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Diversification is important for pension schemes

 

Diversification across asset classes and regions is important for pensions, Mark Fawcett, chief investment officer for the National Employment Savings Trust (NEST) has said.

He claimed this was important not just for good returns but also to manage the risks inherent in different asset classes and geographies.

He explained that NEST invests in multi-asset funds, which helps to give good risk-adjusted returns for members and to manage the volatility.

Mr Fawcett commented that advisers should "get under the skin" of any investment approach, to see how the money is being invested.

He added: "Having strong investment governance for the scheme is very important, as it gives advisers confidence that the assets are being well-diversified and invested in a risk-adjusted way."

According to Mr Fawcett, it is important to understand how risks build with each other in a portfolio. For example, he said, developed market and emerging market equities were quite highly correlated to each other, while property was less correlated to equity markets.

It is also important to diversify away from just the UK, making sure that the portfolio has global diversification.

"We have a number of building block funds in debt, equities and property", Mr Fawcett added, "so we can have diversification across the world and across asset classes."

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