Nest appoints Blackrock and Amundi for private credit mandates

Amundi will manage real estate debt, including assets such as sustainable property, while Blackrock's infrastructure debt fund will include financing for renewable energy projects.

Private credit investments are usually directly negotiated loans between investors and the loan’s recipient. Investors negotiate bespoke rates but are expected to tie up their money until the loan matures, and are normally rewarded with better returns or an ‘illiquidity premium’. 

This also gives Nest – the master trust set up by the government to back auto-enrolment – a more direct link to the companies it invests in, which it said would make it easier to implement environmental, social and governance criteria.

While it will initially be targeting about 5 per cent of its default fund in private credit and could be deploying capital as soon as October, Nest said it will take some time to reach that target as it does not want to force money into the markets. Mark Fawcett, Nest's chief investment officer, said the managers are targeting around a 1 per cent premium over public fixed income.

The 12-month commitment of around £400m-£500m is being funded by cash generated by short duration investment grade and high yield bonds. While the undisclosed charging structure used on the private credit funds will be more costly, Mr Fawcett said that tweaking and renegotiating other asset classes had brought the allocation within budget, meaning there will be no increase to Nest's member charges.

The fund managers were selected following a highly competitive open tender, in which nearly 40 organisations applied. The fund structure used can be co-mingled, and both Nest and Blackrock said they were open to other defined contribution schemes joining the fund.

Alongside this, Nest Invest – a new subsidiary company created by Nest Corporation – has applied to the Financial Conduct Authority for authorisation as a regulated occupational pension scheme company.

If granted, this will make it easier for the master trust to secure co-investments in private markets.

OPS companies undertake investment management on behalf of a trustee or pension scheme, and so have the ability to manage more complex investment decisions and tasks in-house.

A number of other large UK pension schemes, including RBS and BT, have also created OPS firms. 

The FCA is expected to respond to Nest Invest’s submission later this year.

Mr Fawcett said: “We're now hitting a scale where it's possible to start thinking more expansively about the asset classes we invest in."

Our youngest member is 16, she can afford to take a lot of illiquidity risk," he added.

Nest's large inflows of contributions will make managing liquidity in the portfolio simple when times are good. However, the scheme has also put in place measures to deal with a liqudity crunch.

"We want regular valuations. For some assets that will be quarterly, some will be monthly," said Mr Fawcett. "If there's a big shift in markets... we will want more frequent valuations."

Nest, along with the Aegon Master Trust, Creative Pension Trust, Ensign Retirement Plan and The Baptist Pension Scheme, joined the Pensions Regulator's list of approved providers, bringing the total number of authorised schemes to 27.