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The UK’s state-backed pension scheme said its plans to invest 30 per cent of its portfolio in private markets by 2030 was “not a guarantee”, arguing it would not compromise on value to meet the target.
The National Employment Savings Trust plans to increase its private market exposure from a current level of about £8bn to £30bn over the next five years, following a government push for more investment in UK infrastructure. But chief investment officer Liz Fernando said the aim was ambitious and would only be met if the right investment opportunities arose.
“We are having to run quite hard,” said Fernando in an interview with the Financial Times. “We want to maintain the tension of making sure we are buying great assets at good prices and have no interest in just shoving money out of the door to hit a target.”
Nest was set up in 2010 by the government to provide a low-cost workplace pension scheme to support the introduction of auto-enrolment. It manages £50bn of assets on behalf of more than 13mn members, many of whom earn the minimum wage, and is forecast to reach £100bn by the end of the decade as payments into defined contribution schemes build up.
Fernando believes Nest’s shift towards longer-term private assets, such as infrastructure and property, will benefit members as they tend to provide regular cash flows throughout market cycles.
“These illiquid assets typically have less volatility,” she said. “Infrastructure projects can offer stable, long-term returns even in difficult market conditions, and they’re not subjected to daily pricing like you have with public markets.”
But she stressed that increasing the default fund’s private market exposure from 17 per cent to 30 per cent by the end of the decade was “an ambition, not a guarantee. We’ll do it if the opportunities arise.”
The fund’s infrastructure investments include the M6 toll road and Manchester, Stansted and East Midlands airports, as well as telecoms masts company Arqiva and the Hornsea offshore wind farms. About 40 per cent of its private market exposure is in the UK, including all of its property investments.
The government has been trying to encourage more pension funds to invest in UK infrastructure assets and scale up companies. In her Spring Statement on Wednesday, chancellor Rachel Reeves noted that reform of the pensions industry was a key pillar of the government’s plans to revitalise growth.
Pensions minister Torsten Bell this month argued for the wider benefits of investing in the UK, but has received pushback from funds who believe trustees should focus solely on performance.
Mark Fawcett, chief executive of Nest’s investment business, said he considered the impact of Nest’s UK investments in economic terms, as well as the performance it delivered for members.
“We think about things that we could do in the UK that could generate a good return and have a good impact on our members,” Fawcett said. He gave the examples of revitalising a shopping centre in Poole in partnership with Legal & General, building wind farms or operating solar farms.
Nest’s commitment to private markets is unusual among its peers, and more in line with Australia’s superannuation funds.
Eight per cent of Nest’s portfolio is invested in infrastructure and private equity — compared with about 4 per cent for the average UK defined contribution default fund, according to government research.
A further 5.5 per cent of Nest’s default portfolio is held in UK property and 3 per cent in private credit, including loans to small and mid-market British companies.
Fernando said she had been “actively encouraging” all Nest’s partner managers to look for UK assets.
Last month, Nest took a 10 per cent stake in Australian infrastructure investor IFM and committed to invest £5bn over the next five years across infrastructure, private equity and private credit, with a focus on the UK.
In late 2024, Nest agreed a partnership with Legal & General and Dutch pension fund PGGM to invest jointly up to £1bn into “build to rent” property schemes across the UK.
Chancellor Rachel Reeves has said proposals to merge defined contribution and local authority pension funds into a series of “megafunds” could unlock up to £80bn for investment in “productive” British assets.
The City of London Corporation is also working on an updated version of its voluntary “Mansion House Compact”, which could make a commitment by 11 pension funds to invest at least 5 per cent of their default funds in unlisted assets by 2030 more ambitious.
But critics have pushed back against assumptions that more investment in private markets will lead to higher returns, pointing to the relative lack of transparency in these markets.
Forecasts released last autumn by the government actuary’s department, which provides financial risk assessments for the public sector, estimated that the push to get UK pension funds to invest more in private markets would boost returns by just 2 per cent over a 30-year period.
But Fawcett said he “seeks out illiquidity” as a source of return, with the fund’s cash flow profile reducing concerns over becoming forced sellers. He added that there were “great opportunities” in private equity, particularly in UK mid-market companies and those that support infrastructure linked to climate change and the energy transition.
The average Nest default fund in its “growth phase” has delivered annualised performance of 7.1 per cent over the past five years. This is slightly lower than the average defined contribution pension default fund, according to a ranking by Corporate Adviser, but with less volatile returns.
Data visualisation by Martin Stabe