NEST has selected two fund managers it will use to invest in private credit, enabling its members to benefit from the private markets investments.
The government-backed auto-enrolment provider - which has eight million members - will be targeting around 5% in private credit. It said the initial 12-month commitment is for around £400m to £500m.
It said it had selected BlackRock and Amundi as its first managers in this asset class following a competitive tender process. BlackRock will be responsible for a global infrastructure debt while Amundi will have responsibility for global real estate debt.
NEST said investing in private markets would benefit members by providing a reliable source of income often at a lower level of risk than in public markets, as well as offering additional diversification benefits due to not being influenced by the same growth drivers as public markets.
Head of private markets Stephen O'Neill said: "NEST's size and future growth helps negotiate great deals with fund managers, meaning our members can grasp with both hands the opportunities presented by private credit.
"Our new fund managers are already sourcing loans in their respective markets and we expect to begin deploying capital as soon as October. We'll be careful to manage our exposure to illiquids so that while they'll play an important role in our portfolio, it won't be a dominant one."
He added: "Our positive cashflows will ensure members retain the ability to move their savings around."
The move to private credit follows a similar shift by number of other schemes, including the BT Pension Scheme and RBS Group Pension Fund.
Chief investment officer Mark Fawcett said 5% was a "reasonable target to start with" but noted NEST has scope to increase it further in future.
BlackRock interim head of UK defined contribution Alex Cave said: "DC schemes have lagged behind in their adoption of this asset class. We believe alternative assets are no longer a nice-to-have but a need-to-have in a portfolio.
"Given their low correlation to equities and bonds, coupled with the benefits of providing diversification in a portfolio, alternatives can provide further protection against key risks such as rising inflation."
BlackRock head of European infrastructure debt Jonathan Stevens said: "Infrastructure is a brilliant asset class and is essential to all we do. If it is essential it means we use it in the long term and if it's used in the long term, it generates income."
"We are excited about working with NEST and it is a fantastic opportunity," he continued.
Amundi head of private debt Thierry Valliere said there are "several benefits to investing in real estate assets" with the market offering "a wide range of opportunity".
NEST also announced that it has applied to the Financial Conduct Authority to become a regulated investment firm and has created subsidiary company Nest Invest to assist it in securing co-investment in these asset classes.
Fawcett said: "NEST is going to be responsible for £450m new contributions every month. We're becoming one of the largest players in the UK pensions market and our investment strategy is evolving to reflect that."
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