UK - The UK National Employment Savings Trust (NEST) has ruled out any direct investments in infrastructure, commodities and high yield in its first few years of existence.

Mark Fawcett, chief executive officer of the new defined contribution scheme, also said that any hedge fund investments were unlikely to happen in the near future.

"Hedge funds might have a place, certainly, at some point," he said. "A lot of pension funds are going into hedge funds at the moment, but it's perhaps not the first place we're likely to go."

Fawcett said one of the problems NEST faced when investing in hedge funds were performance fees, which conflicted with the scheme's stated mission of being a low-cost alternative.

He said that, in spite of the recently revealed mandates - forming the basis of NEST's investment strategy - the absence of certain assets did not mean they would be permanently excluded.

"We'll be growing over the years, and the trustees will make decisions about what they think are the right asset classes," he said.

Fawcett stated an interest in all major assets, from equity and private equity through property and infrastructure to high yield, as well as hedge funds and currency.

He added: "We won't be investing in a single infrastructure fund, though, or a single commodities fund, or a single high-yield fund until we get bigger."

However, Fawcett said exposure to the above asset classes could still be achieved through its diversified beta fund.

He explained the lack of a UK equity mandate as a wish to diversify, stating that the scheme would still be exposed to the domestic market by way of the global equity mandate, which he believed would allow for 10% to be invested in local equities.

While it is still undecided whether NEST will link its pensions to the consumer price index (CPI) or the retail price index, Fawcett acknowledged the government had recently deemed CPI the appropriate measure for pensioners.

Fawcett hoped that, in time, the scheme would create an internal market, lowering the cost and minimising selling and buying, as the constant influx of new members meant there would always be demand for funds designed for members retiring at any given time.

He said that with the help of target-dated funds, NEST would be able to minimise confusion and allow people to simply set a retirement date, allowing the default investment strategy to then adjust as the pension age approached.

However, the notion of high risk and return, as well as low risk and return, socially responsible investment funds and religiously compliant funds are still being considered, and final details will be announced in the new year when trustees unveil the scheme's Statement of Investment Principles.

As for the ultimate size of the scheme after launch, Fawcett said it was impossible to predict, as the soft launch will still require the employees of select companies to opt into the scheme.

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