Deep dive into private markets
“Nest’s bold and innovative choices have paid off, first and foremost with its decision to allocate to private equity. It deserves the highest recognition for its achievements.” judge’s comment
WINNER
Country |
United Kingdom |
Founded |
2010 |
Type |
Defined contribution |
Members |
12,500,000 active |
Assets |
€26,8000m |
Performance |
Nest 2040 Retirement Fund (default fund) -3.3 1-year to year end 31 March 2023; 6.2% 1-year to 30 June 2023 / Nest Ethical Fund 3.2% 1-year to 30 June 2023 / Nest Higher Risk Fund 5.7% 1-year to 30 June 2023 / Nest Sharia Fund 14.8% to 1-year 30 June 2023 / Nest Lower Growth Fund 0.5% 1-year to 30 June 2023 |
As at 31 December 2022 |
● Nest provides a high quality, low-cost defined contribution (DC) workplace pension scheme to over 12 million UK workers via one million employers. The fund currently invests over €26.8bn on members’ behalf, with this figure expected to grow at a rate of £450m (€517m) per month.
● Nest has become the UK’s first DC master trust to make a substantial commitment to private equity, investing approximately £459m into the asset class with plans to invest an additional £1.4bn across global small- and mid-cap private equity. The mandates provide capital to unlisted companies that are seeking investment to grow their operations. In return, Nest can benefit from the additional profitable revenue these businesses can generate over the long term. Investing in private markets also enables the pension fund to take a long-term view on investments, achieve considerable diversification benefits, and help drive an improvement in environmental, social and governance standards within the private equity world.
● Nest’s strong positive cash flows allows the pension fund to manage illiquidity and other operational risks associated with private markets, which can act as a barrier to other DC schemes. It has also developed an internal market for trading illiquid investments.
● More broadly, Nest seeks to change the traditional structure of financial services that is generally designed for a wealthy minority and ensure all UK savers have access to high quality investments. To achieve this, the pension fund offers no employer charges and the same low charge for every member. Member charges consist of a 0.3% annual management charge along with a 1.8% contribution charge.
● The pension fund’s unique strategy has led to strong annualised returns over three years, five years and since inception, that are among the strongest in the UK pensions industry. When adjusted for volatility, Nest’s annualised returns over three and five years (6.7% and 5.7% respectively) are market-leading, which demonstrates that the fund takes less risk to achieve similar or better returns than its peers.
STRATEGIC TAKEAWAYS
➤ Innovative approach to private equity investing using cash flow position to access illiquid assets |
➤ Highly structured low-cost scheme for employers and members to ensure they have access to high quality investments |
➤ Long-term high returning strategy over three and five years since inception |
HIGHLY COMMENDED
Country |
Netherlands |
Assets |
€521,000m |
Performance |
-10% (1yr) |
APG has committed to promoting sustainability and achieving long-term returns for members. Therefore, the fund engages with investee companies for ESG improvements and provides annual reports on engagement and voting activities for improved transparency. It is also among biggest investors in alternatives globally, amounting to approximately 26% of APG’s €625bn investment portfolio.
Country |
Denmark |
Assets |
€29,200m |
Performance) |
–6.5% (1yr) |
Industriens Pension's strategy anticipated the risk of rising interest rates and inflation early on, hedging these risks through a derivative strategy. It also increased exposure to the private debt market. This significantly limited investment losses amid market volatility in 2022 and resulted in the highest long-term return in the Danish pension industry for members in all age groups.
Country |
United Kingdom |
Assets |
€38,028m |
Performance |
-1.9% (1yr) (growth assets) |
The portfolio of the Pension Protection Fund is split into ‘growth’ and ‘matching’ sections. Within its matching portfolio, the fund’s liability-driven investment strategy is unique in the pensions industry as it is recalibrated weekly and has low leverage. This meant the PPF was in a strong position during the UK’s bond market crisis in September and October 2022 and even improved its funding ratio.
RISING STAR
Country |
Ireland |
Assets |
€1,930.8m |
The The Irish Life EMPOWER Master Trust provides scheme sponsors with a contemporary and flexible solution, backed by the governance of an independent trust-based arrangement. Its scale enabled it to create a simplified and automated transition process that allowed members to retain their existing pension scheme records, funds, scheme history and documents and their existing online and pension app access. By the end of 2023, it expects to have transitioned over 1,900 schemes, some of which have over 9,000 participants, 100,000 members and have over €5bn in assets under management.
Judged by
Adrian Cooper
Théodore Economou
Gerald Moritz
Sergio Miguez
Sponsored by
