UK’s Largest Pension Fund Nest to Boost Private Asset Holdings to 30%

Nest, the UK’s largest defined contribution pension scheme with assets totaling £36 billion ($45 billion), plans to increase its private assets holdings to up to 30% of its portfolio, marking a significant shift towards alternative investments within a major UK retirement scheme.

This strategic move was announced by Stephen O’Neill, head of private markets at Nest, highlighting the fund’s intention to double its current exposure to private assets from nearly 15%, focusing on private credit, infrastructure, and sustainable assets.

The decision to expand into private markets reflects Nest’s pursuit of growth opportunities, with plans to invest up to £600 million in global timberland this year alone, targeting annual returns between 6% and over 10%, depending on the location. 

This move aligns with a broader trend among UK-defined contribution pension funds, 70% of which intend to increase their illiquid asset holdings within the next three years, spurred by recent regulatory relaxations by the UK government encouraging support for start-up companies.

Despite the enthusiasm for diversifying into private assets, there are concerns within the industry about the risks associated with illiquid investments, such as higher costs and longer sale periods compared to traditional stocks and bonds. Critics warn of the potential for a market bubble due to the increased interest in unlisted equities and debt. 

However, proponents argue that private markets offer higher expected returns and a necessary diversification, especially in light of recent market volatility that underscored the value of private assets in protecting investment portfolios. 

For more information, read the full article on Reuters.