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NEST looks to add global corporate bonds to growing portfolio

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The National Employment Savings Trust (NEST) has launched a search for global investment grade corporate bond managers for a potential allocation for its retirement date funds.

In a notice published earlier this week, the £4.5bn (€5.1bn) defined contribution (DC) master trust said it was seeking active managers to provide the latest “building blocks” for its investment portfolio.

NEST said it was interested in managers with “a high quality repeatable investment process, a robust risk management framework and [that] consider environmental, social and governance [ESG] factors”.

The scheme did not specify the potential size of the mandate. A spokeswoman for NEST told IPE the allocation would depend on “a number of factors” including valuations at the time of procurement.

NEST’s investment team was prepared to consider established and new funds and was open to segregated mandates if appropriate and beneficial to the scheme, she added. Last year it awarded its first segregated account to CoreCommodity Management.

Regarding the ESG approach, the spokeswoman said managers would be expected to exclude bonds issued by companies that manufacture controversial weapons, in line with NEST’s divestment policy. 

NEST CIO Mark Fawcett said in a statement this week: “NEST already has exposure to UK investment grade corporate bonds and expanding into this asset class is a natural progression as our assets under management continues to grow.

“Adding global investment grade corporate bonds to our funds supports NEST’s diversification strategy and gives us opportunities to earn the best stable returns necessary in order to support our long-term investment objectives.”

According to NEST’s annual report, as of the end of March 2018 three asset managers had been appointed to run investment grade bond mandates: BlackRock (short duration bonds), BMO Global Asset Management (ethical sterling bonds), and Royal London Asset Management (sterling corporate bonds and short duration bonds).

In addition, JP Morgan Asset Management ran a global high-yield bond fund, Legal & General Investment Management ran short-dated gilts, and State Street Global Advisors ran funds investing in conventional and index-linked gilts.

In September, NEST called for managers to come up with innovative ways of accessing unlisted infrastructure debt, real estate debt, and corporate loans for the growing DC scheme.

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