Schroders Capital appointed by Nest to manage private equity defined contribution allocation

Schroders Capital’s private equity team has been appointed by UK pension scheme Nest to manage its private equity allocation.

The Schroders Capital team has created a bespoke fund for Nest, making it one of the first UK defined contribution schemes to invest directly into private equity. Nest, which represents a third of the UK workforce, will fold the private equity investments into its existing default ‘Retirement Date’ funds.

Nest estimates it will have at least £1.5 billion invested in private equity by early 2025 and the longer-term target is to have some 5% of its portfolio invested in private equity. It launched the private equity procurement in August 2021 and, in total, 14 fund managers applied.

The Schroders Capital team has already begun sourcing investment opportunities focused on growth and middle market deals. They will be in North America, Asia and Europe, including the UK, focused on industries such as financials, consumer, technology and healthcare. Nest is aligned with Schroders Capital on prioritising growth companies, as well as small-cap and mid-cap deals.

Schroders Capital will originate deals as co-investments alongside other third-party funds.

Tim Creed, Head of Private Equity Investments, Schroders Capital, commented:

“In the past, private assets – like private equity – have been accessible only to large defined benefit pension schemes. But today’s announcement is further evidence that this is changing. A huge pool of UK pension savers will now be able to access this asset class through Nest’s scheme and benefit from Schroders Capital’s long-standing investment expertise and history of strong performance. 

“We are excited to be at the forefront of this evolution as the democratisation of this asset class gathers pace. Our focus is committed to identifying and delivering investment performance in the growth and middle market space and helping secure the retirement futures of UK savers.”

Mark Fawcett, Nest’s Chief Investment Officer, commented:

“Many UK workers, for the first time in their lives, will now have the chance to benefit from investing in private equity. We’ve never accepted that any type of investment is out-of-reach for our members. We want every tool in our toolbox to boost the risk-adjusted returns for our members.

“At Nest we’ve developed a sophisticated investment strategy to help navigate changing market conditions, for when markets are buoyant and, more importantly, for when they’re not. Our move into private equity is just the latest evolution and has the potential to drive strong returns for our members, putting them in a better position for retirement.

“I want to thank Schroders Capital for their innovation and commitment to open up private equity for the average saver. They have huge amounts of experience and expertise co-investing on these types of deals and their global scope opens up exciting opportunities.”

Nest’s Head of Private Markets, Stephen O’Neill, commented: 

“Amongst the reasons we appointed Schroders Capital was their commitment to responsible investing. They aim to be at the forefront on ESG and are investing heavily in raising standards in the private equity market where key factors, such as data gathering and disclosure, are lagging behind public markets.”

Nest was set up by the government to ensure every UK employer could offer a workplace pension to their employees. Since then, it’s grown to become the largest workplace pension scheme in the country with more than 10 million members. One in three of the UK working population currently have a retirement fund with Nest.