Nest targets alternative growth

8 Jan 2020

Workplace pension provider Nest is looking to appoint infrastructure managers as part of a strategy to increase its exposure to alternative assets.

The £8.3bn defined contribution (DC) scheme has invited asset managers to tender for unlisted or direct infrastructure fund mandates.

While Nest has not disclosed a volume for the mandate, a spokesperson revealed that the scheme is looking for managers specialising in global infrastructure, UK-based infrastructure or renewable energy. Interested parties have until 17th February to apply through the Bravo Platform.

The announcement comes a day after the master trust revealed it has received FCA approval to launch its own investment subsidiary, NEST Invest, which will be regulated as an occupational pension scheme (OPS).

Nest has also recently appointed Wells Fargo to manage a £500m global corporate bond mandate.

The OPS status enables Nest to make co-investments in private markets and could allow the scheme to integrate derivatives in its cash-flow management strategy.

While a number of pension schemes, such as those sponsored by RBS and BT, have also set up their own OPS firms, Nest is the first master trust to do so. This decision was motivated by the anticipated growth of the scheme, chief investment officer Mark Fawcett (pictured) explained.

“Nest is going to be responsible for more than £400m of new contributions every month,” he said. “We’re becoming one of the largest players in the UK pension’s market and our investment strategy is evolving to reflect that.

“While setting up Nest Invest is an exciting development, it’s the natural next step for a scheme of our size. We already have the internal expertise in Nest’s investment team to manage the additional responsibilities,” Fawcett added.

For the time being, Nest will continue to appoint fund managers, although Fawcett does not exclude the possibility of bringing investment functions in-house over the long term.

Nest predicts that its assets under management could rise to £22bn this year and that by the end of the decade, one third of the UK population is set to have a pension pot with Nest.

Cost constraints due to the charge cap for DC funds and lack of scale have so far been a key obstacle for master trusts looking to invest in alternatives, with the default funds in the majority of schemes being almost exclusively invested in equities passively, according to a 2018 report by Cass Business School for the DC Investment Forum.

However a combination of growing scale and reduced costs for active managers offers schemes further flexibility, as a Nest spokesperson told portfolio institutional: “One of the big factors that allowed us to go into private credit was that costs have come down, meaning we could fit it in our investment strategy. We have constraints on what fees we can pay and everything must be cost-effective. We won’t offer performance fees.”

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