Last week, the French government survived two motions of no confidence, mainly by promising not to raise the retirement age from 62 to 64 for the time being. For S&P, however, this was reason enough to downgrade France’s credit rating from AA- to A+. It may seem like a minor detail, but for managers of fixed income funds that require at least AA-rated investments, it created an immediate problem. Did all those French government bonds suddenly need to be dumped?
So, we bring you along with our reporter and credit specialist, who spoke with the fund managers at Zwartrok & StaatStraat — the firm that had to deal with this little incident. Here’s how they managed to solve it smoothly:
Of course, we scratched our heads when the credit rating of la douce France went from AA- to A+: French OATs make up 20 percent of our fund. Did we really have to throw them on the market?
No, and our major clients weren’t too keen on that either. That’s when we at Zwartrok & StaatStraat had a brilliant idea: we simply adjusted the fund’s AA benchmark downward. We just made it single A — and problem solved.
Out there, in the harsh world, some parties are selling. We won’t — naturally, “at the request of our clients.” They’re sacred to us. They don’t want to sell, so neither do we. After all, who wants to retire anyway?
No, we get the French — 62 is already quite old to still have any kind of retirement. We’d like that too. So let’s stand in solidarity with France and not betray them by pushing up their interest rates. They might even start thinking about healthier public finances. Who would want that?
Besides, we were smart enough to add an extra rule for our funds. If France’s rating falls further, our benchmark — and therefore our funds — will automatically take on a floating credit character. We’ll move seamlessly from AA to A, from A to BBB, and right through the high-yield benchmarks to C and D. That way, we’ll never have to sell. I’m sure our regulators and risk managers will be thrilled with us. Voilà — problem solved.
This new, rather disruptive “Floating Credit Benchmark” concept moves in sync with the credit ratings of our most important holdings and is therefore always up to date. Ingenious, if we may say so ourselves.
We’re also considering applying this to equities that get kicked out of the MSCI, FTSE, or AEX indices. We guarantee you we’ll never sell those either. We value stability.
Signed,
Our correspondent and credit specialist from
Floating Junk Unlimited
Wouter Weijand worked in asset management from 1983 to 2025, spending more than forty years as a (lead) portfolio manager in bonds, equities, real estate, illiquid investments, and ultimately as CIO.