The new fund will make up one of the asset class building blocks in the pension scheme’s default strategy, and has been designed to cater for Nest’s environmental, social and governance (ESG) requirements.
Nest says the investment, which will be up to 5 per cent of the portfolio, replacing cash and short duration bond holdings, will give it broadly equity-like returns but delivered at different points in the investment cycle.
Nest has previously invested solely in pooled funds to date.
The fund will be predominantly invested in commodity futures but will include a proportion of shares in companies involved in commodities production. It will be actively managed, aiming to outperform the Bloomberg Commodity Index. It will apply exclusions based on the methodology in Nest’s climate aware fund to avoid energy producers with the highest exposure to climate risk, including coal. It will also exclude producers focusing on thermal coal, palm oil, uranium, and tobacco, and on mining for cobalt from cobalt mines in the Democratic Republic of Congo, from both the futures and equity portfolios.
Nest chief investment officer Mark Fawcett says:“We are already receiving over £200m in contributions from members every month and that is set to double next year and rise rapidly from there. As we are fast approaching being one of the biggest pension schemes by assets in the world, we’re able to harness that growth to cost-effectively access new sources of return without increasing members’ investment risk.
“While markets have been benign since auto enrolment kicked off six years ago, we’ve had a turbulent start to 2018 and volatility looks set to rise. It’s our responsibility to help members weather all sorts of markets to achieve decent, consistent returns on their pots. Commodities offer good value protection as inflationary pressures rise around the world and are supported by strong global trends.
“CoreCommodity Management are best-in-class in this field and we’re delighted to have been able to work closely with them to design a portfolio that we believe will help improve members’ overall long-term risk adjusted returns.”
CoreCommodity Management co-founderAdam De Chiara says:“CoreCommodity Management is extremely pleased to have been awarded this significant mandate. We look forward to managing a customized real asset strategy that has been thoughtfully designed to provide portfolio diversification and inflation protection to NEST’s members in an ESG compliant format.”