The UK’s multi-employer pension fund, Nest, has announced it will commit up to £500 million ($622 million; €563 million) to private debt investments via two fund managers.
BlackRock is to manage an investment in infrastructure debt while Amundi will manage a real estate debt allocation for Nest.
The move is the £8 billion pension fund’s first foray into private markets investment and will see an initial commitment of between £400 million and £500 million over 12 months. Nest is targeting a 5 percent initial allocation but said it will not force money into markets.
Nest said it selected Amundi and BlackRock due to their innovations and cost-efficiency following an open tender process that saw nearly 40 organisations apply for the mandate.
Stephen O’Neill, head of private markets at Nest, said: “Today Nest is taking a significant step in increasing the investment opportunities for our members and following the example of leading DC schemes overseas by moving into private markets.
“Nest’s size and future growth helps negotiate great deals with fund managers, meaning our members can grasp with both hands the opportunities presented by private credit.”
Nest first announced it was looking to invest in private markets in September last year and would initially target exposure to debt assets.
At the time, O’Neill told sister publication PDI: “Private credit gives us an enhancement to our diversification and access to an illiquidity premium. While we’ve also been looking at infrastructure equity as a way to achieve this, private credit felt like it would provide the easiest route to entry for private markets initially.”
To support its activities in private markets Nest has created a subsidiary, Nest Invest, which is seeking authorisation from UK regulator the FCA to become a regulated Occupational Pension Scheme. An OPS can undertake investment management on behalf of a trustee or pension scheme and allow it to manage more complex investment decisions in-house.
Nest said it is following in the footsteps of other large UK pension schemes and the move will allow it to engage in more sophisticated investing on behalf of its members. As an OPS it will be able to provide regulated advice to the Nest board on investment opportunities, co-invest in private markets and direct fund managers to use derivatives to invest cashflow and manage risks effectively.
The pension fund was set up by the UK government to support its pensions auto-enrolment policy, which sees most UK workers automatically enrolled in a workplace pension scheme. Nest acts as a low-cost option available to all employers regardless of size. It has grown rapidly since it was established in 2008 and stated it had 7.9 million members in July this year.
Nest’s chief investment officer, Mark Fawcett, said: “Nest is going to be responsible for £450 million new contributions every month. 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.”