NEST has selected GLIL and CBRE Caledon as investment managers, as the UK pension fund plans to invest £3bn (€3.47bn) in infrastructure over the coming decade.
The fast-growing defined contribution (DC) pension scheme will invest in UK infrastructure through GLIL, an open-ended fund that already has a number of local-authority pension funds as investors.
CBRE Caledon will provide NEST with global infrastructure exposure through an existing fund and co-investment opportunities.
The appointments come a month after NEST announced it had hired Octopus Renewables to invest £1.4bn in renewable energy over the next 10 years.
NEST, which has become the largest workplace pension scheme in the UK, plans to invest up to £800m in unlisted infrastructure equity this year and expects the asset class to eventually make up 5% of its portfolio.
“NEST’s investment strategy is evolving at pace in line with the growth in our assets under management, opening up new assets classes in the pursuit of the best risk-adjusted returns for our members,” said head of private markets Stephen O’Neill.
“We believe direct infrastructure equity investments can offer diversification benefits and a return premium to public market equities, at lower levels of risk.”
GLIL, which owns stakes in Anglian Water, Clyde Windfarm and Forth Ports, was established by Greater Manchester Pension Fund and the London Pensions Fund Authority in 2015, and recently raised a further £500m from a number of local government pension schemes (LPGS).
CBRE Caledon manages $8.5bn of infrastructure and private equity investments and last week announced it was acquiring US fibre network operator WANRack.
NEST said it expects to maintain “long-term relationships” with GLIL and CBRE Caledon.
“After a very competitive procurement, we’ve emerged with excellent fund managers that can deliver exactly what we were aiming for,” said O’Neill.
“CBRE Caledon has demonstrated they have a sophisticated investment strategy, strongly underpinned with their shared commitment to managing ESG risks.
“GLIL is a unique entity, showing the benefits that can be had when pooling resources and seeking innovative ways to help pension schemes fully utilise the benefits of being long-term investors.”
Andreas Köttering, portfolio manager and head of infrastructure Europe at CBRE Caledon, said: “We are delighted that NEST chose us as one of their first global infrastructure partners. With our global reach and perspective, we are well-positioned to construct a well-diversified, resilient and sustainable global portfolio that is aligned with Nest’s commitment to ESG.
“There is a growing universe of attractive opportunities that benefit from long-term contracts, low elasticity of demand, and resilience to economic downturns. We expect to invest a significant proportion of NEST’s portfolio in a variety of sustainable infrastructure projects, including digital infrastructure, energy, transportation and utilities.”
Ted Frith, COO at GLIL Infrastructure, said: “Infrastructure investment is absolutely critical to supporting the UK’s recovery and building a sustainable economy for the future, and pension funds like NEST can play a fundamental role in helping to fund those projects.
“This initial capital commitment has expanded our fund to £2.5bn. The increase in financial firepower enables us to target new opportunities, potentially expand our holdings in current investments, and scale up our investment ambition – all to the benefit of our investors and the pension members they serve across the country.
“GLIL investors share NEST’s long-term investment horizon and sustainable investment objectives, and look forward to building an enduring relationship with the team to bring the benefits of infrastructure investment to millions of workplace pension holders.”
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