National Employment Savings Trust, London, hired Amundi Asset Management to run its emerging markets debt allocation, said Mark Fawcett, chief investment officer.
The new allocation will be added to the £772 million ($1.1 billion) plan's building block funds, which underpin its default retirement-date funds, and some of its alternative fund options.
At an event announcing the hire, Mr. Fawcett said NEST has not yet set its initial allocation and has not started investing. “That is a conversation for our investment committee. And it depends on the opportunity we see in the asset class compared with other asset classes.”
Mr. Fawcett said he would expect the emerging markets debt weighting to be somewhere in the range of a zero to 10% allocation in the growth phase of its plan. Executives also intend to invest in emerging markets debt for the foundation phase of the plan's investments, which “doesn't have emerging market equities, (as) we think that is too volatile — but we will put emerging markets debt in there,” Mr. Fawcett said.
Participants are split into three investment phases, depending on how far they are from their retirement date: the foundation phase, for participants who are many years from retirement, lasting about five years; the growth phase, where the most risk is taken in asset allocation, lasting about 30 years; and the consolidation phase, moving assets into less risky allocations, usually around 10 years prior to retirement.
The plan launched a search in September.
Mr. Fawcett added that NEST sees emerging markets debt as “an important addition to our return-seeking portfolio” for two key reasons: its diversification benefits and the fact that “we are seeing valuation opportunities beginning to emerge.”
Amundi's strategy is actively managed. “There is a bit of a myth maybe that NEST only uses passive investment — that is not true. We think particularly in the credit space that active management is very important,” Mr. Fawcett said.
The strategy invests across hard and local currency sovereign debt, corporate debt and currencies. “We think giving the manager the freedom to invest in all the aspects of the asset class allows them to best exploit the opportunities that are available. We believe the team has the skills, experience, and strength and depth to implement the portfolio, take advantage of opportunities, but crucially to manage the investment risk associated with that,” Mr. Fawcett said. Management of environmental, social and governance risk was also important in the selection of a manager, he added.
