2022 has so far been very challenging for investors, and with global events continuing to cause uncertainty within financial markets and the possibility of a recession on the horizon, it’s likely we’ll continue to see public markets struggle to deliver real investment returns.
At Nest we believe the key to preparing our members’ savings for market unpredictability is having a highly diversified investment strategy. Regional, industry and asset diversification are all equally important in designing a sophisticated pension fund. This way we don’t put all our eggs in one basket and have more options available to help members’ investments withstand the ups and downs caused by global events.
Nest has always taken this approach; our in-house team of experts have meticulously constructed a portfolio that is unlike many others in the defined contribution (DC) market. We’ve moved away from the traditional scheme allocation of 80:20 construction. Our allocation consists of around 60% of stocks, across developed and emerging markets, and 40% in other types of investments such as commodities, property, bonds and now private markets.
Nest is one of the first DC pension funds in the UK to have given savers access to illiquid asset classes such as infrastructure equity and private debt.
In May and July 2022, we appointed two new fund managers, Schroders Capital and HarbourVest Partners, to help us invest in private equity on behalf of our members. In the short-term we’re planning to invest £1.5 billion in private equity by early 2025; in the long-term private equity will equate to 5% of Nest’s portfolio.
Private equity deals give investors access to companies not publicly listed on a stock exchange, with the potential for significant expansion as we’re investing in these companies early on in their lifecycle. This kind of investment can provide impressive investment returns and be somewhat of a ‘safe heaven’ when public markets are in turmoil.
Both, Schroders Capital and HarbourVest Partners will use their expertise in co-investing to identify private equity investment opportunities around the world. While also using their impressive scale to provide us with a regular and reliable deal flow. Both have high environmental, social and governance standards and aim to raise standards in the sector, something that aligns with Nest’s core investment beliefs.
We’ve never accepted that any type of investment is out-of-reach for our members and by leveraging our scale, we’ve been able to provide a high-quality investment strategy designed to navigate changing market conditions at no additional cost to employers or members. This move into private equity is just the latest evolution of our strategy and has the potential to drive strong returns for our members, putting them in a better position for retirement.