NEST’s Unconstrained Play for ‘Undervalued’ Emerging-Market Debt

The National Employment Savings Trust (NEST)—the UK’s nationwide defined contribution vehicle—has appointed Amundi to run an emerging-market debt mandate within a number of its target-date funds.

“We want a fund in our toolbox that will allow us to take advantage of the opportunities as they emerge.”CIO Mark Fawcett said the new asset class would improve diversification with NEST’s return-driven portfolio, as well as give access to an attractively priced asset.

In the active strategy, Amundi will have flexibility to invest across hard- and local-currency debt, sovereign bonds, corporate bonds, and foreign exchange markets.

“We wanted a fund manager that could take advantage of the opportunities as and when they arise,” Fawcett said. “I don’t see it as our job at our size to make those calls,” he added.

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While NEST has predominantly backed passive or smart beta mandates in equities, within fixed income he said active management was “very important.”

Emerging market debt will play an important role within NEST’s ‘foundation phase’ funds, according to Fawcett, as a lower-volatility alternative to emerging market equity. The CIO said he would initially build the allocation up towards 5%, dependent on the performance of other asset classes.

“Our members are investing for the long term and we make decisions on how to diversify their portfolios against a backdrop of long-term market developments and valuation outlooks,” the CIO added. “We think emerging-market debt is becoming undervalued. We want a fund in our toolbox that will allow us to take advantage of the opportunities as they emerge.”

Two Northern Trust divisions announced wins Wednesday.

Alternatives unit 50 South Capital has inked an acquisition deal for Aurora Investment Management, a hedge funds-of-funds firm.

Aurora, which seeds emerging managers and operates a mutual fund, managed $9.7 billion as of February 1, according to regulatory filings. Its assets dropped by roughly $2 billion since 2013, coinciding with an industrywide trend to direct hedge fund investing.

NT OCIO Source: CIO’s 2016 Outsourced-CIO Buyer’s GuideOnce complete, the acquisition would swell 50 South’s capital base from $3.3 billion to approximately $13 billion, plus $1.3 billion that the purchaser advises on.

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Northern Trust picked up more assets from Wisconsin’s Herzing University, which has hired the Chicago-based giant as outsourced-CIO (OCIO).

A Northern Trust spokesperson did not respond to questions about the size and type of assets it would be managing for Herzing. The new client belongs to the firm’s foundations and institutional advisory division.