Nest brings private equity investment to UK savers

Schroders Capital, the private markets division of Schroders Group, was appointed following a search that launched in August 2021. In total, 14 fund managers applied for the position.

The manager has already begun sourcing investment opportunities for Nest, focusing on growth and middle-market deals.

Schroders Capital will source deals in North America, Asia and Europe, including the UK, focused on industries such as financials, consumer, technology and healthcare. Nest and Schroders Capital will prioritise growth companies, as well as small-cap and mid-cap deals.

The fund manager will originate deals as co-investments alongside other third-party funds, though Nest will not be invested in any of these funds through its relationship with Schroders Capital.

Stephen O’Neill, head of private markets at Nest, commented: “Private equity investors provide a vital source of capital for companies looking to grow their business. Meanwhile, these deals are likely to generate superior returns to most other asset classes, which is ever more important in times of high inflation.”

He continued: “Schroders Capital has created a bespoke fund for Nest, making us one of the first UK defined contribution schemes to invest directly into private equity. It will be evergreen and scalable, ensuring it will remain a significant part of our investment strategy.”

O’Neill added that one of the reasons Schroders Capital was appointed was its commitment to responsible investing. The manager is 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 estimates it will have at least £1.5bn, or around 5 per cent of its portfolio, invested in private equity by early 2025, depending in part on the right deals being available.

Mark Fawcett, Nest’s chief investment officer, said that while the initial target allocation is 5 per cent, this is likely to grow over time.

He noted that it takes time to deploy capital into private markets. He also noted that Nest wants vintage diversification and that it can be hard to time the life cycles of private equity funds.  

The trust first invested in private credit in 2019 and in infrastructure in 2021. Fawcett said Nest is now able to invest in private equity because of the scale of the fund.  

O’Neill told MandateWire that the procurement process was very successful and that the trust may appoint further private equity managers in the future. The private equity investments will be folded within Nest’s existing default Retirement Date funds.

This article originally appeared on MandateWire.com