Mr Fawcett said: “Many of our investors will be investing for 40 or 50 years. Our youngest member is 16 years old. For those members, the environmental risk in particular, but [also the wider environmental, social and governance] ESG risk, which tends to be long term, is really going to start impacting their portfolio during their lifetime of saving.”
Looking ahead, the scheme aims for greater adoption of investment strategies that emphasise the use of alternative index construction rules to traditional market capitalisation-based indices, known as smart beta.
Mr Fawcett said: “We think asset allocation should be broadly done by working out the risk you want to take and the risks you want to avoid and allocating on that basis. If you look at a smart beta equity portfolio, it tends to be focused on a particular risk factor whether that is momentum, valuation or volatility. It would make sense for us as we get larger to think about allocating to a particular alternative index funds in addition to market cap and climate aware.”
The master trusts’ proposal for a retirement income strategy that combines income drawdown, cash and a later-life annuity to cater to its members in the post pension-freedoms landscape was blocked by the Department for Work and Pensions in March.
This is not to say this decision is permanent. The DWP stressed it would keep the issue under active review in light of market developments.
Mr Fawcett said: “[The] need for that product is not massive at the moment because most of our members have very small pots, because we are a very young scheme, but that need will obviously rise and we hope that the market develops products that are aligned or similar to our blueprint or we could potentially collaborate with them.”
Friendly relationships
What of the DWP’s relationship with the master trust?
Mr Fawcett said: “It is very friendly, but not too friendly. To be honest I am being a little bit flippant here. From an investment perspective we are beyond arms length from government, so it has no influence on how we invest money and that is absolutely as it should be.”
Myron Jobson is a features writer of Financial Adviser
This article has been revised since original publication as regards the de-risking of target date funds.
MARK FAWCETT'S CAREER LADDER
2016-present
Chairman, international advisory board
EDHEC-Risk Institute
2010-present
Chief investment officer
Nest
2008-2010
Chief investment officer
Personal Accounts Delivery Authority
2006-2008
Partner
Thames River Capital
1999-2002
Senior vice-president
American Express Asset Management International
2000-2002
Chief investment officer
American Express Asset Management International
1991-1999
Head of Japanese equities
Gartmore
