Asset AllocationJuly 9, 2014

UK National Pension Combines EM with Smart Beta

NEST has taken the smart beta plunge using an emerging market fund.

Reported by Featured Author

The UK’s national defined contribution (DC) pension plan has added to its emerging market offerings and hosted a smart beta fund on its investment platform in its first foray into alternative indexing.

The National Employment Savings Trust (NEST) has chosen funds managed by HSBC Global Asset Management and Northern Trust to access emerging market economies.

The HSBC fund uses an alternative index lens while the the Northern Trust fund uses an environmental, governance, and social screen.

“This is our first exposure to alternative indexing and reflects two of NEST’s investment beliefs that indexed management, where available, is generally more efficient than active management and that integrating valuation considerations into the investment process can enhance our long-term performance,” said Mark Fawcett, CIO of NEST.

“Indexed management… is generally more efficient than active management,” Mark Fawcett, CIO, NEST.

“We want to capitalise on growth and rewarded risk no matter where it is in the world and these emerging market mandates give us greater control of our exposure to this important asset class.”

The plan already has exposure to emerging markets through a BlackRock fund, while investors will access the two new offerings through a blended approach.

NEST said the move provided “greater flexibility” for its “dynamic risk management approach”.

The scheme was launched to coincide with mandatory auto-enrolment of the majority of UK workers. It is expected to be one of the world’s largest DC plans, eventually growing to manage tens of billions of pounds for the country’s workforce. It is a multi-employer, low-cost plan that is available to the several million-strong labour force.

Last year, Fawcett told Chief Investment Officer about its plan to “recycle” illiquid assets held on the platform between maturing cohorts and those remaining in the fund.