Nest invests in global corporate bonds in search for 'stable returns'

Nest, the workplace pension scheme set up by the government, already has exposure to UK investment grade corporate bonds and has said expanding into this asset class is a natural progression to support its long-term investment objectives.

WFAM will immediately start to invest on behalf of Nest and its 8m members, with the pension scheme aiming to invest around £500m into global bonds over the course of the next 12 months.

Nest has been investing in the UK corporate bond market for a number of years but said it was looking to expand out further, taking advantage of the favourable and stable returns offered globally in this asset class.

Anders Lundgren, Nest’s head of public markets and investment strategy, said: “This step is a natural progression for a scheme of Nest’s size and helps us to further develop our sophisticated investment strategy.

“The UK bond market has been a successful performer in our funds over the past few years. We’ve looked ahead and seen that there are further opportunities globally in this market, which is why we’re making this move.”

Nest chose WFAM because it has managed credit for over 25 years, which means the company has gone through multiple credit cycles.

Mr Lundgren added: “They also have a dedicated ESG strategy team to ensure we can continue to generate sustained, long-term returns for our members.

"A segregated mandate gives us greater control over how our member’s money is invested, ensuring we adhere to our strong ESG criteria.”

The announcement comes as WFAM, is committing new, dedicated resources to the UK defined contribution market.  

Nico Marais, chief executive of Wells Fargo Asset Management, said: “We are honoured that Nest has selected Wells Fargo Asset Management to manage its new global investment grade credit mandate.

“Our investment and research specialists look forward to harnessing the firm’s investment acumen, expertise on risk management, and integrated environmental, social and governance platform to help Nest and its members achieve their investment objectives.”

Nest said almost 50 asset managers submitted bids to manage this mandate, from which WFAM has been appointed to run an active, segregated account with a currency hedge. 

The fund is intended to be able to scale up to meet the demands of the rapidly growing pension scheme which takes around £400m a month in member contributions.

Patrick Connolly, chartered financial planner at Chase de Vere said the plans by Nest was a “sensible decision”, because fixed interest should play an integral role in investment portfolios and global bonds can give different risk and return characteristics to UK fixed interest holdings.

Mr Connolly added: “Including global bonds can provide Nest with valuable diversification benefits at a time when bond markets are challenging. Many fixed interest assets look expensive and, despite central banks easing monetary policy and cutting interest rates, we still face an uncertain outlook ahead.

“As we’ve seen in recent times, the returns from overseas assets can be heavily influenced by currency movements, and so we’re supportive of Nest in having a currency hedge on the global bond mandate.”