NEST is expanding its data and technology capability with custodian Northern Trust as it approaches £100bn in assets under management (AUM), according to its chief operating officer, Paul Todd.
With NEST’s investment operations team consisting of only “six or seven people”, Todd said the scheme deliberately sought a custody partner able to fill capabilities it could not build efficiently in-house, including “understanding how data flows, understanding what our underlying assets [are] … how we deconstruct our portfolios.”
Rather than develop those capabilities internally, NEST opted to rely on Northern Trust. Todd said: “Why wouldn’t we do that with our custodian and fund accountants if we could find the right partner?”
He noted that the scheme currently manages £70bn on behalf of its 14 million members, with around £7bn-£8bn in new contributions each year and “very little money” leaving the scheme because members are “still relatively young”. As a result, NEST expects to reach £100bn in AUM “quite soon”.
Launched in 2008 with no assets or members, NEST’s original custody contract reflected the needs of a newly established organisation and was “fairly basic in terms of what we wanted from a custody and administration perspective”, Todd said.
Since then, its investment strategy has become “significantly more sophisticated”, spanning 20 external fund managers, daily pricing across its target-date funds and increasingly complex data and technology requirements. The changes prompted NEST to undertake a full public-sector procurement, resulting in a 15-year strategic partnership with Northern Trust.
Ian Hamilton, head of asset owners, EMEA, at Northern Trust, said NEST’s development reflects broader trends among large institutional asset owners.
He said: “We’re seeing the participants in that have never been closer in requirements.”
Hamilton pointed to Northern Trust’s global asset owner survey, which found increasing convergence around whole-portfolio approaches and a growing reliance on “timely, accurate, high-quality data” as portfolios become larger and more complex.
Todd said Northern Trust’s data capabilities are already changing how NEST’s investment operations team works. Processes previously carried out manually, such as “checking numbers on spreadsheets”, are now being automated, allowing staff to focus on higher-value activities.
“That’s allowed us to change the shape of our team,” Todd said, moving from manual checking towards “a much more strategic approach” to fund administration.
NEST has also adapted its own systems to Northern Trust’s standard platform rather than commissioning bespoke technology, enabling it to benefit automatically from future platform upgrades without requiring customised development.
With assets expected to surpass £100bn, both organisations said the partnership has evolved beyond a one-off transition to focus on long-term capacity building, including data infrastructure, technology strategy and preparations for NEST’s next major priority: developing a retirement income solution for members entering decumulation, a market Todd said “nobody’s ever done properly” in the UK.
