Given the regulations governing dedicated assets, they form a highly specific category of assets.
Dedicated assets are structured and managed according to a strategic allocation defined by the Board of Directors and reported to the administrative authorities. The strategic allocation is designed to meet the overall objective of long-term coverage of obligations, and determines the structure and management of the portfolio as a whole. It takes into account regulatory constraints concerning the nature and liquidity of the dedicated assets, the financial outlook for the equity and bond markets, and the diversifying contribution of unlisted assets.
Several changes have been made to this strategic allocation in order to pursue the diversification into unlisted assets, particularly in 2010 when the shares in RTE (now held via CTE) were allocated to dedicated assets, and in 2013 when an unlisted asset portfolio (consisting of infrastructures, real estate and debt or equity funds) was set up. This portfolio is managed by EDF SA’s “EDF Invest” Division.
On 29 June 2018 the Board of Directors validated the principle of strategic allocation for dedicated assets:
These targets should be reached gradually by 2025.
Certain growth and fixed-income assets take the form of bonds held directly by EDF. Others consist of specialised collective investment funds on leading international markets and French general-purpose investment funds (FIVGs), managed by independent asset management companies. They take the form of open-end funds and “reserved” funds located in France, established for the Company. The reserved funds are owned by EDF and are not consolidated as EDF does not participate in management of these funds and provides no financial support for them.
The value of the assets of the reserved investment funds amounts to €13,106 million at 31 December 2021 (€10,422 million at 31 December 2020). These funds mainly consist of 16 listed funds with total value of €12,153 million (at 31 December 2020, 13 listed funds with total value of €9,742 million).
The listed equity funds consist of international equities (mainly in North America but also in Europe, Asia-Pacific and emerging countries). Listed bonds and listed bond funds consist of sovereign and corporate bonds.
These investments are structured and managed in line with the strategic allocation, which takes into consideration international stock market cycles, for which the statistical inversion generally observed between equity market cycles and bond market cycles – as well as between geographical areas – has led the Group to define a long-term investment policy with appropriate allocation between growth assets and fixed-income assets.
Growth assets also include a small portion of funds invested in unlisted equities, and fixed-income assets also include a small portion of funds invested in unlisted debt. These funds are mainly managed by EDF Invest (see yield assets below).
At the year-end, dedicated assets are presented in debt and equity securities in the balance sheet, at their liquidation value.
In the course of operational asset monitoring, the Group applies long-term, specific management rules defined and supervised by its governance bodies (maximum investment ratios, volatility analyses and assessment of individual fund manager quality).
The yield assets managed by EDF Invest consist mainly of assets related to investments in infrastructures and real estate, made either directly by EDF Invest or by investment funds under delegated management arrangements.
Through unlisted investment funds, EDF Invest also manages growth assets and fixed-income assets.
At 31 December 2021, the assets managed by EDF Invest represent a total realisable value of €8,626 million, including €7,908 million of yield assets. Yield assets particularly include:
As the coverage of provisions by dedicated assets was above 100% at 31 December 2020 (103.6%), EDF had no obligation to add to the dedicated asset portfolio in 2021, and no allocation was made in 2021 (compared to allocations of €797 million in 2020 in compliance with EDF’s regulatory obligation for 2020). The coverage rate of provisions at 31 December 2021 is 109.3%.
2021 was another extremely favourable year on the equity markets. The economic environment remained very dynamic despite concerns triggered by the emergence of several variants of the Covid-19 virus. Vaccination campaigns in the developed countries limited the pandemic’s impact on economic activity and contributed to the equity market performance.
Equity indexes rose significantly over the year, driven by a very good performance on the US market, then the European market, while other zones were less dynamic. More unusually, the biggest rises were registered by mega-caps, which progressed in all zones except the emerging countries.
As the economy recovered, the bond markets suffered due to rising rates. German 10-year rates, for example, rose by +0.4% to -0.2% and American rates rose by +0.6% to 1.5%. However, this rise remained moderate compared to the increase in inflation. The central banks still managed to reassure the markets by stressing that this development was temporary, which meant that monetary support policies would only be withdrawn gradually.
EDF Invest continued to extend its portfolio of unlisted assets in smart meters via an additional investment in Energy Assets Group in the United Kingdom (the percentage ownership remains unchanged), in the French telecommunications sector via acquisition of a minority shareholding (as part of a consortium) in the fibre optics operator Orange Concessions, in real estate in France and Germany via acquisition of minority shareholdings and shares in diversified unlisted investment funds.
Positive changes in the fair value of the dedicated asset portfolio (investment funds, equities) amounting to €2,739 million were recognised in the financial result in 2021 (see note 8.3), compared to positive changes amounting to €1,218 million in 2020.
Negative changes in the fair value of the bonds in the dedicated asset portfolio amounting to €(244) million were recognised in OCI in 2021 (see note 18.1.2), compared to positive changes amounting to €62 million in 2020.
Withdrawals from dedicated assets in 2021 totalled €389 million, equivalent to payments made in respect of the long-term nuclear obligations to be covered during the year (€431 million in 2020).
