Nest mandates Schroders for PE strategy

The entry into private equity investments is a development on Nest’s previous investment programmes in commercial real estate, private credit and listed infrastructure, Nest’s head of private markets Stephen O’Neill told Unquote. “We do all our allocations through fund managers, either via their existing vehicles or funds of one set up for Nest, and we use an evergreen fund of one from our side.”

He added that the timing was right to take the next step into private equity investing. “The motivation for making the move now is that we felt we had the critical AUM mass to fer to negotiate deals and where the scheme has the depth to hold the illiquidity.”

Nest does not expect the denominator effect to be a challenge in its private equity strategy, O’Neill said, given that it can rebalance its investments due to its cashflow position.

In its investments made on behalf of Nest, Schroders will focus on growth and mid-market PE deals in Europe, Asia and North America, focusing on the financial, consumer, technology and healthcare sectors. It will avoid distressed or restructuring deals, O’Neill told Unquote.

Nest expects Schroders to deploy around GBP 250m per year from its allocation, corresponding to GBP 25m-GBP 75m per year and around four to five deals per year, O’Neill said.

The private equity investments will be folded within Nest’s existing default ‘Retirement Date’ funds, Nest said in a statement, meaning that Nest’s members will benefit from them within the existing charge structure.

Nest expects to have invested GBP 1.5bn in private equity by early 2025, with the long-term aim of having around 5% of its portfolio invested in PE. The firm has not set specific returns targets for its PE strategy, O’Neill said, but expects to generate a premium versus what can be found in equivalent public market investments.

In August 2021, Nest launched its private equity procurement process, which saw 14 fund managers apply, according to the statement.

According to the same statement, Nest’s charging structure for its members is made up of two parts: a contribution charge of 1.8% on each new contribution, and an annual management charge (AMC) of 0.3% on the total value of a member’s pot.

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