Interview – Mark Fawcett


have outsourced everything. That is some- thing trustees will want to think about in the future, but we are not close to that yet.


Has it been a challenge to source active asset managers given the charge cap? It is always challenging to make sure you find someone to partner with in the long term. But anytime we have run a search for a manager we have been pleasantly surprised, and sometimes amazed, by the level of response and the competitiveness of pricing.


When we started talking about things like private credit there were people who said: “There is no way with your fee budget that you will ever get into private credit.” We have proven them wrong.


That is down to two things. One is obvi- ously our scale and that we are going to be growing so strongly. Secondly, we create partnerships rather than just hire and fire managers. We always try to find manag- ers we can stick with in the long term, get that knowledge transfer and build a good relationship.


There might be a third element, certainly for some managers. Nest has a strong sense of mission. We have played a pow- erful and important role in the auto enrol- ment process and people want to be asso- ciated with that. People realise that Nest is trying to be a force for good. Since the financial crisis companies are talking more about how they want a sense of purpose. We have that sense of purpose and that is why people want to work with us.


How would you describe that sense of purpose? We have 8 million members and they tend to be on low to moderate incomes. We have a lot of members who are paid the minimum wage; these are people who financial services typically don’t value as customers and rarely design products for. So we are focussed on designing our default fund, as well as other funds, to meet the needs of those members. For example, we know our members don’t


18 | portfolio institutional February 2020 | issue 90


like excessive volatility and that is one of our reasons for diversifying the portfolio and managing the risk you sometimes see if you just invest in stocks. That brings us back to the whole active/ passive question. Equities started off as completely passive. We now have a com- bination of passive-plus, what we call sys- tematic or what some people call smart beta investments. For example, our Cli- mate Aware Fund is systematically tilting towards renewables and away from heavy carbon emitters. Because it is more cost effective and we are a low charge scheme, we need to make sure that we can develop the equity strategy which is always going to be at the heart of our funds and to do so in a low cost way. In addition to that, things like credit need to be actively managed because if you just track the benchmark you end up being invested in the most indebted companies. You want to make sure you will get your money back, so active management is


important. Illiquid asset classes have to be actively managed as well.


Are there opportunities for active manage- ment in the equity space?


It is unlikely that we would select a fully active equity manager because the cost is prohibitive, but we see benefits to system- atically tilting away from market cap. Managing climate risk is a top priority and that’s why we designed our Climate Aware Fund. The other thing is that it is hard for an active equity manager to man- age billions of billions of pounds and outperform.


Do you think that as DC funds grow that there might be more room for investments in alternative asset classes and actively managed strategies?


I am not terribly optimistic that other schemes will do so. The advantage that Nest has is that because of our scale we are able to access these alternative asset


We have a lot of members who are paid the minimum wage; these are people financial services typically don’t value as customers and rarely design products for.


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