National Employment Savings Trust (NEST) has awarded Legal & General Investment Management (LGIM) two real estate mandates, representing its first direct investment into commercial property.
Under the terms of the contract, NEST will be using two of LGIM’s unit linked real-estate pension funds, which are Managed Property Fund (UK) that invests directly in commercial property in the UK; and Global Real Estate Equity Index Fund invests in the shares of real estate companies around the world.
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Managed Property Fund (UK) generates returns in two ways: income from rent, and capital appreciation (the market value of buildings increasing). The combination of UK direct and global indirect funds offers higher diversification and liquidity and simultaneously reduces fund expenses and the entry and exit costs.
The two new funds represent the ninth and tenth underlying building blocks that are used for NEST Retirement Date Funds and NEST fund choices. NEST fund building blocks are all blended by NEST to create the NEST Retirement Funds.
The new real estate mandates will make up a sizeable portion of the NEST Retirement Date Funds, as well as the NEST Higher Risk Fund and NEST Ethical Fund options. NEST plans to invest through Hybrid Property Fund of Legal & General, which was launched in 2011.
According to LGIM, Hybrid Property Fund offers Defined Contribution (DC) pension schemes in an innovative way, which grants access to the property funds, whilst managing volatility and liquidity. The Hybrid Fund invests in LGP’s UK balanced fund, the Managed Property Fund, and LGIM’s Global Real Estate Global Real Estate Equity Index tracker fund on a default position split of 70:30, respectively.
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By GlobalDataMark Fawcett, CIO at NEST, said: "Legal & General was chosen because it delivers on our demanding requirements for excellence in investment processes and philosophy, high quality risk management and a comprehensive integration of environmental, social and governance (ESG) factors. These elements give us confidence that we will continue to deliver strong and sustainable performance for NEST members."
