Mark Fawcett – Interview
about getting access to private markets at competitive prices.
Your assets are growing at £400m a month and you predict that by the end of the dec- ade a third of the UK’s workforce will have a Nest pension. Will it be possible to always be fully invested? Because the majority of the portfolio is liquid, the money comes in and the next day it is fully invested, but there are chal- lenges. For example, initially we had a sterling credit corporate bond mandate but have expanded that to a global corpo- rate bond mandate because the global markets are deeper and more liquid. So we were getting to the point where we had to have a conversation with our sterling credit manager because we were at risk of swamping their capacity. That’s why we went on to search for a global manager and appointed Wells Fargo.
We are bigger now so when we search for new mandates we get more competitive pricing than we did five years ago.
Does the high growth rate of your scheme mean you only invest with larger asset managers? We can go with boutiques but they have to demonstrate that they have the sourcing capacity in private markets and the asset management capacity in public markets. For example, we chose a core commodity manager to manage our commodity fund. All they do is mange commodities so in that sense they are a boutique, although they are not tiny as they have a decent amount of
assets. We will find high
quality managers, we believe we can build a partnership with them and are ambiva- lent about their size provided that they can manage the cash-flows, which is gen- erally easier for larger funds.
What will be the role of the in-house investment team under the new structure? At the moment the two key roles are asset allocation and manager selection. Those will continue to be what we do, albeit we are investing in more sophisticated asset classes. Responsible investment, which has always been important to us, increas- ingly means integrating climate change risk management right across the portfolio.
It is about having the flexibility to design the mandate, having segregated accounts, and instruct the managers more interac- tively. Those are the key things. The core functions won’t change, the level of sophistication will. If you look at some of the big pension funds – Railpen and USS – these are the things that they have been doing for a long time. Some have taken the decision to manage more money in-house, some
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