Paul Todd, chief operating officer at Nest Invest, is our final guest for series four of The Professional Investment Podcast. He chose the news pensions minister Torsten Bell wants to give fiduciary duty a legislative overhaul as his story of the week.
We talked about the importance of having a broad definition of fiduciary duty when investing, like Nest does, for many decades. Including climate change and investing in the domestic economy are important considerations over this time frame as well as the risk and return profile of both the overall portfolio and different asset classes.
Paul explained how he thinks about embedding climate change considerations within the overall portfolio. He talks about how tilts can help Nest to mitigate climate risk in passive equity allocations without losing out on returns. He also discussed the importance of using active equity strategies to reduce US tech concentration risk.
It’s helpful fixed income has become an investable asset class now that master trusts need to offer a default retirement income. But despite the ability of debt to provide predictable income, it’s also important for investors to have growth assets in their portfolio, added Paul.
Private assets give long-term investors the ability to implement a broad definition of fiduciary duty. Paul discussed how these assets can both help investor to allocate to green technology as well as having more control over climate change because of direct relationships with companies.
We touched on the different ways for master trusts to build retirement income, including CDC. While Nest prefers a deferred annuity to provide longevity protection for members, the master trust does not rule out this option down the line.
Finally, Paul shared the steps Nest is taking now to get ready for when the master trust reaches assets under management of £100bn. He discussed the importance of learning from Canadian and Australian pension schemes as well as sharing his top tips for other master trusts which will be growing rapidly in the coming years.
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