Has Nest detonated an investment big bang?

The Financial Times reports;-

Nest, one of the UK’s largest workplace pension schemes, has announced a £1.5bn private equity spending spree in the biggest move by a British retirement scheme into the asset class.

The £20bn state-backed pension fund with 10m members on Friday launched a search for managers to build its private equity holding, with a target of 5 per cent of the portfolio invested in the asset class by the end of 2024.

Nest already holds private, unlisted assets, such as a £250m stake in private infrastructure equity, as well as private credit, but the scheme is now making its first foray into traditional private equity, where capital will be used to finance innovative and growing businesses.

“We want private equity to play an important role in our portfolio, offering strong returns and diversification,”

said Stephen O’Neill, Nest’s head of private markets.

“We’re excited about the positive impact we can have on growing companies.”

John Kay wrote an interesting article published in Prospect last year

RIP PLC: the rise of the ghost corporation

it asked some important questions of the shift since 1980 from publicly quoted equities towards financing companies through private markets.

What is all this about?

Is private equity another scheme for enriching financiers and executives, or a better mechanism for governing companies?

A means of avoiding tax, or of facilitating long-term investment?

An arrangement by which managers can function in the dark, or one which enables investors to have a better understanding of the activities in which they are placing funds?

He concluded..

It can be all of these things, and often is.

While much of what Kay says in this article and elsewhere is critical of the private markets, he recognizes that they are the way for small companies to become big companies and for big companies to stay honest.

The finance sector retains two key roles in modern corporate life. One is search—the need for fresh capital for business investment. But this is now mainly relevant not for big capital projects, but for new companies that simply need to fund operating losses until they achieve profitability. The other is stewardship—supervising incumbent management’s competence and integrity, and acting when necessary to effect changes.

It strikes me that pension funds are capable of not just becoming the source of funding and stewardship, but the controllers of the finances and management of the companies in which they invest.

Nest’s £1.5bn is but a drop in the ocean, even if it eventually allocates 20% of the £80bn it estimates it will be investing over the next 20 years, Nest will not move the dial on its own. But it has the capacity to work with other workplace pensions to provide the patient capital that is need by Britain’s growing businesses and the stewardship of  larger companies.

And importantly, it can do so, without being conflicted by the need to extract profit for the financiers.

This of course assumes that Nest has the clout to forge new ways of delivering capital to the market and of delivering stewardship. Direct investment may take time and it will certainly need more than the £1.5bn announced last week, but what Nest and other workplace pension schemes have to offer, is money that can remain in the system over time. Add to these workplace pensions the DB consolidators and we may see pensions as a viable alternative for growing businesses to traditional sources for funding.

We may look at this announcement as the detonation of a small but significant change in the way financial markets operate in the UK.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to Has Nest detonated an investment big bang?

  1. Tim Simpson says:

    Hello Henry,

    I take Mr Kay’s point that if they are careful and cautious with their strategy they should prosper and, hopefully, they will. While he and his colleagues keep that maxim the company should be safe. Where other risks start is when the original Team/Directors change for various reasons and the replacements have different views.

    In my lifetime the ‘punters’ used to think that the joint stock banks were reliable as they once might have been. My first current account in 1971 [after PO Girobank] was with the ‘Westminster Bank’. I had to be recommended to the Chief Clerk of the Branch who consented but would not let me have a Bank Card for six months. Nowadays it is somewhat easier. I left them in 1985 over their charges and went to ‘Midland Bank’. Where are these Banks now?

    I needed a mortgage, there was only a branch of the Abbey National in the Walworth Road; I went there. In the days of currency restrictions housing was a ‘murky do’ for those struggling to buy and I had criticisms of AN but they and the other Building Societies did a good job for those at the bottom of the ladder. Where are they now and who collectively looks after those at the bottom. I was one of only 3000 who voted against AN demutualising because it wasn’t their money to hand out or spend on ‘investemnts’ as they did. It was no surprise to me that they crashed. As did others e.g. Bradford & Bingley, all with new blood running them.

    When you started out somewhat later, I suggest that the Pensions industry was rather different to what it is now and, possibly, despite ‘Big Bang’ and 2009 a lot of it is still there. If so, let us hope it stays that way while keeping to the safe and secure route with investments..
    Kind regards,
    Tim Simpson

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