Defined contribution master trust NEST has launched a formal procurement for private equity, to which it is targeting an allocation of 5% of assets under management.
The launch of the tender comes after a period of market engagement during which the £19.4bn (€22.6bn) pension scheme challenged asset managers to come up with a private equity fee model involving an annual management charge and no carried interest.
“We cannot afford 2 and 20,” Mark Fawcett, NEST’s CIO, previously told IPE. “We don’t think that sort of fee model is value for money for our members.”
A spokeswoman for NEST said that to protect its commercial interests and those of bidders, it could not provide specifics about what fees NEST would accept.
Announcing the formal procurement launch today, NEST said it was seeking “innovative ways” to do start investing in growth and mid-market private equity. IPE understands that NEST is open to co-investments.
The pension fund is expecting to invest around £80bn on behalf of its members over the next 20 years. It indicated that the targeted private equity allocation represented an estimated £1.5bn by the end of 2024.
“We want private equity to play an important role in our portfolio, offering strong returns and diversification,” said Stephen O’Neill, NEST’s head of private markets.
“We’re excited about the positive impact we can have on growing companies. We’ll provide an important source of capital, injecting new money into innovative and growing businesses.”
He said the pension provider had had “some great conversations with fund managers” during the market engagement exercise.
“As ever, we’re looking for bidders to present global solutions that will be evergreen and scale with NEST over time,” added O’Neill.
NEST also said that successful fund managers would need to demonstrate that they could offer a robust risk management framework and integration of environmental, social and governance factors into their investment and asset management processes.
NEST has been steadily adding private market assets to its investable universe in recent years. Its first move into unlisted markets was with private credit, with three mandates awarded in 2019. Since then NEST has also hired managers for direct infrastructure equity investments.
Regarding NEST’s challenge to private equity managers on fees, Fawcett told IPE that the fund was inspired to issue it after a “great response” to a similar challenge he issued to infrastructure managers three years ago.
“That inspired us to say ‘we should have another go at this’,” the CIO said.
Once awarded, the new private equity mandate will be added to the existing range of Retirement Date Funds that make up NEST’s default strategy.