NEST Corporation today issued a Contract Notice in the Official Journal of the European Union (OJEU) for an actively-managed sterling corporate bond fund mandate.
Procuring this mandate supports NEST in refining its ability to manage the existing NEST Retirement Date Funds and alternative fund choices. This mandate is not a new fund choice for members.
The mandate will be used primarily in the following ways:
Consolidation phase of NEST's Retirement Date Funds
NEST Retirement Date Funds currently entering the Consolidation phase will start to incorporate the corporate bond fund immediately as one of the building block funds used as they transition from growth assets, into retirement income (annuity)-tracking assets
NEST Retirement Date Funds currently close to their target date will not be using this fund, as we expect most members to take their pot as cash. After 2018, the mandate will be used by all NEST Retirement Date Funds in the Consolidation phase.
NEST Pre-retirement Fund
This Fund is designed for members who start saving with NEST when they are within a few years of their NEST retirement date. In the early years, NEST Retirement Date Funds close to their target date will be targeting cash, so we expect that those members who plan to buy a retirement income with some or all of their pot, and any pots from other pension savings, will find NEST's Pre-retirement Fund more appropriate to their needs.
NEST currently uses existing mandates to meet this need, but will move towards incorporating the corporate bond fund mandate as appropriate, once it is procured.
Holding fund for NEST Retirement Date Funds that have reached their target date
There will be members whose NEST Retirement Date Funds have reached their target date, but who have not yet taken their money out of the scheme. Unless they let us know otherwise, we will assume they are likely to want to buy a retirement income at some point. To cater for this we will invest their pot in 75 per cent retirement income-tracking assets - corporate bond fund and gilt funds - and 25 per cent cash-tracking funds with the aim of ensuring their pot is prepared for whenever they make their choice.
Mark Fawcett, NEST Chief Investment Officer, says:
‘NEST Corporation continues to evolve the way it delivers on its investment approach for NEST's members. Our research suggests that providing further diversification to our existing mandates at this stage will benefit members.
'This additional building block enhances our ability to manage our members' risk exposure in a sophisticated way right up until the point they want to take their money out of NEST.'
While no investment portfolio can perfectly match the fluctuations in retirement income product rates, NEST's research suggests that currently, the best portfolio to track retirement income products is gilts split with corporate bonds. Our research on the performance of active managers, corroborated by external research, shows that a significant number of active corporate bond fund managers have historically outperformed corporate bond benchmarks.
The official title of the procurement is ‘Investment Mandate - Pooled Sterling Corporate Bond Fund'. If your organisation is interested in this opportunity, please read the Contract Notice for full details and instructions and contact NEST's investment adviser, Aon Hewitt. Interested suppliers should not telephone expressions of interest or queries to NEST Corporation direct.
The successful bid will be announced in Spring 2012.
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