NEST, the UK workplace pension scheme, has appointed Lombard Odier Investment Managers (LOIM) to manage its new thematic equity mandate which it estimates could see £5bn (€5.8bn) invested in the fund by 2030.
The scheme currently has 50.4% of its portfolio invested in listed equity funds, managed in a way to achieve alignment with a transition to net zero by 2050. It now wants to invest actively in key themes such as climate change mitigation and adaptation, natural capital, and social issues, that should provide further investment growth opportunities across its investment portfolio.
The thematic equity procurement was launched in May 2023 and LOIM was appointed to manage the thematic fund, mainly across developed markets, out of a shortlist of four managers. Overall 29 managers applied for the mandate but LOIM stood out by understanding what NEST is trying to achieve with the mandate, it was announced.
Liz Fernando, chief investment officer of NEST, said the mandate will be reviewed quarterly, but the scheme will judge its success over the “appropriate period of time” and will carry on more formal checks with LOIM.
Speaking on the fund itself, Fernando said the ambition is to have 10% of NEST’s developed market equities invested in this strategy, which she said works out at about 5% of NEST’s assets under management, or £5bn by the end of the decade.
She added: “5% is not set in stone. If we think that the themes are coming more front and centre more quickly, then we can up the allocation. If it is going a little more slowly, we could let it drift down. We’re using the 5% as a target.”
The guidelines of the fund are “broad”, Fernando said, adding that there is no specific target on how much will be allocated to each of the three themes – climate change mitigation and adaptation, natural capital, and social issues.
The fund is currently being onboarded and Fernando expects the first allocation to happen around early April, with an initial target of £1.75bn. She pointed out that NEST “will not just arrive at that number” but will work to that number through scale.
Fernando added that no mandates will be terminated in the process.
“The beauty of NEST and its cashflow is that we get about £500m a month coming in. If we direct half of that to this new mandate, we can do that without having to sell the UBS Climate Aware fund,” she said.
“Not disturbing that fund is important because we will end up buying back again if we sell now. It is much better to use our cash flows to manage this, and not disturbing other porftolios,” she added.
UBS Asset Management has been managing a Climate Aware fund for NEST for several years now.
Jasbir Nizar, UK chief executive officer and global head of business development at LOIM, added that setting up the fund for NEST took “months and months of hard work and due diligence, information gathering on both sides to make sure that we deliver the right oucomes for NEST and everyone else that they are responsible and accountable to”.
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