National Employment Savings Trust, London, hired Schroders Capital to invest directly in private equity, the two organizations said Tuesday at a London news briefing.
The £24 billion ($30.1 billion) defined contribution multiemployer plan is targeting an allocation of 5% and expects to have at least £1.5 billion invested by early 2025 in opportunities that Schroders Capital has already begun sourcing.
NEST CIO Mark Fawcett described the partnership as a "watershed moment" for defined contribution funds. The arrangement with Schroders "helps DC schemes see that it is possible," Mr. Fawcett said at the briefing.
"We know that DB (defined benefit) schemes are closing or freezing, so we know that source (of private equity funding) is not going to be available," In contrast, NEST takes in £400 million per month in contributions and assets continue to grow. "I don't think we will stop at 5%, but it is our initial target," Mr. Fawcett said.
The private equity investments will be folded into NEST's existing default "retirement date" funds. The focus will be on growth and midmarket companies, and will be either direct or co-investments, Mr. Fawcett said at the briefing. Nest might consider other arrangements "only where there is no extra fee," he said.
The first investment is expected in three years or less, NEST and Schroders Capital officials said at the news briefing. Schroders will source deals in North America, Asia, Europe and the U.K., focusing on health-care companies, business services, technology and consumer industries, particularly growth companies.
While more pension funds have invested in private equity in recent years, "we believe that the industry still has a long way to go," said Tim Creed, head of private equity investments for Schroders Capital, at the briefing.
NEST started the search for a private equity partner in August 2021 and had 14 fund managers respond.
One reason for choosing Schroders Capital was a commitment to responsible investing, Mr. Fawcett said. While the integration of environmental, social and governance factors into private equity "is uneven" at this point, "the advantage of private markets is that these guys have full access to information," he said.
"I think with private equity you have more power than with private credit," which NEST started investing in first. "In private equity, it's much easier to make change," Mr. Fawcett said.
"We have been on a journey into private markets. Private equity for me completes the portfolio," he said.
