Octopus Renewables has been hired to help invest £250m (€291m) of UK defined-contribution (DC) pension capital in clean-energy infrastructure this year.
Nest, which manages the pensions of nearly a third of the UK workforce, has entered into a partnership with Octopus, as it seeks to deploy £1.4bn into European renewables by the end of the decade.
Nest, which manages £16bn of assets from the UK’s auto-enrolment scheme, has been steadily building up its exposure to real assets.
The partnership – to which Nest is expected to commit £250m this year – will seek to generate “secure stable, long-term returns for its pension savers” while helping achieve its ambition of becoming a net-zero carbon investor.
Octopus Renewables said it would arrange investments directly with owners of renewable infrastructure projects, “negotiating bespoke deals”.
Nest CIO Mark Fawcett said: “We want to invest in the energy of the future, not the past. The money we manage on behalf of our members needs to provide steady returns for the next 10, 20, 30 years.
“Renewable energy projects are fantastic opportunities. Every new site provides greater energy security, increases potential returns and contributes to tackling the climate emergency. We want to deliver bigger pensions for our members, in a better world.
“All minds are focused on how to help build back better from the pandemic and this move means millions of UK pension savers will be playing their part.
“Investing in British green energy means our members will be investing in projects they can see and touch, a tangible connection to their pension and a way out of the climate crisis. The strong foundations of this kind of investment should help them achieve great returns for their future while directly investing in the future of the planet.”
Octopus Renewables said it was the largest investor of utility-scale solar power in Europe and leading UK investor in onshore wind and biomass, managing a global portfolio valued at more than £3bn.
“Octopus stood out amongst a very strong field of candidates,” said Stephen O’Neill, Nest’s head of private markets.
“They’re one of the largest developers of renewable energy assets in Europe, and carefully manage their energy price risk.
“We’ll also have full access to their diversified portfolio, across technologies and geography. This gives us confidence that our investment will provide strong returns for our members.”
Nest is unusual among UK DC pension schemes in making substantial inroads into illiquid private markets, including real estate and infrastructure. In 2013, it began investing in unlisted and listed real estate with Legal & General, and has since then has begun to build up its exposure to infrastructure and real estate debt.
In 2018, Fawcett told an EDHECinfra conference that the infrastructure investment industry needed to “completely recalibrate” some of its thinking to “access DC investors in the UK”.
Speaking about the new partnership with Octopus, O’Neill said: “Private markets are no longer exclusively for defined-benefit pension schemes.
“They will play an important role in our portfolio and help buoy our performance when public markets, particularly equities, are struggling.
“We are supportive of government initiatives that will help smooth the way for schemes to access the long-term return potential in private markets at the right price for auto-enrolled members.
“We hope to be among the first of many DC pension schemes to offer members the diversification and return benefits available beyond equity and bond markets.”
Alex Brierley, co-head of Octopus Renewables, said: “With predictable income, diversification and sustainable investment all at the forefront of institutional investors’ minds, renewable energy is an incredibly attractive asset class, for which demand is growing at pace.
“This partnership will create a strong platform for Nest, covering a diverse range of technologies, geographies and assets across their lifecycle, whether that be at development, construction or operational stages. The fund will also allocate capital to growth opportunities in the wider energy transition.”
Chris Hulatt, co-founder of Octopus Group, said: “As gatekeepers to trillions of dollars, institutions, including pension funds and their members, have a critical role to play in fighting climate change.
“There is a real opportunity here to help deliver the energy transition, meet net-zero targets and shape the green economy – creating a meaningful impact that Nest’s members can be proud of.”