NEST CIO highlights problems of infrastructure, commodities
UK - The chief investment officer of the UK's National Employment Savings Trust (NEST) has admitted that a number of issues, such as the scheme's size and accurate pricing, had prevented it from initially establishing separate real estate, infrastructure and commodities mandates.
Speaking to IPE after the defined contribution scheme unveiled its Statement of Investment Principles last week, Mark Fawcett said several asset classes remained interesting but posed challenges, some due to due to the need for daily valuations.
Fawcett highlighted infrastructure, saying daily price updates were needed for the scheme to consider investing in any infrastructure funds.
"We have to look at fair valuation on a daily basis," he said. "The Australian [Superannuation funds] got into quite a lot of trouble in the global credit crunch because they weren't marking to market sufficiently and frequently.
"People were taking money out of the funds and getting artificially high prices for their units because the infrastructure element of their fund wasn't being repriced sufficiently often."
He said commodities were also not included in NEST's investment universe at present, as this was an area that needed to be discussed with its trustees.
"Commodities raise all sorts of very interesting issues, and we haven't had a discussion with the trustees around the issues in that," he said, highlighting past debates around whether investing in commodities was a means of artificially boosting inflation.
When asked about further investment in real estate, Fawcett said that while the asset was "very much on our radar", the scheme's diversified beta portfolio would serve the purpose of diversification until it became large enough to tender individual mandates.
Addressing the scheme's long-term aim of returning growth in excess of 3% above the consumer price index - one of the UK's two common measures of inflation - he said it exposed the DC scheme to a "reasonable amount" of risk, if lower than other top funds in the country.
Asked about losses of 20% by some UK schemes during the credit crisis, only for said schemes to return 20% a year later, Fawcett said NEST aimed to avoid such volatility.
He pointed instead to Denmark's ATP, with its aim of consistent returns, as an example.
"We look at ATP, from an investment perspective, as one of the leaders in the industry," he said. "We talk to them - at conferences we'll meet. We're very interested in what they are doing."
He said the consultation period, several years in the making, that led to NEST's investment principles had led them to draw on best practice principles globally.
"We're in a great place now, but we will carry on learning and developing - just as ATP have," he said.