UK government’s NEST seeks private credit exposure

The UK’s government-backed personal pension scheme, NEST, wants to speak to fund managers to explore options for private credit investment.

NEST is a defined contribution (DC) scheme set up by the UK government to provide pension services to small employers who may not be able to access other commercial schemes. It said it wants to challenge the convention that private credit is unsuitable for defined contribution schemes.

Mark Fawcett, chief investment officer at NEST, said: “We see long term potential in private markets and alternative asset classes. We’ve recently added commodities and are now looking to add private credit to our toolbox. We don’t buy the argument that private credit is out of reach for DC schemes.”

NEST said that its own research and analysis has established that private credit could be an option for DC savers with some innovation from the industry.

While closed-ended funds may not be suitable, the scheme wants to speak to managers that offer scalable, evergreen funds focused on unlisted debt across infrastructure, corporates and real estate. NEST said in future it will have enough assets under management to explore both direct and co-investment opportunities in private credit and wants to speak to managers that can support its ambitions.

The pension fund is looking at diversifying risk for its members and believes public market equities and bonds in the developed world are “fairly fully valued” with rising volatility.

Fawcett said fund managers will also need to look to develop more solutions for DC schemes as the pension market changes following the demise of more defined benefit schemes which have traditionally supported private markets funds.

“DC pension savings are soon going to dominate the market and fund managers are beginning to recognise this. They’ll need to think creatively about what this new generation of savers requires and be willing to negotiate seriously on fees,” he explained.

“We’re looking to work with innovative fund managers who see the future potential in this market and want constructive, long term relationships with their clients based on pension savers’ best interests.”

Fund managers interested in responding can download NEST’s invitation to tender here.