A tailored approach that delivers strong returns

The National Employment Savings Trust (NEST) is delivering on a mandate to produce strong returns through a strategy that adheres closely to the needs of its members.

When the scheme was launched in 2009, there was recognition that the investment strategy needed to align closely with the expectation of members for smooth, consistent returns for their invested assets.

That means delivering above-inflation returns, whilst at the same time minimising risk.

Within these parameters, the strategy has been carefully constructed to spread risk and maximise upside opportunities.

By employing the scale of the scheme, which is set to become one of the UK’s largest pension funds, NEST can capture value by replicating the approach of some of the biggest institutional investors.

It is an approach that is paying off. NEST’s default fund is delivering market leading risk adjusted returns through risk management and diversification.

Member-focused

“We’ve developed our investment strategy with our members very much front of mind. That means we’ve focused most of our energy on the default strategy, where 99% of our members invest,” says Annie Bruzzone, Head of Investment Communications at National Employment Savings Trust (NEST).

“This a is a range of dynamically managed funds- not a one size fits all solution, and so far we’re really pleased because our long term risk-adjusted returns have been market leading,” she says.

She says a big element of the NEST approach to investment has been incorporating members’ views. “What we aim for is smooth, consistent returns over many years, and the reason we do that is because our research among members shows us three key things: They’re not very comfortable taking lots of investment risk. Secondly, they expect their pension to behave more like a bank account, so grow steadily and smoothly.

“And thirdly, they’re really relying on these pensions to finance their lifestyle in retirement, they won’t have much other income coming in, so how we invest really matters- that’s why we focus heavily on risk-adjusted returns, risk management and diversification,” she adds.

“We’ve developed our investment strategy continually since the beginning and we continue to do that. We are now investing in 13 asset classes. These include emerging market equities and bonds, developed market equities and bonds, property and commodities most recently,” says Bruzzone.

“Next we’re looking to move into private markets, particularly private debt. These illiquid markets have traditionally been seen as too expensive and too complex for DC pension schemes, but we don’t think our members should miss out.

“In fact what we’re trying to do is match the sophistication and quality of some of the biggest institutional investors around the world, but at great value for money,” adds Bruzzone.

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