NEST has met the 5% unlisted equity target under the Mansion House Compact and the 10% private markets target under the Mansion House Accord, according to its chief investment officer Liz Fernando.
Speaking at the UK Private Capital Pensions Summit on 9 September, Fernando said the master trust had also met the Accord’s requirement for 5% to be invested in the UK.
NEST has “about 20% in private markets today” and “about 5% in private equity”, she said. The remaining allocation is “fairly broadly” spread across real estate, infrastructure and private credit, as well as a “small but growing” timber allocation.
Fernando said a lot of people in the industry are “talking about doing things” but “very few people are actually getting money in the ground”.
“I’m sympathetic to that because it does take a while to spin up a programme, get the governance in place, get the approvals, decide what you want to do first, go off and find a manager, get the structures sorted out. It all takes time.
“However, I do think that some people signed those Compact or Accord [commitments] because it was the right thing to do and there was a lot of political noise about getting money to work in this space, and the ‘mandation’ thing was looming over one shoulder. So signing was a political expedient thing to do. People now need to start moving.”
Fernando flagged that there is only one other scheme, which she described as NEST’s “main competitor”, that is “doing a lot”, but “it is going quite slowly”.
Mansion House progress
Speaking on a separate panel, Zoe Alexander, executive director of policy and advocacy at Pensions UK, said there was a “huge willingness and huge progress” across the industry on the commitments.
She said it was important to remember that the UK defined contribution (DC) market was “still a maturing market”, with schemes still needing to build capabilities and governance to manage private market opportunities.
But Alexander said she was encouraged by “increased deployment”, highlighting that there was a “huge pipeline of committed capital still to come”.
Alexander pointed to industry initiatives such as the British Growth Partnership, backed by the British Business Bank, which are supporting venture capital investment. However, she said there were “really important things” that needed to happen to support the growth trajectory of private market investment in the UK.
This included building a pipeline through “more innovation, more partnership, more working with public finance institutions to create investment-based opportunities at scale”
She said scale was “really important” because the pool of assets in DC schemes was growing “exceptionally fast”. If there were not sufficient investment opportunities, she warned, prices would rise.
Alexander also called for regulatory consistency.
She said: “There are various tweaks we would make to regulations, but a really important one is consistency of an exclusion of performance fees and the charge cap across the [Financial Conduct Authority] FCA and [the Pensions Regulator] TPR. At the moment in the FCA land, those fees are not excluded. I know work is going on that and I think it’s going to happen, but that’s a really critical piece of the puzzle for loads of our members.”
Alexander added that there was a “huge amount of work to do” on the Value for Money (VfM) framework.
“One of the key concerns we have at the moment is that the way that the investment metrics in that VfM framework are designed may limit private market investment because the look back and the look forward are potentially too short a time frame to support private market investment.
“We’re thinking hard and talking to regulators and DWP about that challenge because what we don’t want to do is dull the enthusiasm of schemes to move beyond the kind of allocations they’re going to get to, or they’re planning to get to by 2030,” she continued.
In another panel, Hannah Gurga, director general at the Association of British Insurers, said there was a “huge amount for [the industry] to be positive about”, pointing to the latest progress report on the Mansion House Compact, which showed an increase from £800m to £1.6bn between the first and second reports.
She said: “Yes, there’s still some distance to travel, but the commitment is there. Now is our opportunity to turn that ambition into investment.”
Gurga added that there had been a “genuine shift in mindset” over the past few years, with schemes becoming increasingly committed to diversification.
She continued: “Compact and Accord are very strong signals of intent from the pension providers to the wider industry. But we are now also seeing a shift from the perspective of the saver – how might diversification benefit the saver. Fundamentally, that’s what’s important about the pensions industry – delivering those returns over decades for people saving into their pensions.”
