux, Chairman of La Française Real Estate Managers said, "In the wake of the record inflows of the SCPI market recorded in the first half of 2022, La Française REM has signed its largest acquisition for collective real estate investment vehicles with the "Campus Cyber". We are proud to be investing in a building that can truly be said to be iconic in many different ways: in terms of its architecture, its sustainability credentials – it is one of the very rare assets aligned with the Taxonomy – in terms of technology and services, as well as cybersecurity, which is in line with our group's commitment to sustainability." 

Adrien Blanc, Chairman of Altarea Entreprise noted, "We are very proud to have closed this deal with La Française Real Estate Managers, a move that consolidates Altarea Entreprise's ability to carry out large-scale projects for leading players on the market. This building offers everything needed by the office of the future: an exceptional location, flexible and convertible spaces with services tailored to individual company needs, and an environmental performance that fulfils the highest-level international standards. We are also delighted that a French company will be taking over Campus Cyber."  

La Française REM was advised by notarial firm Allez & Associés, Cabinet Mayer Brown on the leasing aspects and Cabinet Fairway on the financing aspects. 

Part of the acquisition was financed by Banque Européenne du Crédit Mutuel, advised by the notarial office Victoires Notaires and the Cabinet Archers. 

Altarea Entreprise was advised by Thibierge Notaires.

Thomas DHAINAUT brings twenty-four years of experience in asset management and stock picking to La Française. He began his career at Banque du Louvre in 1998 as Head of Financial Products Intermediation before moving on to become European Equities Fund Manager at HSBC Private Bank France in 2001. In 2005, he joined the equity management team of Sycomore Asset Management where he spent fifteen years as Partner and Fund Manager, developing solid expertise in extra-financial analysis and thematic equity strategies relating to ecological and energy transition. Before joining La Française AM, Thomas was Partner and Fund Manager at Nahua Capital (2020 to 2022). 

Thomas DHAINAUT holds a master's degree in finance from ESCP (1996) and has been a member of SFAF since 2002.

Jean-Luc HIVERT, Chairman of La Française AM concluded, “Extra-financial analysis lies at the heart of La Française AM's fund management philosophy. We have recently restructured our organisation and the recruitment of Thomas marks the last step in this transition towards a more holistic style of management. His mastery of extra-financial analysis, coupled with solid experience in conviction-based management, will strengthen the quality of management we are able to offer our investors and enable us to innovate in terms of thematic investment strategies.”

Fully renovated in 2019/2020, the asset is let to two tenants and houses the headquarters of Ziehm Imaging GmbH, a medical technology company that manufactures state-of-the-art X-ray equipment and operates under an Environmental, Social and Governance (ESG) charter. The property has green roofs, provides bike storage, is close to public transportation and boasts a good energy performance. 

Mark Wolter, Managing Director of La Française Real Estate Managers Germany, commented: “We are pleased to announce the acquisition of our first light industrial property with a tenant operating within the life sciences sector in Germany. This acquisition is perfectly in line with our strategy to diversify our German real estate portfolio regionally as well as by type of use, always paying special attention to ESG criteria. We are positive about the long-term attractiveness of the property itself, the asset class, and the location.”

Thomas Reckers, Portfolio Manager at Crescendo Real Estate, commented: “It has been a pleasure working with La Française Real Estate Managers’ local team. As the final investment of our fund, the sale allows us to settle and distribute the net proceeds to our investors.”

La Française Real Estate Managers was advised by Baker Tilly Rechtsanwaltsgesellschaft mbH on the legal aspects and by CBRE GmbH on the technical due diligence and ESG valuation. JLL handled the marketing of the property on behalf of the seller. Gleeds (technical), CTP Asset Management (property management) and KNH Rechtsanwälte (legal) supported the seller.

The information provided is considered well-founded and accurate on the date of publication. The information reflects the opinions of La Française AM. This publication has no contractual value, and its contents are subject to change. The opinions may differ from those of other management professionals. Published by La Française AM FINANCE Services, whose registered office is at 128, boulevard Raspail, 75006 Paris, France, and which is regulated as an investment services provider by ACPR (“Autorité de contrôle prudentiel et de résolution”) under no. 18673. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

European Real Estate Investment Market, record investment volume

The volume of commercial real estate investment in Europe reached a twelve-month high of €280 billion (as at end-June 2022). However, Q2 activity, particularly in southern Europe, slowed due to rising interest rates and stricter financing conditions. Investor demand has been focused on quality assets, in terms of ESG and technical credentials, whereas the soaring costs of refurbishment have weighed heavily on the demand for older and less energy efficient assets.

The office sector posted a twelve-month rolling investment volume up 9% as at end of June 2022 versus December 2021. The logistics and light industrial sectors performed well with a record investment volume of over €67 billion. Demand for this asset class is driven by anticipated increases in rental values given low vacancy and strong user demand.

Retail investment volumes have returned to pre-crisis levels, driven by higher yields.

Office yields have started to adjust 

Q2 2022 was marked by a rapid rise in long-term interest rates, which mechanically caused a compression of the real estate risk premium. Real estate yields have since started to readjust. The French and German markets, where yields were the lowest, were the first to experience a rapid but moderate correction in their yields. At the end of June 2022, prime office yields were however still below 3% in Paris and the main German cities. The rise in yields is expected to be more pronounced and probably to last longer for secondary assets, especially in Southern Europe 

Office take-up trends

Despite headwinds, take-up* across Europe continued on its positive trajectory and rose by 46% year-on-year (as at end-June 2022), exceeding its ten-year average by 3%. All the main European cities posted positive growth in take-up over a twelve-month period with the exception of Amsterdam which saw a slight drop in demand (-3%). Dublin, London and Lille have seen their take-up more than double over the last twelve months (as at end-June 2022). 

Immediate office supply in major European cities remains stable over the past year, albeit at a relatively high level. However, rapidly rising construction and financing costs should limit future supply and may contribute to a decline in vacancy in the medium term.

Beware of rental value trends, submarkets behave differently

The health crisis and the development of teleworking have altered the dynamics of the real estate market. Previously and broadly speaking, an overall increase in vacancy led to an overall decrease in rental values. Today, it is important to recognize that submarkets can behave differently, and centrality is a determining factor of rental value.  

Incentives on secondary assets, across all markets, continue to reach new records. Demand is more and more focused on centrally located, serviced and energy efficient assets. The demand for quality assets is further fueled by rising energy costs.

Low supply in Germany has continued to put upward pressure on German rental values. At the end of June 2022, prime rents stood at €510/m²/year in Berlin, €522/m²/year in Munich and €546/m²/year in Frankfurt, representing year-on-year increases of between 3% and 10%. London shows the strongest year-on-year increase (+13%) with rental values at €1,626/m²/year for the best assets at the end of June 2022.

Sources: CBRE, MBE, La Française REM Research

*take-up in the 12 main European cities: Brussels, Lille, Lyon, Paris, Berlin, Frankfurt, Hamburg, Munich, Dublin, Milan, Amsterdam, Madrid

The information provided is considered well-founded and accurate on the date of publication. The information reflects the opinions of La Française Real Estate Managers. This publication has no contractual value, and its contents are subject to change. The opinions may differ from those of other management professionals. Published by La Française AM FINANCE Services, whose registered office is at 128, boulevard Raspail, 75006 Paris, France, and which is regulated as an investment services provider by ACPR (“Autorité de contrôle prudentiel et de résolution”) under no. 18673. The portfolio management company La Française Real Estate Managers received AMF accreditation No. GP-07000038 on 26 June 2007 and AIFM accreditation under Directive 2011/61/EU, dated 24/6/2014  (www.amf-france.org).

This meeting is expected be a confirmation of Fed data-dependency and should be without a meaningful impact on financial market. We expect the FED to remain hawkish in order to restore price stability with a slightly more balanced tone given weak incoming data. <

Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

Inflation

These days, getting a grasp on Inflation is not easy. A year ago, the market expected average inflation in 2022 to be 1.6% in the eurozone and 2.9% in the US, reaching a peak at the end of 2021, and in 2023 a return at around 1.5% in Europe and 2% in the US. (Bloomberg) Today, these same markets are forecasting inflation of 8.2% in the eurozone and the US for 2022 and a relative decline in inflationary pressures for 2023, with price rises still around 4-5%. Naturally, the war in Ukraine and the enormous consequences on the commodity markets only go so far in explaining these errors in estimation. We should bear in mind that if inflation estimates were revised upwards by more than 5% (see Chart 1) over the last twelve months, it is easy to imagine these estimation errors recurring, in either direction.

Chart 1 (Bloomberg):

In the short term, this leaves central banks with little choice as to what monetary policy to pursue. They want to avoid a de-anchoring of inflation expectations and will therefore continue to tighten their monetary policies with the generally assumed objective of reducing demand.

Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

• Over the past year, many investors shunned companies lacking relatively high current earnings that may have strong growth potential. As a result, those types of stocks experienced the largest declines during the past year’s market selloff. Biotechnology stocks as measured by the NYSE Arca Biotechnology Index (BTK) were notable laggards relative to the S&P 500 Index as these companies tend to have either no earnings or relatively low current cash flows. 
• Since biotech companies generally tend to lack current profits, looking at the ratio of the past eight years of R&D spending relative to equity prices sheds light on how many investors are valuing drugs in the pipeline that have potential for government approvals. We believe, the higher the ratio, the less value the market is putting on drug development efforts.
• As shown in the chart above, among the largest 750 companies, R&D spending as a percentage of market capitalization for biotech companies relative to large caps is the highest in at least a quarter century, which we believe makes the stocks potentially attractive for investors looking to profit from the advances being made in harnessing organic materials to improve our lives.

• As preannounced, the ECB will increase its three key interest rates by 25 bps after having ended its Asset Purchase Programme (APP) on 1 July; we do not expect the ECB to surprise markets with a 50-bps move. 
• The overall tone will in our view remain very hawkish considering the latest inflation figures and the downward pressure on the exchange rate.
• We also expect President Lagarde to reiterate that the pace of policy tightening will be guided by optionality, data-dependence, gradualism, and flexibility. She will confirm that the key ECB interest rates will rise again in September, with the calibration of this rate increase depending on the updated medium-term inflation outlook.  
• She will likely reaffirm the ECB’s very strong commitment to act against unwarranted fragmentation. The ECB will also provide more details about the so called “Transmission Protection Mechanism”, its new bond-buying program. We expect this plan to be unlimited, with light conditionalities and 100% sterilized. It will be a difficult exercise in communications for the ECB, with a lot of questions around this new plan: what does “light conditionality mean exactly? What are the “right” circumstances under which the tool could be deployed? Is the ECB going to favor specific parts of the curve?
• We also expect the ECB to confirm discussions to modify TLTRO (Targeted longer-term refinancing operations) III eligibility requirements given the accelerated pace of monetary policy normalization. 

All in all, the main risk would be to see the ECB fall short of market expectations regarding the new plan. The ECB has a difficult exercise in communications, especially given new political turmoil in Italy. Ahead of this meeting, we remain cautious on peripheral bond spreads, and we still see a potential for more flattening across European curves 

Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

In just over five years, La Française has become a reference among Asian institutional investors seeking to invest in the European real estate market, in the office sector and more recently in logistics and has executed over €3bn of transactions. La Française manages on behalf of Asian investors €2.3 billion of AUM (as at 30/04/2022), mainly in real estate, and has established a number of sourcing partnerships with Asian blue-chip investors.

Asia-Pacific is a priority market for La Française and being located in Singapore will further boost its growth in this region with the Singapore office spearheading this development. 

“As a leader in the European office real estate space , we recognize the importance of a strong presence in Asia-Pacific. International business development is all about creating proximity. Our aim is to assist Asian investors in the geographic diversification of their real estate portfolios. This is an important milestone in our business development strategy, and we are thrilled to take this new step in Singapore.” explained Philippe LECOMTE, CEO of La Française AM Finance Services.

Julia TAN, Chief Executive of CIC Asia Pacific concluded, “This new development is a perfect illustration of the synergies we aim to achieve as members of Crédit Mutuel Alliance Fédérale. We look forward to welcoming our colleagues from La Française in Singapore.”

• When interest rates decrease (increase) 
• And/or when credit risk premiums tighten (spread). 

The graph below  compares the average coupon on outstanding debt (blue curve) for High Yield issuers to the yield at which these same issuers can refinance on the secondary market (orange curve).

The question that everyone is asking is the following: what are the ECB’s options?

The ECB must find a solution to achieve its three main objectives:

1. Halt the fall of the Euro,
2. Maintain intra EU spreads at reasonable levels, 
3. Fight inflation. 

Markets participants have been speculating on this for months now, and we are yet to see any convincing solution. See hereafter what they have indicated today.

• The ECB will apply flexibility in reinvesting PEPP (Pandemic emergency purchase program) redemptions. That was already the case before, so nothing new here. However, the ECB could increase the use of “flexibility” moving forward. They have been reluctant in the past to deviate significantly from the capital key (except during the Covid crisis for a short period of time), but they could decide to do so. Doing so may prove difficult over the long term (the ECB has to respect the capital key by the end of any calendar year, see www.ecb.europa.eu/mopo/implement/pepp/html/pepp-qa.en.html ), but it could help to stabilize markets over the short term.
• The ECB told staff to prepare new anti-crisis tools for approval. We do not have any details yet, but this is what markets were hoping for last week before the ECB meeting. It is too soon to formulate an opinion on the plan, and it is still not clear how much support the plan will have among ECB members.

The fact that the ECB is stepping in should calm markets over the short term, especially given the reduced exposure to peripheral countries. However, they must now deliver on their new anti-crisis tools. If it means a new Quantitative Easing (QE) program, dedicated to peripherals countries, we are hesitant. We do not think it would be possible without conditionality. It could be a new plan similar to the Outright Monetary Transactions (OMT) program, but with more flexibility and light conditionality. For now, this seems to be the most plausible outcome. Will it be enough to keep peripheral spreads from widening? We are not sure about that, at least not until inflation comes down. 

• United States : the Fed increased its key rate by 150 basis points. They have signaled their will to continue their restrictive monetary policy to arrive at a key rate of around 3-3.5%, while reducing its balance sheet 
• Europe : the ECB abandons its asset purchase program and announced its first rate hikes in July.
• Switzerland : the national bank has started to raise its rates and will possibly be joined shortly by the Japanese central bank who is not satisfied with the hurtful depreciation of the yen.

This global monetary policy tightening logically leads to less accommodating financial conditions with real rates rising sharply in recent months (see real 10-year Euro and US rates opposite).

Since 2008 we have lived with an inflationary risk close to zero and very accommodating central banks. This has allowed real rates to fall and favorised financial assets’ high valorisations (real estate, credit, shares, etc..). This trend is now behind us, and this should remain the case if inflation continues to be the main problem for central bankers. 

Soaring inflation, skyrocketing energy prices for the consumer and increasingly restrictive credit conditions all have a negative impact on growth across all sectors and more specifically on the consumer. Consumption levels remain strong in most developed economies, led by the United States, thanks to the savings accumulated following the various support plans. It is very likely however that it will gradually decrease in the coming months. Although the inflation’s source is mainly linked to supply issues, central bankers want demand to crumble in order to curb inflationary pressures.

This is especially true in Europe, with demand already showing tangible signs of a strong slowdown. Having no means of acting on supply, central banks will therefore try to achieve a difficult objective: slowing the economy without causing a recession; a historically difficult balance to achieve.

In light of all this, we believe that growth forecasts will continue to decline over the medium term, which should lead to lower earnings estimates for companies. These companies will find it difficult to counter more expensive financing, margins pressure and reduced consumption, whose price elasticity should increase. The decline in risky assets now reflects the tightening of financial conditions but are not pricing earnings’ drop yet. In our opinion, it seems too early to turn positive on bonds or equities, despite already pronounced declines. Diminishing inflationary pressures  appears to us to be the main condition for the financial markets to stabilize. It is currently extremely difficult to get an informed opinion given the determinants of this inflation.

Reyes Garcia-Reol, Country Head – Iberia, said, “Spain was La Française’s first foreign market and since founding the local office some twelve years ago, we have developed considerably. Today, we have a wide palette of investment solutions, covering all asset classes and representative of La Française’s high alpha management expertise, registered for distribution. Naturally, we have high standards and strong ambitions for the Iberian market. Julián, given his extensive experience and knowledge of cross border fund distribution, will be an asset to our team.”

• Crystal Parc, a 7 storey/39.000 m2 multi-let office building in Neuilly-Sur-Seine (92), a prime business location in close vicinity to the Paris Central Business District and La Défense (France). 
• two “last-mile” logistic platforms, ranging from 5,000 to 10,000 m2, fully let to blue-chip tenants in France.

Philippe Depoux, CEO of La Française Real Estate Managers commented, “The oversubscription of the IPO is a reflection of Mastern’s excellent reputation and the quality of the real estate portfolio. We respectfully thank Mastern for their confidence and look forward to building upon this success in the future.”
 

• Access to a comprehensive product database, with all the features and documents relating to the funds;
• Ability to view subscriptions and redemptions in real time, with prospectus cut-off times;
• Access to the blockchain register updated in real time, guaranteeing immutability and traceability and building reference data shared between the investor and the management company

Thierry Gortzounian, Chief Operating Officer of La Française AM Finance Services said "An active innovator and stakeholder since the launch of the project in 2017, La Française is relentlessly pursuing the deployment of the IZNES solution across its range in order to best serve its investor base. By the end of July 2022, La Française aims to have more than thirty vehicles available on the marketplace and is already working on listing an undertaking for collective investment in real estate (Organisme de Placement Collectif en Immobilier – OPCI). We are offering our insurance partners access to vehicles that are representative of our two areas of expertise, real estate and financial assets. Through IZNES, insurers benefit from a user-friendly subscription channel which enables them to control operational risk." 

IZNES is proud of La Française’s renewed confidence and delighted to see IZNES increasingly adopted by the market. Christophe Lepitre stated, "Our solution grants institutional investors and in particular unit-linked insurers fully automated subscriptions from the same order book, in UCITS or AIF funds domiciled in the European Union including real asset funds. This is a major asset, particularly in terms of operational security”. 

For Generali, being able to invest in La Française’s real estate vehicles via IZNES is not only a matter of optimising procedures, but also of enhancing the value of the teams by eliminating tasks which do not add any value. “The growing number of real asset unit-linked vehicles reinforces the imperative of eliminating manual and paper-based processing which not only presents an operational risk but is of no benefit to the teams. Who is still interested these days in printing out a subscription form, filling it out, signing it and so on? IZNES makes it possible to instruct subscription operations directly from our order book to the fund register on the blockchain. The confirmation and position elements are automatically fed back to our accounting tools. Security, speed, digitalization and innovation – it's got everything! Blockchain is becoming the preferred operating model for unit-linked vehicles", said Rémi Cuinat, Director of Unit-Linked Assets at Generali France.
 

• convertible bonds: 100% 
• assets in non-OECD countries: 25% 
• cash and cash equivalents: 20%. These may include monetary UCIs or UCIs whose investments’ overall weighted maturity or rate reset frequency does not exceed 12 months 
• contingent convertible bonds (coco bonds): 20% 
• mortgage- or asset-backed securities: 20% 
• other UCITS/UCIs: 10% 
• equities (through exposure from convertible bonds and coco bonds): 5%"

"(…) The sub-fund may invest in, or be exposed to, the following investments up to the percentage of net assets indicated: 

• Eurozone equities (including exposure from derivatives): 85% to 105% 
• Equities from anywhere in the world, including emerging markets: 10% 
• Investment grade bonds: 10% 
• Other UCITS/UCIs: 10% 

The sub- fund has specific sustainable investment objectives (SFDR Article 9). The Management Company relies on the analysis of the research center "La Française Sustainable Investment Research" (the “Research Center”) of the entity "La Française Group UK Limited" specialised in determining responsible investment criteria. It is specified that there is a risk of conflicts of interest with respect to the provision of ESG scores by the Research Center. 

The investment process is based on Integration with significant engagement in the management and thematic. 
The initial investment universes are constructed from Eurostoxx TMI (Total Market Index). The possibility of selecting securities outside the initial investment universe is limited to 10%. In selecting securities, the investment manager uses a 3-step investment process: 

Consequently, traditional backward-looking probabilistic approaches would not be able to assess climate-related risks properly. Historical data are certainly not sufficient to define a long-term asset allocation. They are even partially counterproductive, because they are supported by irrelevant economic and monetary fundamentals. Alternative approaches based on a green taxonomy may also prove insufficient as they only offer a static view of the reality they depict. New forward-looking approaches are therefore needed. Such scenario-based methodologies seek to set up plausible hypotheses for the future without attributing a probability of occurrence to each of them.

Strategic asset allocation must take into account the transition of economies to a decarbonized economy, the only scenario capable of avoiding devastating global warming, by positioning itself on investments that generate performance and lower risk. But other, less positive, scenarios have to be considered too. This is the subject that the Climate Aware Strategic Allocation aims to cover. In addition, this transition may be induced and accelerated by promoting the financing of traditional industries, the development of transitional facilitating activities or of disruptive innovations. This is the subject of Investing in Climate by selecting ad-hoc investments within each asset class once the allocation has been completed.

In more details, Climate Aware Strategic Allocation is based on three pillars: expected returns derived from a consistent economic scenario, risk measures, volatility and correlations, and an algorithm for optimizing risk-adjusted returns. The idea is to use an essentially forward-looking scenario-based approach to implement the strategic asset allocation.

The scenarios translate the more or less intense efforts of the global economy to mitigate carbon emissions and adapt economic structures to warming while taking into consideration productivity, demographic trends, the relative energy intensity of the economy and the carbon content of energy production. The economic and scientific community agrees on five so-called Shared Socioeconomic Pathways (SSP), determined by the degree of mitigation and adaptation. They range from a virtuous scenario corresponding to the compliance with the United Nations Sustainable Development Goals in the context of enhanced international cooperation to an extreme scenario of regional rivalries abandoning any ambition in the field of climate. The purpose of this study is to deduce what strategic asset allocation is optimal for each SSP.

Objective To contribute to the transition to a low carbon economy while achieving long-term capital growth. Specifically, the sub-fund seeks to outperform (net of fees) the reference benchmark MSCI All Country World Index ((MSCI ACWI Daily Net Total Return) over any given 5-year minimum. 

Reference benchmark 

• EUR-denominated shares: MSCI AC World Daily Net Total Return in EUR (NDEEWNR) 
• USD-denominated shares: MSCI AC World Daily Net Total Return in USD ( M1WD) 

The sub-fund is actively and discretionarily managed. The index is used to define the eligible investment universe with the objective of reducing carbon footprint. The management strategy includes tracking the difference in the risk level of the portfolio relative to that of the index. A moderate deviation from the risk level of the benchmark index is anticipated.” 

2) Clarification of the investment policy and strategy

The investment policy of the Sub-Fund will be clarified in order to (i) describe how the initial investment universe is constructed when applying the ESG filter and (ii) insert the description of the environmental, social and governance (ESG) criteria applied by the investment manager for the SubFund, which were previously disclosed in the general part of the prospectus, directly in the sub-fund appendix and so to read as follows...

The investment objective of the Sub-Fund will be amended in order to reflect the extension of the maturity date of its investment. As of 20 of July 2022 (the “Effective Date”), the investment objective will read as follows :  

“Objective To achieve high income until 31 December 2025”. 

As a consequence of this change, the denomination of the Sub-Fund will change into JKC Asia Bond 2025, the subscription period has been extended until 30 April 2024 and the deadline until which certain investments will be valued using the ask price has been extended to 30 April 2024. 

2) Change of the investment policy 

The investment policy of the Sub-Fund will be changed in order to (i) foresee investment in bonds with an estimated maturity of December 2025 at the latest and/or bonds with a longer maturity, but which have a call option before 31 December 2025, (ii) foresee the increase of the exposure to equities from 10% to 20%, (iii) foresee exposure to NOK and SEK currencies and (iv) foresee the possibility to invest in index credit default swaps. 

The investment objective of the Sub-Fund will be amended in order to reflect the extension of the maturity date of its investment. As of 20 of July 2022 (the “Effective Date”), the investment objective will read as follows.

"Objective To achieve high income until 31 December 2025”.

As a consequence of this change, the denomination of the Sub-Fund will change into JKC Asia Bond 2025, the subscription period has been extended until 30 April 2024 and the deadline until which certain investments will be valued using the ask price has been extended to 30 April 2024.

2) Change of the investment policy

The investment policy of the Sub-Fund will be changed in order to (i) foresee investment in bonds with an estimated maturity of December 2025 at the latest and/or bonds with a longer maturity, but which have a call option before 31 December 2025, (ii) foresee the increase of the exposure to equities from 10% to 20%, (iii) foresee exposure to NOK and SEK currencies and (iv) foresee the possibility to invest in index credit default swaps.

The investment policy of the Sub-Fund will be updated in order to (i) clarify that the management company will rely on the analysis of the research center “La Française Sustainable Investment Research” of the entity “La Française Group UK Limited” with respect to the determination of ESG criteria and (ii) reflect the increase in the net exposure rate (after hedging) to currencies other than the euro from 10% to 50% as from 20 of July 2022 (the “Effective Date”). 

As from the Effective Date, the investment policy will therefore read : 
The sub-fund invests in government and corporate bonds, equities in OECD countries and/or emerging markets. 
Specifically, the sub-fund may invest in equities, floating rate or fixed rate debt securities and money market instruments. The sub-fund may invest up to 100% in fixed income securities that are rated lower than BBB- by Standard & Poor’s or judged equivalent by the investment manager at the time of the 
purchase or in unrated bonds. The sub- fund may invest in sustainability bonds (such as green bonds and social bonds) and sustainability-linked bonds (SLB). 

The sub-fund may invest in, or be exposed to, the following investments up to the percentage of net assets indicated: 

• bonds and money market instruments: 100%, including government bonds: 50% 
• government and corporate bonds issued in non-OECD countries: 70% 
• equities: 50% 
• contingent convertible bonds (coco bonds): 10% 
• convertible bonds: 10% 
• other UCITS/UCIs: 10%, including monetary UCIs or UCIs with an overall weighted maturity or rate reset frequency not exceeding 12 months 
• real estate investment trusts (REITs) that qualify as transferable securities under the 2010 Law and related regulations, publicly traded real estate preferred equities and debt securities, and 
• equity-related securities of real estate operating companies: 10%

Marie Lassegnore began her career in 2012 at Crédit Mutuel CIC AM as a quantitative fund of funds analyst. In 2013, she joined Aberdeen Asset Management in London. She held the position of bond analyst for almost two years before becoming a portfolio analyst within the global credit team. In this role, she developed low carbon strategies and became a leading research expert on Green and Sustainability Linked Bonds. Marie joined La Française AM in September 2018 as Credit Portfolio Manager.
Marie Lassegnore holds a degree in applied mathematics in social sciences from the University of Paris 1 Panthéon Sorbonne and a master's degree in Management from the EM Lyon Business School. She is a CFA charterholder and holds a certificate in Investment management (IMC).

Marie Lassegnore, Head of Sustainable Investments, La Française AM stated, "To maintain our competitive advantage in terms of sustainable investment, the challenge is to continuously blend extra-financial research into management processes, so these criteria gain more and more influence in the final selection of securities. By integrating the research division into the investment division, we aim to foster our strategy, develop the interconnection of investment skills in the interests of our investors and consolidate our position as a committed investor.” 

Jean-Luc Hivert, Chairman of La Française AM concluded, "The creation of alpha depends on the prospective integration of ESG criteria in the valuation of our assets. Marie's role will be key to this approach, as she will ensure the transition to a more holistic style of management.”
 

author : Deepshikha SINGH

• As preannounced by Christine Lagarde, because of intensification of inflation pressures, the ECB is expected to announce the end of the asset purchase program (APP) at its June Governing Council meeting and a first-rate hike in the Deposit Facility rate (-0.50%) at its July meeting. The three conditions for hiking rates are met. It is also expected that Lagarde pre-signal the exit of negative rates by September.
• Chair Lagarde should underline that the pace of policy tightening will be data-dependent (i.e., domestic demand, underlying inflation, and financial conditions). We believe that the Governing Council will not exclude 50 basis points (bps) steps to move quickly nor rising the deposit rate significantly above neutral (1%-2%) as higher inflation is threatening to de-anchor inflation expectations.
• Regarding quantitative tightening, Chair Lagarde will most likely reiterate that it is premature. Interest rate hiking is the main monetary policy tool at this stage. But we believe that reducing the size of balance sheet will be the topic of debate moving forward, namely after the TLTRO (targeted longer-term refinancing operations) pay back announcement in mid-June. 
• Lastly, Chair Lagarde is expected to reaffirm that the central bank could act swiftly to deploy new instruments to prevent market fragmentation that could be triggered by a tightening of the monetary stance. However, current spreads do not yet justify an announcement. We do not believe that the Governing Council will launch a new bond-buying program without offsetting any purchases by taking an equivalent amount of money out of circulation. Chair Lagarde will reinforce the importance of flexibility as normalization proceeds.
• On the economic front, we expect the ECB’s inflation projections to be revised significantly higher in 2022 (from 5.1% to 6.9%) and moderately in 2023 (from 2.1% to 2.3%). Inflation would then decline towards the 2% target at the end of the forecast horizon but with a high level of uncertainty. Regarding growth, projections should indicate lower figures in 2022 (from 3.7% to 2.8%) and 2023 (from 2.8% to 2.5%). A technical recession in the coming quarters should not be ruled out. For 2024, the upward revision will be marginal, from 1.6% to 1.7%.

In summary, maintaining credibility by defending its inflation target from high inflation is key for the ECB. Although the June Governing Council announcements will not come as a surprise given the ECB’s proactive communication, we believe risks are from the hawkish side (i.e., possibility for 50 bps rate hikes at the upcoming meetings, pushing rates into restrictive territory, early discussion around quantitative tightening).  Therefore, we expect some flattening on the euro swap curve.

Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

Michele McGarry, Colliers, said “We are delighted to have concluded on the acquisition of Ballintaggart House.  The acquisition demonstrates growing investor appetite for the Medical Sector, where we are seeing new entrants to the market and limited opportunities available. The investment proposition was underpinned by the quality of the asset, the location, the reversionary potential and long unexpired term.” 
-- End --

Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

European Real Estate Investment Market, liftoff

The volume of commercial real estate investment in Europe reached a new twelve-month high of €281 billion (as at end-March 2022). The office sector, which accounts for €125 billion (+30% above its long-term average) and where investors remain focused on next generation, centrally located, flexible, serviced and energy efficient assets, is by far the preferred asset class. Fuelled by the rampant expansion of e-commerce and forecasted rental growth, logistics and light industrial space recorded a record high investment volume of €67 billion. Retail and leisure assets also rebounded with increases of respectively 63% and 3% over twelve months. France and Norway recorded record volumes for a first quarter in retail assets. With the lifting of travel restrictions, Spain too experienced a good start in the leisure segment. Investment in alternative sectors such as operated residential and healthcare is down in Q1 2022 compared 
to Q1 2021, due mainly to a lack of supply.

Prime asset yields still at their floor 

Prime yields have remained generally stable across Europe over the past year despite an increase of respectively 1% and 1.5% in the risk-free rate and the cost of financing. Given the 
rise in risk free interest rates, the average property risk premium of most European real estate markets has declined to its long-term average. New hikes in interest rates could however put 
upward pressure on real estate yields, the effects of which could be partially compensated for by the indexation of rents on inflation. The overall performance of real estate will be driven by 
rent growth as opposed to capital gains.

Take-up trends in a two-tier real estate market

Fueled by improving unemployment figures, take-up across Europe continued on its positive trajectory. Overall, European office market take-up* rose by 52% over the past twelve months. Cities such as Dublin, Lille and London saw increases of more than 100% in take-up in Q1 2022. As take-up increases, and completions decrease, stock has stabilized. A same trend 
can be observed in most prime European real estate markets: high demand in central locations and subdued demand in peripheries

Beware of vacancy rates, submarkets can behave differently

Average vacancy rates continue to mask significant discrepancies between primary and secondary markets. Vacancy rates of centrally located assets in prime real estate markets, where demand is focused on next generation assets, remains low and supports rental values. In Q1 2022, Berlin, London, Edinburgh and Paris registered increases in rental values of more than 10% compared to pre-COVID. In Q1 2022, Germany experienced the greatest increase in rental values while Spain and Italy suffered due to excessive or obsolete stock. Incentives on secondary assets, across all markets, have reached new records. Demand is more and more focused on assets that meet ESG standards. Indeed, companies are migrating to more energy efficient office space in order to decrease their overall carbon footprint.

Chart 1: Breakdown of inflation in the euro area (Source: CACIB Forecast, Bloomberg, May 2022)

In that respect, investors are very cautious on risky assets, anticipating a rapid withdrawal of monetary support policies and a quick rise in key interest rates in the coming months. In the chart below, we can see that the market is now expecting a total of 100 basis points rate hike by the ECB as early as 2022, and another 100 basis points in 2023, even though the APP purchases are not yet complete. It should be noted that the APP should be interrupted in July, just before the first rate hike.

Chart 2: Market forecasts of interest rate hike in the Eurozone (Source Bloomberg, May 2022)

The size and pace of these rate hikes will certainly depend on the path of future inflation and its impact on the economy, which are very difficult to predict at the moment. As a result, rate volatility has reached historically high levels, the likes of which have not been seen for more than 10 years except for the March 2020 peak, as shown in the following graph of the implied volatility of the German Bund (blue curve) and US Treasuries (red curve).

Chart 3: Implied volatility, in % (Source Bloomberg, May 2022)

As we have seen, taking a directional view on interest rates is particularly perilous given the uncertainties about the path of inflation. And while we haven't seen rates on this high level since 2014 in the eurozone, inflation is breaking decades-old records, when nominal rates were near 10%.... 

In this unusual macroeconomic context, what about the impact on company fundamentals and on the evolution of credit margins?

CORPORATE FUNDAMENTALS

While we can reasonably expect a deterioration in issuers' credit fundamentals in today’s environment (slowing revenue growth, deteriorating operating margins and cash generation), in an environment where growth is slowing, it is worth noting that issuers are entering this period of "turbulence" with extremely strong credit fundamentals, including healthy credit ratios, high level of cash on balance sheet (see chart below), and relatively low short-term maturity wall. As a result, we believe that issuers will be able to absorb this deterioration in credit fundamentals without causing a significant increase in default rates.

What are the consequences for financial markets? 

Overall, markets are still digesting the tightening of financial conditions. The US expected real inflation rate over a five-year period, beginning five years from now has increased considerably since January 2022; up by almost 100 bps, from around -0.40% to 0.37%. However, the 5-year, 5-year forward inflation expectation rate it is still 70 bps below its 2018 peak. (Source: Bloomberg)
Fears of hawkish central banks in developed markets (i.e., interest rates hikes into restrictive territory) and elevated recession risk in 2023-2024 are indicative of a very negative environment for risky asset. 
How are markets pricing a recession risk? According to J.P. Morgan Research, US and Euro area equity markets are pricing in a 70% probability of a near-term recession, compared to a 50% probability in Investment Grade credit, a 30% probability in High Yield and a 10%-20% probability in money markets. We would be more cautious than J.P. Morgan. Inflation will strongly impact consumer demand, especially in Europe, and central banks will continue to tighten monetary policies as long as inflation is not showing signs of cooling off. This is not the best environment for risky assets over the medium term even If there is some short-term relief.  

Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

• Lower income consumers are more adversely impacted by higher inflation because many of the spending categories with the highest inflation make up larger portions of their budgets as compared to higher income consumers.
• The lowest income quintile of U.S. consumers spend 10.1% of their total annual expenditures on food at home compared to the highest quintile spending only 6.1% of their budgets on food at home (see above). That means the 10% inflation in food impacts lower income consumers more. Lower income consumers also spend a larger portion of their incomes on other areas with high inflation such as utilities, gasoline and to a lesser extent, used automobiles. 
• We believe certain retailers with exposure to low-end consumers may face some of the most significant challenges from higher inflation. On the other hand, certain luxury goods companies whose consumers are less impacted by higher inflation may be less challenged by the current economic environment

Simon GUELKE has 27 years of experience beginning in 1995 as a private banker with Dresdner Bank (Commerzbank). After a series of promotions, he was appointed Branch Office Head in 2008. After two years, Simon returned to Commerzbank´s regional headquarters in Hanover and was named Head of Securities Advisory Services. Later, he was appointed Allianz Global Investors fund specialist, responsible for advising sixty regional Commerzbank branch banks on Allianz Global Investors products (all asset classes). In 2016, Simon joined a family-owned private bank, Bankhaus Metzler, as an Advisor and developed an investment platform dedicated to brokers and asset management firms. Prior to joining La Française Systematic Asset management in Germany, Simon was a Business Development Manager, covering Northern and Western Germany for Degroof Petercam AM.  

Kay SCHERF said, “Simon is a great addition to our team. His extensive experience as a Financial Advisor to retail and wholesale client segments makes him a great asset. His relationship skills and knowledge of banking institutions and their functioning are critical to our development strategy for Germany.”

Furthermore, the Management Company has decided to extend the sub-fund's subscription period to 30 June 2024 instead of 31 March 2023.

Please note, the Management Company reserves the right to reduce this period depending on market conditions.

This change will be effective as of 13 May 2022. 

The other features of the Sub-fund remain unchanged.

We would like to draw your attention to the need and importance of reading the key investor information document of the Sub-fund which is available at www.la-francaise.com.

Potential investors should read all key investor information documents before making any decision to invest.

• The power of the yield curve in forecasting recessions rests on the bond market’s forecast of interest rates. When bond investors believe the economy is in trouble, they anticipate a decline in interest rates, which lowers the longer end of the curve, potentially below the near-term part of the curve, resulting in inversion.
• The traditional 10-year bond yield less the 2-year yield is somewhat of a crude approximation of interest rates in the future versus more near-term rates. This indicator recently pointed to potential recession as illustrated by the teal line above.
• A more exact forecast, the Federal Reserve (The Fed) argues, can be gleaned by comparing the forward 3-month yield 18 months in the future as compared to the current 3-month yield. As illustrated by the blue line, it turns out that this curve is very steep and is indicating the potential for growth ahead.
• The fact that the bond market believes the Fed will be able to raise short-term interest rates significantly over the next 18 months implies the potential for a healthy economy, which is a very different and more optimistic picture than the more traditional yield curve.

• As shown above, most of the times when the Federal Funds rate rises, a recession follows – “hard landings.” However, the circled areas show when the Federal Reserve raised interest rates, but a recession did not follow – “soft landings.”
• In all three cases, the Fed tightened 300 basis points or more, but economic growth continued. That amount of tightening is about what is anticipated by the Fed’s own projections released in March. Note that the Fed also tightened materially from 2015 to 2018 with the economy growing solidly in 2019, only to be upended by the pandemic.
• At a time when the Fed appears to be increasingly hawkish on inflation, it may be comforting to know that monetary tightening doesn’t always lead to recession and that soft landings have been kind to investors in recent history. Indeed, in the 12-months following the end of Fed tightening in 1985 and 1995 as well as after the Fed relented in 2018, equities generated double-digit returns.

First, let’s provide some context regarding this text and more specifically how it could eventually be translated into law. The Commission’s review is broad and encompasses several topics, among which the way AT1 CoCos are being used by banks. The ECB acts as an advisor on these matters, and though other regulatory bodies will also make recommendations (EBA, ESRB), we cannot deny that the ECB has a strong say in these macroprudential adjustments. The Commission should publish its review by end-June 2022. Possible legislative proposals by end-December (or later) would be followed by the Parliament’s and Council’s versions, before rule changes are finalized, potentially in 2024 or 2025. It is important to stress that (i) not all changes proposed here will be implemented, as they will be most certainly watered down or suppressed by the miscellaneous stakeholders drafting up and voting the law (including bank lobbies), (ii) the timing for any change is highly uncertain, but we do not expect anything before at least 2024… for an application at least one year later. Our view is that most of what is proposed here will be implemented rationally and slowly to avoid any market disruption, as is often the case with regulatory proposals.
 

This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

• Rates should remain unchanged for the time being and the Governing Council should keep the sequencing:  by first ending the Asset Purchase Programme (APP) and then by hiking rates.
• Sources said that during the previous meeting the board was divided, with 10 hawks calling for immediate action and 15 doves voting for status quo. The 5-year breakeven inflation rate in 5 years’ time has risen by 27bps since March 10 to 2.36%, above the ECB’s target rate. Therefore, we could witness more hawkish pressure this time.
• The APP is set to reach EUR20bn for the month of June. The Governing Council should provide some insight about its pace in the following months. Given that inflation is so high – and should stay around current levels until September, the ECB could announce that it intends to end purchases at the end of June. This would open the possibility of a rate hike as early as in July. September is however a more credible option. Governor Makhlouf said that the ECB wanted to “maintain optionality” so the governing council might want to keep all options open.

Overall, a hawkish ECB is a real possibility. Inflationary pressures are very strong, and the labor market is extremely tight, with the unemployment rate at an all-time low. The missing piece remains wages, for which recent data is unfortunately missing.

Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

I.

First of all, the IPCC states for the first time that man’s responsibility for global warming is certain. Thanks to the progress in climatology and the available date, the IPCC can affirm human responsibility. Natural factors have hardly contributed to global warming. The increase of about  +1.1°C since 1850 is attributed to human activities. According to the IPCC we are very close to 
reaching a point of no return. 
 

II.

Global warming is set to reach +1.5°C. In its latest report, the IPCC presents a panel of five  different socio-economic scenarios (SSPSs). Thus, apart from the most optimistic scenario (SSP1), 
the global warming threshold could be reached by 2030, 10 years earlier than the IPCC’s  previous estimate. An increase of 1.5°C, even temporarily, would have significant impacts on  ecosystems such as glaciers and coral reefs. 
 

III.

Sea levels are rising as a result of climate change, including the melting of ice caps. By 2050,  one billion people could be living in coastal areas at risk. This figure could double by 2100 under 
the worst-case scenario, which suggests a rise of more than one metre. Since 1900, sea levels  have risen by 20 cm and could continue to rise by a further 20 cm by 2050. About 900 million
people now live less than 10 metres above sea level. 
 

IV.

Methane emissions are increasing alarmingly and are one of the main sources of environmental  warming along with carbon dioxide (CO2). However, the harmful potential of methane emissions 
is 84 times greater than that of CO2. The report shows a 6% increase in methane emissions over  the past 10 years. Furthermore, at COP26, an agreement was reached to reduce methane  emissions by 30% between 2020 and 2030. Currently, 111 countries are signatories. Unfortunately,  China and India are absent. The main sources of methane emissions are landfills and incinerators,  oil and gas extraction and transport, agricultural activities, coal mines, etc. 
 

V.

The IPCC warns of the catastrophic impacts on humans. Experts estimate that half of the world's  population, between 3.3 and 3.6 billion people, are already "highly vulnerable" to the  consequences of climate change. It is one of the ten important figures of the second part of the  IPCC's 6th assessment report. Reduced efficiency of carbon sinks, extinction of species,  increased disease, agricultural losses are, among others, examples of the consequences that  will result from a warming climate. The IPCC calls for adaptation to meet the urgency of the  situation and for everyone - governments, the private sector, civil society - to work together to achieve it.

Class A: 20% of the performance with high-water mark
Class B: 20% of the performance over 5% with high-water mark
Class C: 20% of the performance with high-water mark
Class P: None

There is a performance of the Net Asset Value per Share of a considered Class of the Sub-Fund if and only if there is an increase of the Net Asset Value per Share of this Class of the Sub-Fund compared to its reference Net Asset Value at the beginning of the calculation period which is the highest Net Asset Value end of period ever registered ("Reference Net Asset Value").The first Reference Net Asset Value of the Sub-Fund was on the last Net Asset Value in December 2013.

The reference period for the performance of the Fund is from the 1st trading day of January to the last trading day of December, for each calendar year. Sampling frequency: The performance fee is collected for the benefit of the Investment Manager at each calendar year. Under no circumstances, may the reference period of the Sub-Fund can be less than one year.

• During the reference period:
• If the Sub-Fund's Net Asset Value is greater than the Reference Net Asset Value, the variable portion of performance fees will represent 15% of the performance of the Net Asset Value per Share for [the Classes as defined for the relevant sub-fund in the current prospectus].
• The performance fee will be calculated net of all costs. - This difference will be the subject of a provision for performance fees when calculating the Net Asset Value.

In the event of redemption, the portion of the provision made, corresponding to the number of units redeemed, is definitively acquired by the Investment Manager.

• During the reference period:
• If the Sub-Fund's Net Asset Value is greater than the Reference Net Asset Value, the variable portion of performance fees will represent 15% of the performance of the Net Asset Value per Share for [the Classes as defined for the relevant sub-fund in the current prospectus].
• The performance fee will be calculated net of all costs.
• This difference will be the subject of a provision for performance fees when calculating the Net Asset Value. In the event of redemption, the portion of the provision made, corresponding to the number of units redeemed, is definitively acquired by the Investment Manager.

However, the biggest loser is the fixed income market which continues to suffer due to rising core bond yields (German 10y bund +76bps, 10y US Treasury Note +96bps) and widening spreads (Euro Investment Grade +42bps, Euro High Yield +92bps, Italian BTPS +17bps, Emerging Market debt + 9bps, etc.). Consequently, the Euro Aggregate index is -5.42% YTD. For equity investors who are used to double-digit drawdowns, these losses might seem contained. But for fixed income investors, 2022 marks the worst year ever. (Source: Bloomberg, as at 25/03/2022)

The two culprits of the poor performance of fixed income markets are Vladimir Putin, whose war in Ukraine has sunk investor sentiment, and central banks, namely the Federal Reserve (Fed) and the European Central Bank (ECB) which have adopted a hawkish path in their war against inflation. Concerns associated with the Russia/Ukraine war have soured investor sentiment as markets anticipate downward growth revisions and that investment projects will be put on hold. We can already witness the negative impacts on consumer loan demand as well as on homebuyer activity in France.

The primary objective of central bank policy has and will continue to be price stability. To some extent however, the Fed is an exception as it has an implicit dual mandate which includes maintaining a low unemployment rate. Nevertheless, this second objective is clearly secondary relative to price stability. Though the ECB and Fed do not have the same tolerance regarding price pressures, both take action when the organizations deemed necessary, even vigorous action, i.e. Fed Paul Volcker in the early 1980s or ECB Jean-Claude Trichet in the 2000s.

However, over the past ten years, inflation has been very low and central banks have had no reason to implement restrictive measures. Quite the contrary! There was heavy political pressure to ease monetary policy. Remember former President Trump’s demands for rate cuts back in 2019.

But now, with inflation soaring to a 40-year high, political pressure has shifted dramatically. Governments have declared inflation the worst of evils, and central banks are weary of not tightening monetary policy enough. Therefore, central banks are rushing to exit quantitative easing programs and to begin a hiking cycle that should have begun sooner. For benchmark purposes, the Taylor rule prescribes a current value for the Federal funds rate of around 10%, the highest estimate since the 1980s and far from today’s value! Keep in mind that the Taylor rule considers economic fundamentals, such as the unemployment rate and core inflation, which today are at historical extremes. The same tool (Taylor rule) can be used for the Eurozone, in which case the forecasted interest rate is 7%. All in all, the path of least resistance remains higher rates.

Unfortunately, the war in Ukraine has accelerated the macro trend of higher inflation. As a matter of fact, Russia is a major oil exporter (10% of world production, Reuters), and the war has sent prices through the roof. The same can be said for many other commodities such as wheat, for which both Ukraine and Russia are major producers (respectively, 8% and 18% of world exports, source UN Comtrade). The war is forecasted to slow growth in Europe by 1.4% and in OECD member countries by 1%, not material enough to warrant a policy U-turn.

Against this backdrop, central bank actions are an obstacle for battered financial markets rather than a support.

For investors, the well-known “Fed Put”, which refers to Federal Reserve easing policy when fears of recession send equity markets south – is no longer a real possibility; or at least not until markets start pricing a strong decrease in demand with a recession, in which case, the “Fed Put” strike price would be much lower.

How does this context bode for financial markets? What does it mean for asset performance in the coming months? We believe markets will continue to price a significant number of hikes during the next twelve months. That being said, we do not expect the long end of the yield curve to increase significantly as long-term trends continue to prevail: high debt, low population growth and digitalization have a negative impact on long-term nominal growth and hence long-term yields. This explains why yield curves should continue to flatten in the developed world. In terms of regions, we consider Eurozone bond yields to be more vulnerable to an increase in interest rates than US bond yields. Indeed, Eurozone inflation is more sensitive to Russia because of its dependance on the Russian natural gas supply. Therefore, inflation upside surprises are more plausible than in the US. If, as we expect, yields rise more in the Eurozone than in the US, the Euro should appreciate against the dollar. Moreover, investor sentiment on the Euro is very pessimistic so the unwinding of short positions should help the parity to rise as well.

Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

DOCUMENT FOR INFORMATION PURPOSES. THIS DOCUMENT IS INTENDED FOR NON-PROFESSIONAL INVESTORS AS DEFINED BY MiFID. The information contained in this document is provided for information purposes only and it does not under any circumstances constitute an offer or invitation to invest, investment advice, or a recommendation relating to any specific investments. The specific information, opinions and figures that are provided are considered to be well-founded or accurate on the date when they were drawn up based on current economic, financial and stock market conditions, and they reflect the La Française Group's current opinions regarding the markets and market trends. They have no contractual value and are subject to change, and they may differ from the opinions of other management professionals. Please note, past performance is no guarantee of future results and that the level of performance is not constant over time. Published by La Française AM FINANCE Services, whose registered office is at 128, boulevard Raspail, 75006 Paris, France, and which is licensed as an investment services provider by ACPR under no. 18673. La Française Asset Management is a management company licensed by the AMF under no. GP97076 on 1 July 1997.

ACT EFFECTIVELY

La Française REM partakes in the fight against global warming by setting CO2 emissions reduction targets compatible with the Paris Agreement for most of its real estate portfolios. To achieve this goal, La Française REM uses the decarbonisation pathway developed by CRREM (Carbon Risk Real Estate Monitor) to limit global warming below 1.5°C. 

The global "carbon budgets" used by CRREM were selected in line with the COP21 objectives, i.e., the scenario of Rockström et al. (2017) for the 1.5°C objective (669 GtCO2e for 2019-2050). In this carbon scenario, reduction targets were determined following the framework of the Sectoral Decarbonisation Approach (SDA) developed by the SBT initiative.

In order, this firstly involves a reduction target for the European building sector, followed by a target for each EU country and finally a target for each building based on its type. The efforts required to achieve the 1.5°C objective therefore vary depending on the country and the type of asset. The more carbon-intensive the country's current energy mix and the more energy-intensive the asset type, the greater the effort required. For example, offices in Germany will have to reduce their average emissions from 86.3 kgeqCO2/m2/year in 2020 to 2.8 kgeqCO2/m2/year in 2050, whereas logistics assets in France will have to reduce their average CO2 emissions from 12.8 kgeqCO2/m2/year in 2020 to 1.2 kgeqCO2/m2/year by 2050.
 

From now on, the directions of both the US and Eurozone bond markets going forward are likely to be determined by the overall thrust of the fiscal / monetary policy mix. If fiscal support proves to be disappointing, macro-economic indicators could also start to disappoint, especially with higher commodity prices overall hitting consumer demand. This is already what leading indicators are starting to show (OECD diffusion index, credit impulse...), but it could take months before we see any material negative impacts. The Covid crisis has led to unprecedented budget support from governments which in turn has led to very high saving rates for US and Eurozone consumers meaning that the negative effect coming from tighter monetary conditions and higher commodity prices could be delayed.

This environment is clearly not the most favourable for fixed income markets. Higher yields on governments bonds have a negative impact on the whole fixed income spectrum, meaning that investment grade bonds, high yield bonds and emerging market bonds are all suffering from this massive repricing. One of the few options has been the TIPS market (Treasury Inflation-Protected Securities) but even there, the total return is negative YTD (22/03/2022, Bloomberg).

Going forward, we expect central banks to keep on accelerating their hiking plans, which should lead to flatter yield curves (or inverted yield curves, depending on the market), especially in the US but also in Europe. A flat yield curve is often associated with a high probability of recession, which makes sense on a theoretical basis as it signals the intention of central bankers to tighten rates above neutral, which would hurt demand over time. The question here is how long would it take? Normally a Fed tightening cycle is at the early stages quite risk-on. Later, markets worry about policy tightening driving a growth slowdown. But at present, policy tightening is urgent and investors are already preoccupied by growth slowdown prospects.
In the short term, and as long as the Fed continues to push for tighter monetary conditions, we find it difficult to have a very constructive view on credit markets and emerging markets. We prefer the longer part of the yield curve vs the shorter part. Lastly, we are also negative on long-term inflation expectations as the ultimate goal of the Fed is to push them lower. 

Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

Groundwater - our main freshwater resource is scarce and fast depleting

22nd March was celebrated as the World Water Day and the theme of this year was ‘Groundwater – making the invisible visible’. Our Blue Planet is named for the abundance of the blue liquid on its surface, yet less than 1% of it is usable is its natural form. For most of our uses – domestic and industrial – we pump water from under the ground. Groundwater is the most abundant form in which freshwater can be used, but it is fast disappearing. We are pumping non-renewable groundwater reserves at unsustainable rates to counter droughts across the world without even knowing how much we have left. 

As data from NASA suggests, globally, one-third of our largest groundwater basins are under distress – being rapidly depleted by human consumption. In US alone, almost half of the water supply needs are met by pumping from underground aquifers. Add to these, the enormous amounts of pumping that is done by bottling companies, other industries and the groundwater reserves have been depleted beyond repair. NASA estimates that the likelihood of mega droughts (lasting more than 30 years) in US Southwest and Central plains is going to increase to 60%, even if we achieve net zero by 2050 (which the IPCC’s latest reports claim we will not). 

Industries face multiple forms of risk from the growing water scarcity

Industries and agriculture use 90% of global freshwater resources – with agriculture accounting for the lion’s share. Global water demand (in terms of water withdrawals) is projected to increase by 30% by 2050 (despite the increasing scarcity), mainly due to increasing demand from manufacturing and electricity sectors (OECD). A growing and increasingly wealthy global population needs more food, materials and energy – placing intense pressure on water resources. Water-related risks, from physical to reputational, can potentially damage companies’ financial performance. 

The assets under management of the Sub-Fund currently amount to approximately EUR 13 million, which does not allow for an efficient management (diversification, risk management etc.) of the SubFund. Therefore, the Board considers it in the best interests of the shareholders to put the Sub-Fund in liquidation as of the Effective Date. 

Subscriptions in the Sub-Fund have been suspended with effect from 28 of February 2022.

Costs
La Française Systematic Asset Management GmbH will bear the cost of the expenses incurred in the liquidation, including legal and regulatory charges associated with the disposal of the Sub-Fund’s investments. 

Tax status
This liquidation might affect the tax status of your investment and may give rise to a tax liability on any chargeable gains. We therefore recommend that you seek independent professional advice in these matters.

Your shares at liquidation
Any holding that you retain in the Sub-Fund on the Effective Date will be redeemed and cancelled on that date and the liquidation proceeds will be paid and sent to you in accordance with the payment instructions, which we hold on file for your account. 

Additional information
The Sub-Fund will cease to exist after the liquidation.
Any liquidation proceeds which cannot be distributed to shareholders after the close of the liquidation will be deposited in escrow on their behalf with the Caisse de Consignation in Luxembourg, from where you can claim them at any time within 30 years, after which they will become the property of the state. Should you require further information as to the action you should take, please contact your financial advisor.

On behalf of the Board 

• Collaborating and sharing knowledge
• Engaging with companies
• Assessing impact
• Setting targets
• Reporting publicly on the above before 2025

Laurent Jacquier-Laforge, Global Head of Sustainable Investing of La Française Group concluded, “La Française is proud to be among the group of 89 leading financial institutions to formally commit to protect, restore and sustainably manage natural resources through a responsible investment strategy based on engagement and which prioritizes biodiversity. As a responsible investor, our goal is to design and manage investment solutions that reconcile performance and sustainability.”
 

1/ How do AT1 CoCo calls work?

a/ The economics of calling a CoCo bond

AT1 CoCos are regulatory instruments that count as Tier 1 capital (hence their name!) and that need an approval from the bank’s regulator in order to be called. Basically, bonds can be called only as long as they have been refinanced already at a lower or similar cost or if the bank has replaced them with an equivalent amount of higher quality capital (i.e., common equity). As such, there is no direct incentive for the issuer to call the bond if it has not been replaced by a similar capital instrument. 

Issuers usually strive to refinance their CoCos whenever they can, sometimes as much as 6 to 12 months before an upcoming call date. Their idea is to secure the funding on a new bond at a similar or lower cost than the existing instrument while assuaging investors about the exercise of the call on their existing CoCo. Santander had failed to refinance one of their CoCos back in Q1 19 and therefore had to extend it (they eventually called it afterwards when they could refinance it at a lower cost). Non-calls usually happen some time after or during a period of market stress, when issuers cannot properly access primary markets at a decent cost. That is what happened during the Covid-19 crisis, when Deutsche Bank, Aareal Bank and Lloyds Banking Group decided to not call their respective AT1 CoCos in Q2 2020. In order to avoid the potential price friction on an upcoming call, several issuers have included within their documentation the possibility to call the bonds during a 6-month call window rather than on a specific day. This is a welcome documentation adjustment, but that will solely apply to issues whose call dates are far from now since it was first introduced back in 2019.

Breakdown of calls and non-calls on AT1s from European banks¹

 ¹Sources: Bloomberg, La Française. Data as of 15/03/2022.

• The FOMC will raise the federal funds target range to 0.25-0.50% (25 bps increase), the first increase since 2018. Considering the risk of persistent high inflation and strong labor markets, Chair Powell is expected to signal more hikes to come with the possibility of 50 bp moves if needed, depending on the data. 
• On the side of the “dot plot”, we expect the Committee to show a median of six hikes for 2022 (1.625%) and three additional hikes next year (2.375%). There is a chance that 2024 dots will show higher rates than the terminal rate (2.5%).
• We do not expect change on the terminal rates (2.5%), but the question could come during the Q&A with the terminal rate potentially below 2024 dots.
• On the summary of economic projections (SEP), we expect them to indicate lower growth in 2022 (from 4.0% to 3.7%) and in 2023 (from 2.2% to 2.1%). For 2024, we expect growth to stay close to the potential growth (1,8%).
• We anticipate that the committee will revise its forecast for higher inflation figures with projections moving up from 2.6% to 4.0% in 2022 (This is the average Q4 2022 inflation, not the 2022 average) and from 2.3% to 2.5% in 2023. We expect median inflation expectations to remain at 2.1% for 2024.
• On quantitative tightening (QT), we expect some details (on caps) on the balance sheet runoff as the reduction should begin after rate hikes are initiated. 
• The post-meeting statement will likely be amended to note that the implications of Russia’s invasion of Ukraine on the US economy of are highly uncertain.

All in all, the Fed’s hike will not come as a surprise for market participants. But we expect the global tone to stay hawkish, with some flattening on the US curve.

Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

CO2 is used in a number of technologies, from refrigeration to carbonated beverages. However, by far the largest use case of captured carbon is for enhanced oil recovery. This is a process whereby CO2 captured from the combustion process in power plants is then injected back into the ground to enable further extraction of fossil fuels. This raises a number of questions around long-term sustainability and net zero goals, as although this in theory lowers the GHG emissions derived from power generation, it does so to then facilitate additional high emitting activity. In terms of the capture technology itself, there are a plethora of methods used; from physical separation using a liquid solvent such as Selexol, to membrane separation based on inorganic devices that have high CO2 selectivity.

A few interesting projects

Contrary to popular belief, CCUS has been around for a long time. For example, Enid Fertiliser Plant in Oklahoma has been capturing CO2 from its operations since 1982, and then piping that CO2 off to nearby oil wells for enhanced oil recovery2.

However, CCUS being used to permanently store CO2 is less common and has been met with mixed success:

Gorgon LNG, Australia

Perhaps the largest scale CCUS project currently in operation is the Gordon LNG Project in Australia. This joint venture between Chevron (47%), Shell (25%) and ExxonMobil (25%) has invested over $3 billion in the scheme that has captured 5.5Mt of CO2 since August 2019. Despite this success, it has fallen short of its overall target of capturing 80% of CO2, hitting just 68%. This has triggered the compulsory surrender of 5.3 million carbon credits to the Western Australian government3. Indeed, the GHG emissions from extracting, processing and use of the natural gas from Gorgon LNG, means that the CCUS project captures just 2% of the overall emissions of the project altogether.

Drax Bio Energy Carbon Capture and Storage (BECCS)

Drax has a different approach when it comes to lowering emissions. Instead of retrofitting existing coal plants with CCUS technology, they have converted old coal plants into fully functioning bioenergy power plants. These are then fitted with CCUS technology in order to capture emissions from burning biomass. Drax aims to capture 8 million metric tons of carbon dioxide from the atmosphere annually.

The year 2022 was supposed to mark the beginning of a new era for European banks: that of the first-rate hikes with fruitful revenue prospects. This was without considering the invasion of Ukraine by Russia. 

Indeed, the conflict in Ukraine may have broad implications for European banks, including higher loan loss provisions, commercial losses, and a delayed rate hike cycle. Shareholders will be affected in 2022, especially if European banks hit by the Ukraine crisis decide to reduce and stop their dividend payments. At this stage and in the absence of information regarding the duration of the war and its final magnitude, it is difficult to estimate the total impact.

However, the main European banks exposed to Russia, Ukraine, and Belarus issue press releases to inform investors of their exposures or not, with varying degrees of detail. The European banks with the highest exposure to Russia and Ukraine are Raiffeisen Bank International with an exposure of 13.7% (% of loan exposure), UniCredit with 1.9%, Société Générale with 1.8%, Intesa Sanpaolo with 1.2% and ING Groep with 0.6%. 

In order to get an idea of the potential loss on their Russian/Ukrainian subsidiary, we assessed the above-mentioned banks in much more severe stress scenarios than the so-called expropriation scenarios that have been published by some banks. 

Double stress test with strict assumptions Russia/Ukraine/Belarus:  

We assume in a first stress test (i) a 10% drop in group revenues, (ii) loan loss provisions of 10% of Russian/Ukrainian/Belarusian loans, (iii) nationalisation of the local entity with subsequent loss of equity, (iv) loss of intra-group funding, (v) 80% drop in risk-weighted assets of Russian/Ukrainian/Belarusian subsidiaries. We still add a 20% tax shield on items (ii), (iii), (iv). 

Sustainability-linked formats are relatively new. ENEL Finance issued the first SLB in late 2019. The real innovation in the format was to look beyond the green or social aspects of the projects financed with the ‘proceeds’ of the bond issue. Indeed, the issuer’s commitment is at the corporate level. The issuer incorporates mandatory strategic targets. Otherwise, the issuer will be subject to a financial penalty (called a coupon step-up or premium; the increase is predefined). In practice, prior to issuing an SLB, the company will define environmental or social objectives (Sustainable Performance Targets - SPT), that will be measured using credible Key Performance Indicators (KPIs). If the company fails to meet its objectives by the target date, it will pay a premium for the remaining life of the bond.

For illustration purposes, consider a bond with a 1% coupon and a maturity date of 31/12/2028.

• Sustainable Performance Targets - SPT: “Reach carbon neutrality by 2050 with an intermediate 25% reduction in overall emissions by 2025”
  • KPI1: “Reduce Scope 1 and 2 carbon emissions by 30% by 2025 vs 2021 level”
• Target date: 31/12/2025
• Coupon step-up: 0.15%
  • KPI2: “Reduce scope 3 emissions by 20% by 2025 vs 2021 level”
• Target date: 31/12/2025
• Coupon step-up: 0.10%
• Therefore, if at the 31/12/2025 target date, the issuer falls short of the first KPI, it will have to pay a 1.15% coupon for the annual payments of 2026, 2027 and 2028. The coupon further increases to 1.25% if the issuer misses both targets (KPI1 & KPI2).

HOW DO SLBs SHAPE THE ESG DEBT MARKET?

The SLB format remained unused the year following ENEL’s inaugural issuance. Thereafter, it was widely adopted in late 2020 and almost mainstream in 2021. The widespread adoption was facilitated by the ECB, when it declared SLBs as eligible collateral if the Sustainability Targets were linked to environmental objectives.

The most interesting aspect of the emergence of the SLB format relates to how it quickly influenced the ESG debt market, which was dominated by green bond issuances until 2020. By the end of 2020 and excluding sovereign and government related bonds, the ESG corporate debt market was comprised of 81% of green bonds, 7% of social bonds and 10% of sustainable bonds. In one year’s time, this landscape changed substantially with the explosion of SLBs, making up 23% of 2021 primary issuance. As of January 2022, green bonds represent 70% of the mix and SLBs went from 0.1% a year ago to 10.7% of the ESG corporate debt market. (Source: Bloomberg and La Francaise AM)

HOW CAN THIS TREND BE EXPLAINED? THE GREATER FLEXIBILITY OF SLBs BONDS VERSUS GREEN BONDS

• The minimum issuance size of green bonds: The benchmark-size USD300m-500m green bond format only fits companies with sizeable balance sheets/operating cashflows and annual funding programs of several billion USD. The green bond format does not however fit the funding needs of smaller companies that seek only to raise USD500m every five years, for CAPEX funding or alternative corporate purposes.
   
• The limited eligibility of green projects: To be eligible for Green bond proceeds, green projects are subject to the Green Bond Principles and/or the Climate Bonds Initiative (CBI) as well as the future EU Green bond framework. Green bonds are more suited to certain types of sectors as the current industry breakdown demonstrates. The green bond market is dominated by governments (37%) and focusing on the corporate segment, financials occupy a large share (32%), followed by European Utilities (17%). Other sectors account for only 14% of the green bond market. (Source: Bloomberg and La Francaise AM)

SLBs, given their added flexibility, constitute an interesting alternative. The issuer of an SLB can use the proceeds for green or non-green projects or even for general purposes such as traditional operating expenses etc. It is no longer a question of size of eligible projects relative to total funding needs. The Green bond market scrutinizes, and rightly so, the projects, but also the companies that try to access this form of funding. There is a pronounced risk of ‘greenwashing’, which obviously could lead to reputational risk for a company operating in a highly polluting industry which would opt to come to the Green bond market. From our discussions with issuers from the cement and energy sector, the Green bond market presented more risks than opportunities. By looking beyond, the projects themselves, SLBs, which focus rather on the long-term commitment of the company (emission or social inequality reductions), underline the firm’s efforts, and provide transparency with regards to transition pathway without running the risk of “greenwashing”. Greenwashing remains a risk if those ambitions are judged insufficient, but it is minimized as investors in SLBs might be less committed to the format of the bond.

• We expect the ECB to keep as much optionality as possible (Philip Lane: “The ECB won’t have final answer on war impact this week.”)
• We expect the ECB to delay the point at which it provides the market with more concrete guidance as to the future of the asset purchase programme (APP) but we see the central bank continuing to talk about its intentions to gradually dial back policy accommodation.
• We expect the ECB to emphasize that the purchases could be stepped up again or resumed if required (i.e., in the event of renewed market fragmentation).
• On the economic front, we expect the ECB’s inflation projections to be revised significantly higher in 2022 (from 3.2% to 5.7%), showing inflation above 2% in 2023 (from 1.8% to 2.1%) and at 2% at the end of the forecast horizon. On the growth side, projections will indicate lower growth in 2022 (from 4.2% to 3.8%) and in 2023 (from 2.9% to 2.5%) and unchanged in 2024 (1.6%).
• We do not expect any announcement on the new series of targeted longer-term refinancing operations (TLTRO) or on tiering increases.

All in all, we expect very little from the ECB this week. The situation is too uncertain and the negative impact on economic growth is impossible to assess right now. The same is true regarding medium-term inflation expectations. It does not mean a dovish meeting as we expect President Lagarde to reiterate the ECB’s will to reduce its accommodative stance over the course of 2022.

Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

• a traditional commercial lease with an optional restructuring-work expense advance. The tenant can request an advance on expenses, capped at the equivalent of six months’ rent. Only 90% of the advance is reimbursed in exchange for a slight extension of the lease term. Certain conditions apply and no interest is charged.
• a flexible commercial lease with a six-month rolling notice period, designed especially for tenants which require business agility. Additionally, tenants can opt for rent-free periods in exchange for an extension of the notice period. Certain conditions apply, without surcharge.
• a variety of “à la carte” services for which La Française REM has negotiated preferential rates and or conditions for its tenants:
  • a range of ready-to-use or customizable office layouts;
  • service options to improve employee wellbeing;
  • subletting of unoccupied office space.

Wellcome by La Française is for La Française REM tenants only. The service is already operational for twelve office assets, located in France and will be extended to the asset manager’s European office real estate portfolio.

1. Perform different scenarios and their impacts on the High Yield market (spreads and market default rates)
2. Transpose (in a second step) these scenarios to our portfolios in order to assess their impact on the performance of the LF RG 2025 and LF RG 2028 funds (in particular on the funds' NAVs at maturity).

THE DIFFERENT SCENARIOS AND THEIR IMPACT ON THE HIGH YIELD MARKET

At this stage and on the basis of the information available to us, we can envisage 3 scenarios.

The “Worst case" scenario, that of a stalemate in the ongoing conflict with an increase in human casualties. In this case, European countries and their allies will impose new economic sanctions on Russia and continue to support the Ukrainian army. President Putin reacts by deploying larger military forces and threatening other neighbouring countries. It is not excluded that President Putin will attack European countries economically, even interrupting the supply of gas and other raw materials to key partners (e.g. Germany).

The economic and financial impacts of this scenario would be as follows:

• A significant rise in commodity prices (oil, gas, agricultural products, etc.) for a prolonged period
• A default of Russia and the vast majority of Russian private or quasi-state companies with potentially significant contagion effects on the (global) banking and financial system.
• Risk of contagion to other neighbouring emerging countries (Turkey and others)
• Increase in High Yield spreads by +150-250bps from the current level (@ 415bps) to reflect the deterioration of the macroeconomic context. A stagflation scenario cannot be excluded in this case.
• Significant increase in global HY default rates to 6.5% by the end of 2022 and 6% in 2023 vs 2% at the end of 2021
• From a sectoral point of view, the most negatively impacted sectors would be industry (automotive, chemicals, etc.), consumer cyclicals, food, the financial sector (banks, insurance, and other financial services, etc.); the least exposed sectors would be TMT, healthcare, services, energy, and commodities.
• From a geographical point of view, the US and LATAM High Yield markets would be the main beneficiaries given the weight of the energy and commodities sectors in the indices (up to 70% in the LATAM HY indices). The European market would be much more affected than the US market given its geographical proximity to the ongoing conflict and given the negative impact of rising commodity prices on European economies. Finally, the European and Central Asian high yield markets would be the most damaged with a massive increase in defaults (remember that Russia, Turkey, and Ukraine are respectively the 1st, 3rd and 4th largest contributors to the high yield index in this area with a cumulative weight of around 50%).
• The only positive point that would result from this scenario would be the intervention of central banks (ECB and BOE) as a priority to limit contagion and a massive rise in default rates (our forecast of a default rate of 6.5% by the end of the year and 6% in 2023 takes into consideration this implicit "put" by central banks). Remember that the average default rate on the HY market over the last 10 years is 2%.

The « Best case » scenario is that of a rapid end to the conflict by diplomatic means, which could satisfy the various parties, at least in the short term, pending a more sustainable solution. In return, the sanctions against Russia would be reduced or even completely lifted.

• For the 10-year period ended December 31, 2021, the Russell 3000 Growth Index generated a 19.4% annualized return compared to the 12.9% return of the Russell 3000 Value Index. During 2021, investors rotated out of higher growth companies as interest rates rose and optimism about economic growth strengthened. With the exception of large cap, value equities substantially outperformed growth.
• The Federal Reserve is expected to raise the Fed Funds rate several times this year. As illustrated above, value equities have historically outperformed from six months prior to the start of tightening to only three months afterward. As tightening continues, concerns that higher rates will weigh upon the economy prompt investors to favor less economically sensitive, secular growth companies, especially businesses that can potentially increase their sales and earnings with innovative products.
• History is no guarantee of the future, but if this pattern repeats, growth equity relative outperformance could potentially accompany barbecuing, picnics and trips to vacation destinations this summer.

Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

• €200 million to be invested in seniors housing complexes in Europe focusing on France and Belgium.
• €100 million in Private Rental Sector (PRS) properties located in major cities in France and Belgium.

La Française REM has a long-standing expertise in managed residences and residential investments, with respectively €1,183 and €1,775 million in assets under management (31/12/2021).
David Rendall, Managing Director of La Française Real Estate Managers - Institutional Division, said, “La Française and PFA have been working successfully together for over two years. PFA awarded us an initial €100 million mandate in October 2019 for the acquisition and management of a French senior housing portfolio. Having successfully deployed this capital, we are delighted to be further developing our partnership and expanding our geographic focus to other European countries and our strategy to the PRS sector. We will certainly be able to leverage to PFA’s advantage our international real estate investment platform which includes investment teams across Europe. On behalf of La Française REM, I would like to thank PFA for their confidence.”

“We have successfully worked with La Francaise for a few years and are now expanding our relationship to further grow our residential and managed residential strategies in Europe.” says Michael Bruhn, Managing Director of PFA.

The recently refurbished buildings, 100% let on long leases, offer good quality office accommodations in the historic heart of Bristol and are well placed, within 15-minutes walking distance of Bristol Temple Meads Railway Station, to attract occupiers seeking good amenities, which include bicycle storage, roof terraces, new heating, generous floor to ceiling heights. 

Historically the banking district of the city, Corn Street is now home to numerous restaurants and high-end hotels. The attractive setting and good level of services have made it an appealing neighbourhood for young companies to locate. The office space is fully let to a technology company operating in the e-commerce sector and the two ground floor retail units are let to leisure operators. 

Peter Balfour, Head of Real Estate UK for La Française Real Estate Managers said, “There is a low level of vacancy and a limited supply of Grade A offices in the central core of Bristol.  A new vibrancy is emerging with many secondary offices converted into residential property, hotels and leisure facilities.  This makes it an attractive place to live and work. 

La Francaise REM was advised by Joiner Cummings. IV Real Estate was advised by Savills and Alder King.

All in all, it might be difficult for President Lagarde not to sound hawkish with inflation expectations skyrocketing for 2022. We believe President Lagarde will try to push back market expectations concerning a rate liftoff but without success. We expect moderate flattening on the Euro swap curve. 

 

The Rockefeller is fully leased under a firm 12-year lease to MEDICINA, a healthcare provider that is well established in its local market and recognized by all actors in the healthcare system. The tenant's medical project aims to improve the care of patients by offering them a comprehensive healthcare package associating prevention, care and well-being.

Jérôme Valade, Head of Healthcare Real Estate at La Française REM concluded, “The Rockefeller is a fully let, Best-In-Class asset that benefits from a central location in a major French city, and the facility, with a variety of practitioners under a single roof, satisfies the growing demand for healthcare services.”

La Française Real Estate Managers was advised by 14 Pyramides on notarial aspects, Cabinet Jeantet on legal, Proactim and Delpha Conseil on technical due-diligence and Cap Terre for the environmental audit.

The modern and sustainable building (R+5) offers approximately 4.811 m2 of flexible office space, balconies on almost every floor and a terrace on the 6th floor overlooking the IJ river. The floors have a loft-style industrial character with a flexible layout and an excellent floor to ceiling height.

Mark Wolter, Managing Director for Germany of La Française Real Estate Managers said, “We are delighted to secure our fourth asset in Amsterdam. The building’s A+ energy consumption label illustrates perfectly our sustainable investment strategy.”

La Française Real Estate Managers was advised by Houthoff on legal aspects, by Savills Building & Project Consultancy on technical Due Diligence and Cap Terre on ESG Due Diligence.

• The Federal Reserve System (FED) to confirm a rate hike in March following the publication of very robust data on employment and prices.
• As uncertainty remains very high, especially on the inflation front, we expect the FED to remain data dependant regarding the pace of rate hikes in 2022.
• The FED to confirm the tapering pace ($30bn per month), with quantitative easing ending in March. We do not think the FED will end purchases abruptly at this meeting.
• We also expect the FED to give more information regarding the balance sheet runoff, without committing to a specific timeline (nor to a specific amount) to avoid any panic reaction on financial markets. The formal announcement could come during the summer, after the first two rate hikes (March and June).
• We do not expect the FED to indicate being open to the possibility of a 50bps hike in March.
• Given recent comments from FOMC members supporting the current hawkish bias of the FED (and thus market pricing), we do not expect a significant hawkish surprise at this meeting

In conclusion, the statement is unlikely to differ considerably from the December statement. Consensus seems to be leaning towards a hawkish tilt, with financials markets already short on US treasuries (short end of the curve). We expect a modest steepening of the US curve.

• Over the past six months, the S&P SmallCap 600 Growth Index has underperformed the large cap S&P 500 index by 6%. However, during that time small cap growth stock fundamentals outperformed—the S&P SmallCap 600 Growth Index earnings per share (EPS) grew 10% faster than S&P 500 EPS.
• This dynamic has driven already inexpensive small cap growth stocks to deep value territory. Indeed, the S&P SmallCap 600 Growth Index price-to-earnings is now at its largest discount to the S&P 500 in more than 20 years.
• Historically, fundamentals drive stock prices so valuation should take care of itself over the long term. The last time the valuation discount between small growth and large cap stocks was this large, in early 2001, the S&P SmallCap 600 Growth Index outperformed the S&P 500 by more than 50% during the subsequent five years.

Kay Scherf commented, "With Maximilian Mudra, we have found an expert with many years of sales experience for the expansion of our institutional business in Germany. His long-standing expertise and experience will help us to position our ESG (Environmental, Social and Governance) and real estate expertise in the institutional sector in particular. Maximilian is an optimal addition to our sales team."

Maximilian Mudra joins from Pictet Asset Management, where he was most recently Institutional Sales Director for pension funds, insurance companies and foundations in Germany and Austria. Previously, he worked for Lingohr & Partner Asset Management, Credit Suisse, Commerzbank and Bankhaus Metzler. Mudra holds a Bachelor of Arts from the Institut Universitaire de Technologie, Colmar/France and is a DVFA investment analyst (German Association for Financial Analysis and Asset Management). Mudra brings to La Française almost thirty years of experience in the financial industry, including over twenty years in asset management and sales. 

• Climate change mitigation,
• Climate change adaptation,
• Sustainable use and protection of water and marine resources,
• Transition to a circular economy (waste, prevention and recycling),
• Pollution prevention and control
• Protection and restoration of biodiversity and ecosystems.

Currently, technical screening criteria have been developed for certain economic activities that can contribute substantially to two of these objectives: climate change mitigation and climate change adaptation. These criteria are currently awaiting publication in the Official Journal of the European Union. The data presented below therefore reflect only the alignment with these two objectives, on the basis of the non-definitively published criteria, as submitted to the European co-legislators. We will update this information in the event of changes to these criteria, the development of new review criteria for these two objectives, as well as the entry into force of the criteria for the other four environmental objectives: the sustainable use and protection of water and marine resources; the transition to a circular economy, the pollution prevention and control and the protection and restoration of biodiversity and ecosystems.

To be considered sustainable, an economic activity must demonstrate that it contributes substantially to one or more of the 6 environmental objectives, while not significantly harming any of the other environmental objectives (the so-called DNSH principle, "Do No Significant Harm").

To be considered aligned with the European Taxonomy, the activity must also respect the human and social rights guaranteed by international law.

• Climate change mitigation,
• Climate change adaptation,
• Sustainable use and protection of water and marine resources,
• Transition to a circular economy (waste, prevention and recycling),
• Pollution prevention and control
• Protection and restoration of biodiversity and ecosystems.

Currently, technical screening criteria have been developed for certain economic activities that can contribute substantially to two of these objectives: climate change mitigation and climate change adaptation. These criteria are currently awaiting publication in the Official Journal of the European Union. The data presented below therefore reflect only the alignment with these two objectives, on the basis of the non-definitively published criteria, as submitted to the European co-legislators. We will update this information in the event of changes to these criteria, the development of new review criteria for these two objectives, as well as the entry into force of the criteria for the other four environmental objectives: the sustainable use and protection of water and marine resources; the transition to a circular economy, the pollution prevention and control and the protection and restoration of biodiversity and ecosystems.

To be considered sustainable, an economic activity must demonstrate that it contributes substantially to one or more of the 6 environmental objectives, while not significantly harming any of the other environmental objectives (the so-called DNSH principle, "Do No Significant Harm").

To be considered aligned with the European Taxonomy, the activity must also respect the human and social rights guaranteed by international law.

• Climate change mitigation,
• Climate change adaptation,
• Sustainable use and protection of water and marine resources,
• Transition to a circular economy (waste, prevention and recycling),
• Pollution prevention and control
• Protection and restoration of biodiversity and ecosystems.

Currently, technical screening criteria have been developed for certain economic activities that can contribute substantially to two of these objectives: climate change mitigation and climate change adaptation. These criteria are currently awaiting publication in the Official Journal of the European Union. The data presented below therefore reflect only the alignment with these two objectives, on the basis of the non-definitively published criteria, as submitted to the European co-legislators. We will update this information in the event of changes to these criteria, the development of new review criteria for these two objectives, as well as the entry into force of the criteria for the other four environmental objectives: the sustainable use and protection of water and marine resources; the transition to a circular economy, the pollution prevention and control and the protection and restoration of biodiversity and ecosystems.

To be considered sustainable, an economic activity must demonstrate that it contributes substantially to one or more of the 6 environmental objectives, while not significantly harming any of the other environmental objectives (the so-called DNSH principle, "Do No Significant Harm").

To be considered aligned with the European Taxonomy, the activity must also respect the human and social rights guaranteed by international law.

• Climate change mitigation,
  Climate change adaptation,
  Sustainable use and protection of water and marine resources,
  Transition to a circular economy (waste, prevention and recycling),
• Pollution prevention and control
• Protection and restoration of biodiversity and ecosystems.

Currently, technical screening criteria have been developed for certain economic activities that can contribute substantially to two of these objectives: climate change mitigation and climate change adaptation. These criteria are currently awaiting publication in the Official Journal of the European Union. The data presented below therefore reflect only the alignment with these two objectives, on the basis of the non-definitively published criteria, as submitted to the European co-legislators. We will update this information in the event of changes to these criteria, the development of new review criteria for these two objectives, as well as the entry into force of the criteria for the other four environmental objectives: the sustainable use and protection of water and marine resources; the transition to a circular economy, the pollution prevention and control and the protection and restoration of biodiversity and ecosystems.

To be considered sustainable, an economic activity must demonstrate that it contributes substantially to one or more of the 6 environmental objectives, while not significantly harming any of the other environmental objectives (the so-called DNSH principle, "Do No Significant Harm").

To be considered aligned with the European Taxonomy, the activity must also respect the human and social rights guaranteed by international law.

• Climate change mitigation,
• Climate change adaptation,
• Sustainable use and protection of water and marine resources,
• Transition to a circular economy (waste, prevention and recycling),
• Pollution prevention and control
• Protection and restoration of biodiversity and ecosystems.

Currently, technical screening criteria have been developed for certain economic activities that can contribute substantially to two of these objectives: climate change mitigation and climate change adaptation. These criteria are currently awaiting publication in the Official Journal of the European Union. The data presented below therefore reflect only the alignment with these two objectives, on the basis of the non-definitively published criteria, as submitted to the European co-legislators. We will update this information in the event of changes to these criteria, the development of new review criteria for these two objectives, as well as the entry into force of the criteria for the other four environmental objectives: the sustainable use and protection of water and marine resources; the transition to a circular economy, the pollution prevention and control and the protection and restoration of biodiversity and ecosystems.

To be considered sustainable, an economic activity must demonstrate that it contributes substantially to one or more of the 6 environmental objectives, while not significantly harming any of the other environmental objectives (the so-called DNSH principle, "Do No Significant Harm").

To be considered aligned with the European Taxonomy, the activity must also respect the human and social rights guaranteed by international law.

• Modifications concerning transactions for the temporary purchase and transfer of securities

Transactions for the temporary transfer of securities (securities lending, repurchase agreements) may now be carried out up to a maximum of 60% of the sub-fund's assets, instead of the 50% maximum as was previously the case.

As part of these transactions, the UCI will now be able to receive/pay financial guarantees in the form of a transfer of full ownership of securities and/or cash instead of cash only.

In addition, it has been specified that the entirety of the generated direct and indirect operating costs will be borne by the management company. The share of these costs may not exceed 40% of the income generated by these transactions.

Finally, the wording of these sections has been revised for greater clarity.

• Modifications concerning transactions for the temporary purchase and transfer of securities

Transactions for the temporary transfer of securities (securities lending, repurchase agreements) may now be carried out up to a maximum of 60% of the sub-fund's assets, instead of the 50% maximum as was previously the case.

As part of these transactions, the UCI will now be able to receive/pay financial guarantees in the form of a transfer of full ownership of securities and/or cash instead of cash only.

In addition, it has been specified that the entirety of the generated direct and indirect operating costs will be borne by the management company. The share of these costs may not exceed 40% of the income generated by these transactions.

Finally, the wording of these sections has been revised for greater clarity.

• Climate change mitigation,
• Climate change adaptation,
• Sustainable use and protection of water and marine resources,
• Transition to a circular economy (waste, prevention and recycling),
• Pollution prevention and control
• Protection and restoration of biodiversity and ecosystems.

Currently, technical screening criteria have been developed for certain economic activities that can contribute substantially to two of these objectives: climate change mitigation and climate change adaptation. These criteria are currently awaiting publication in the Official Journal of the European Union. The data presented below therefore reflect only the alignment with these two objectives, on the basis of the non-definitively published criteria, as submitted to the European co-legislators. We will update this information in the event of changes to these criteria, the development of new review criteria for these two objectives, as well as the entry into force of the criteria for the other four environmental objectives: the sustainable use and protection of water and marine resources; the transition to a circular economy, the pollution prevention and control and the protection and restoration of biodiversity and ecosystems.

To be considered sustainable, an economic activity must demonstrate that it contributes substantially to one or more of the 6 environmental objectives, while not significantly harming any of the other environmental objectives (the so-called DNSH principle, "Do No Significant Harm").
To be considered aligned with the European Taxonomy, the activity must also respect the human and social rights guaranteed by international law.

• Climate change mitigation,
• Climate change adaptation,
• Sustainable use and protection of water and marine resources,
• Transition to a circular economy (waste, prevention and recycling),
• Pollution prevention and control
• Protection and restoration of biodiversity and ecosystems.

Currently, technical screening criteria have been developed for certain economic activities that can contribute substantially to two of these objectives: climate change mitigation and climate change adaptation. These criteria are currently awaiting publication in the Official Journal of the European Union. The data presented below therefore reflect only the alignment with these two objectives, on the basis of the non-definitively published criteria, as submitted to the European co-legislators. We will update this information in the event of changes to these criteria, the development of new review criteria for these two objectives, as well as the entry into force of the criteria for the other four environmental objectives: the sustainable use and protection of water and marine resources; the transition to a circular economy, the pollution prevention and control and the protection and restoration of biodiversity and ecosystems.

To be considered sustainable, an economic activity must demonstrate that it contributes substantially to one or more of the 6 environmental objectives, while not significantly harming any of the other environmental objectives (the so-called DNSH principle, "Do No Significant Harm").
To be considered aligned with the European Taxonomy, the activity must also respect the human and social rights guaranteed by international law.

• Climate change mitigation;
• Climate change adaptation;
• The sustainable use and protection of water and marine resources;
• Transition to a circular economy (waste, prevention and recycling);
• Pollution prevention and control;
• The protection and restoration of biodiversity and ecosystems.

Technical screening criteria have now been developed for certain economic activities that can substantially contribute to two of these objectives: climate change mitigation and climate change adaptation. These criteria are currently awaiting publication in the Official Journal of the European Union. The data presented below therefore only reflects an alignment with these two objectives, based on unfinished criteria as submitted to the EU co-legislators.

We will update this information in the event of changes to these criteria, the development of new review criteria for these two objectives, and the implementation of criteria for the other four environmental objectives: the sustainable use and protection of water and marine resources; the transition to a circular economy; pollution prevention and control; the protection and restoration of biodiversity and ecosystems.

In order to be considered sustainable, an economic activity must demonstrate that it substantially contributes to the fulfilment of one of the six objectives, while not harming any of the other five (a principle known as DNSH, "Do No Significant Harm").

For an activity to be considered aligned with the European Taxonomy, it must also respect the human and social rights guaranteed by international law.
The Fund does not currently make any commitment with regard to aligning its activity with the European Taxonomy.

• Climate change mitigation;
• Climate change adaptation
• The sustainable use and protection of water and marine resources;
• Transition to a circular economy (waste, prevention and recycling);
• Pollution prevention and control;
• The protection and restoration of biodiversity and ecosystems.

At present, technical screening criteria have been developed for certain economic activities capable of contributing substantially to the following two objectives: climate change mitigation and climate change adaptation. These criteria are currently awaiting publication in the Official Journal of the European Union. The data presented below therefore only reflects the alignment with these two objectives, based on the criteria that has not been definitely adopted, as submitted to the EU co-legislators.

We will update this information in the event of any changes to these criteria, the development of new review criteria relating to these two objectives, and when the criteria relating to the other four environmental objectives comes into force: the sustainable use and protection of water and marine resources; the transition to a circular economy; pollution prevention and control; protection and restoration of biodiversity and ecosystems.

In order to be considered sustainable, an economic activity must demonstrate that it contributes substantially to the achievement of one of the six objectives, while not harming any of the other five (a principle known as DNSH, "Do No Significant Harm").

For an activity to be considered aligned with the European Taxonomy, it must also respect human and social rights guaranteed by international law.

• Climate change mitigation;
• Climate change adaptation;
• The sustainable use and protection of water and marine resources;
• Transition to a circular economy (waste, prevention and recycling);
• Pollution prevention and control;
• The protection and restoration of biodiversity and ecosystems.

At present, technical screening criteria have been developed for certain economic activities capable of contributing substantially to the following two objectives: climate change mitigation and climate change adaptation. These criteria are currently awaiting publication in the Official Journal of the European Union. The data presented below therefore only reflects the alignment with these two objectives, based on the criteria that has not been definitely adopted, as submitted to the EU co-legislators. We will update this information in the event of any changes to these criteria, the development of new review criteria relating to these two objectives, and when the criteria relating to the other four environmental objectives comes into force: the sustainable use and protection of water and marine resources; the transition to a circular economy; pollution prevention and control; protection and restoration of biodiversity and ecosystems.

In order to be considered sustainable, an economic activity must demonstrate that it contributes substantially to the achievement of one of the six objectives, while not harming any of the other five (a principle known as DNSH, "Do No Significant Harm").

For an activity to be considered aligned with the European Taxonomy, it must also respect human and social rights guaranteed by international law.

• Climate change mitigation;
• Climate change adaptation;
• The sustainable use and protection of water and marine resources;
• Transition to a circular economy (waste, prevention and recycling);
• Pollution prevention and control;
• The protection and restoration of biodiversity and ecosystems.

At present, technical screening criteria have been developed for certain economic activities capable of contributing substantially to the following two objectives: climate change mitigation and climate change adaptation. These criteria are currently awaiting publication in the Official Journal of the European Union. The data presented below therefore only reflects the alignment with these two objectives, based on the criteria that has not been definitely adopted, as submitted to the EU co-legislators. We will update this information in the event of any changes to these criteria, the development of new review criteria relating to these two objectives, and when the criteria relating to the other four environmental objectives comes into force: the sustainable use and protection of water and marine resources; the transition to a circular economy; pollution prevention and control; protection and restoration of biodiversity and ecosystems.

In order to be considered sustainable, an economic activity must demonstrate that it contributes substantially to the achievement of one of the six objectives, while not harming any of the other five (a principle known as DNSH, "Do No Significant Harm").

For an activity to be considered aligned with the European Taxonomy, it must also respect human and social rights guaranteed by international law.

The Fund does not currently make any commitment with regard to aligning its activity with the European Taxonomy.

• Climate change mitigation;
• Climate change adaptation;
• The sustainable use and protection of water and marine resources;
• Transition to a circular economy (waste, prevention and recycling);
• Pollution prevention and control;
• The protection and restoration of biodiversity and ecosystems.

At present, technical screening criteria have been developed for certain economic activities capable of contributing substantially to the following two objectives: climate change mitigation and climate change adaptation. These criteria are currently awaiting publication in the Official Journal of the European Union. The data presented below therefore only reflects the alignment with these two objectives, based on the criteria that has not been definitely adopted, as submitted to the EU co-legislators. We will update this information in the event of any changes to these criteria, the development of new review criteria relating to these two objectives, and when the criteria relating to the other four environmental objectives comes into force: the sustainable use and protection of water and marine resources; the transition to a circular economy; pollution prevention and control; protection and restoration of biodiversity and ecosystems.

In order to be considered sustainable, an economic activity must demonstrate that it contributes substantially to the achievement of one of the six objectives, while not harming any of the other five (a principle known as DNSH, "Do No Significant Harm").

For an activity to be considered aligned with the European Taxonomy, it must also respect human and social rights guaranteed by international law.

The Fund does not currently make any commitment with regard to aligning its activity with the European Taxonomy.