National Employment Savings Trust, London, is looking for a manager to run 10 single-year maturity gilt allocations, said Mark Fawcett, chief investment officer at the £260 million ($407.3 million) plan.
The gilt funds will be added to NEST’s block of funds in its default strategy. NEST will replace the gilt funds on a rolling basis, said a news release, with a 2016 maturing gilt fund being replaced by a 2026 gilt fund, for example.
The gilt funds will be used in the foundation phase, which is for younger members, and in the consolidation phase, which is the derisking part of the plan for members nearing retirement, in place of cash allocations.
“This is an attempt to refine the asset allocation for the consolidation and foundation funds, and to pick up a bit of extra yield on the cash holdings,” said Mr. Fawcett in a telephone interview.
In the consolidation phase, the plan’s investment team derisks, selling growth assets and allocating to cash. “With cash yields at extremely low levels at the moment, we want to pick up yield without any significant capital risk.” Funds will instead switch into these gilts, with the maturity date matched to the specific retirement-date funds.
The foundation phase is a lower-risk strategy, he said, and currently allocates about 25% to cash. “(We will) buy an appropriate gilt instead of holding the cash,” Mr. Fawcett said. “It is liability-driven investing-like, without a lot of the sophistication. But it makes sense to try to improve returns in this low-yield environment.”
The RFP will be available soon on NEST’s procurement website. Proposals are due Jan. 9, and NEST plans to award the contract by spring 2015.
“(This is a) pretty simple strategy to manage, but requires someone to have efficient dealing skills in the gilt market so they can execute effectively, and manage liquidity,” Mr. Fawcett said.
He said the actual allocation “will keep on growing. The assets in the consolidation phase are relatively small, but they are larger in the foundation phase because of the demographics of our membership. The assets will be a reasonable size to start with, and grow nicely as we grow.”
Mr. Fawcett said existing managers at NEST are entitled to bid, and that the RFP will be “very clear about some of the operational and contractual requirements.”
