National Employment Savings Trust, London, hired J.P. Morgan Asset Management to run an initial £40 million ($51.5 million) high-yield bond allocation, said a spokeswoman for the plan.
The £1.7 billion defined contribution plan seeded the new strategy, the J.P. Morgan Life High Yield Opportunities Fund, which was established by the money management firm to meet NEST participants’ needs.
The new strategy will be added to the building blocks that make up NEST’s retirement-date funds. 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 spokeswoman said the foundation phase will have a slightly higher allocation and diversification within the fixed-income groups, while controlling total equity risk exposure.
The allocation — the first time NEST has invested in high-yield bonds — followed a competitive procurement process, launched in November.
“With long-term interest rates at current low levels, we believe that adding high-yield bonds to the portfolio will enhance returns for our members,” said John St. Hill, deputy chief investment officer at NEST, in a news release by the plan. “This is a long-term strategic move for us. Diversifying our members’ portfolios across a range of asset classes is the best way to manage risks and deliver returns. Like other large institutional investors, we see high yield as an important tool in the box.”