How to do due diligence on default funds


Advisers need to drill down into how funds are invested using a variety of metrics if they are to carry out due diligence on workplace pension funds, Mark Fawcett has said.

The chief investment officer for NEST said it was important not to focus on short-term performance but to understand how the default fund is invested.

Speaking to FTAdviser, Mr Fawcett commented: "Understanding the fund's clear objectives and making sure those objectives align with the needs of the members and the workforce being enrolled is absolutely vital."

He added: "Understanding the governance structure is also important, and getting assurance from that is also useful."

With performance, he said performance was a factor but understanding how that performance was built up was more important. 

Mr Fawcett pointed to recent research commissioned by NEST and carried out by Defaqto last year on the level of returns in default funds, and the level of risk being taken to provide those returns. He said this was "important information for an adviser to take into account".