Following what CIO Mark Fawcett described as a “highly competitive” selection process, NEST has handed Amundi Asset Management a mandate to manage emerging market debt on its behalf. Amundi will be able to invest in hard and local currency debt, as well as currencies.
Fawcett (pictured) said Amundi was selected on the basis of lower fees, adherence to environmental, social and governance criteria, and strong performance and experience in emerging market debt investment.
Fawcett expects the asset class will comprise between 0 and 10% of a typical portfolio. The mandate will sit within the scheme’s existing ‘building block’ funds that make up its default retirement date funds range, as well as some of its alternative fund choices. The only exposure NEST funds have previously had to emerging markets is in passive equity funds, within two of its retirement date funds and its higher risk fund.
Emerging market debt will feature in its retirement date funds both at foundation and growth phase, but emerging market equities will not be included in the foundation phase, according to the mastertrust.
In January this year, Engaged Investor revealed NEST was in the process of procuring an actively managed pooled emerging market bond fund that included debt denominated in both local and hard currencies. “We believe an active management approach can take advantage of opportunities while managing the portfolio risk by avoiding unattractive or risky borrowers,” said Fawcett at the time.
Amundi favours hard currency sovereign debt denominated in dollars or euros, as some emerging market currencies may depreciate further, according to the firm’s head of emerging market debt management Sergei Strigo. It is neutral on local currency bonds, with selective allocation to Indonesia and countries in central and eastern Europe. The firm particularly likes Romania and Croatia, as it thinks the European Central Bank’s programme of quantitative easing will help to keep yields low. Russia is favoured both on valuation grounds and because of its high domestic liquidity. Hungary also features, as Amundi expects the country will see a ratings upgrade this year.
Amundi’s global emerging market blended bond fund has been overweight Argentina for some time, having taken a view that the recently elected government would endeavour to resolve its debt crisis. It also likes Brazilian sovereign and corporate debt, with state-owned Petrobras among its holdings.