On the go: Government-backed master trust Nest is looking to work with private equity managers who are prepared to cut fees in return for a regular capital stream from the UK’s largest workplace pension scheme.
Nest, which manages more than £16bn of retirement savings and is looking to expand its illiquid investments, such as green energy infrastructure and commercial property, has yet to commit to private equity due to worries over high fees.
In an interview with the Financial Times, chief investment officer Mark Fawcett said that the master trust would not “pay two and 20”, referring to private equity’s usual two per cent management fee and 20 per cent performance fee.
Nest gathers about £5bn a year in contributions from its 10m members and expects to have around £100bn in assets by 2039, particularly as more younger workers are auto-enrolled into the scheme.
It aims to allocate 5 per cent of assets to private equity, in the hope of creating a more stable capital stream for any private equity group that meets its criteria.
Defined contribution pension schemes are being encouraged to find ways of investing in illiquid assets as part of the government’s “build back better” campaign after the pandemic.
The Department for Work and Pensions is currently consulting on whether to settle the 0.75 per cent annual charge cap that applies to DC pension schemes. In March, pensions minister Guy Opperman said the charge cap has “helped to drive down costs for members and ensured that they continued to receive value for money on their investments”.
Fawcett added that “the total level of fees levied by most private market funds will remain too high for many DC pension schemes to access”.
