National Employment Savings Trust (NEST) has appointed HarbourVest Partners to help the UK workplace pension scheme invest a targeted £1.5bn (€1.8bn) in private equity by early 2025.

HarbourVest Partners’ fund will invest in co-investment opportunities on NEST’s behalf through a bespoke fund-of-one, tailored to NEST’s needs and objectives. This fund will receive a pro-rata allocation of suitable co-investment opportunities alongside HarbourVest Partners’ other co-investment accounts.

The new mandate will play an important role in helping NEST invest around 5% of its portfolio in private equity.

Stephen O’Neill, NEST’s head of private markets, said: “We see private equity as the logical progression for a scheme of NEST’s size. We’re taking in more than £400m a month in member contributions and we want to find suitable places to put that money, without concentrating it into certain areas and increasing the risks facing our members.

“NEST now has access to the four main private markets – property, private credit, private equity, infrastructure. Our aim is to have a fifth of our portfolio in private markets over the coming years.”

He added: “When chosen and managed carefully, private equity deals can generate strong, steady returns over long periods. We also believe it is a deep market with lots of opportunities. The global scope of our mandates will give us a wide range of options and we’ll be looking to diversify across industries such as consumer, technology, healthcare.”

O’Neill noted that now was “not a good time to be over-exposed to public equity”.

“There’s a shrinking pool of opportunities as more money is being concentrated in fewer companies, particularly in big US tech. This undermines our diversification strategy. However by backing specific companies through private equity deals, investors can also be more selective so that if markets are turbulent, we can look to find the ‘winners’ in the pack, isolating, to a degree, the performance of the company away from the performance of the whole market,” he explained.

As to the appointment of HarbourVest, O’Neill said the asset manager was “keen to exercise their governance rights to help manage long-term risks and encourage sustainable business activities. They understand the importance of responsible investing and represent an excellent partner for NEST to work with”.

Craig MacDonald, managing director of HarbourVest, said: “We worked hand-in-hand with the NEST team to develop a flexible and tailored solution that aligns with NEST’s needs and ambitions for its members. Together, we believe we are filling a much-needed gap in the market, providing access to the asset class for a broader base of UK pension savers.”

The focus of HarbourVest’s mandate will be on growth and middle-market deals. It expects to start the deployment of capital into new deals in the coming months.

The addition of private equity completes NEST’s core allocation to private market assets which also include property, private credit and infrastructure, although the scheme may consider further private market strategies in the future.

The appointment of HarbourVest is the second private equity mandate awarded by NEST after a procurement process initiated in 2021 and concludes all private equity mandates the scheme will award following that process.

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