The UK’s largest master trust is to allocate an initial £200m to a venture capital strategy overseen by Schroders Capital, it announced this week, with the aim of growing this to £1bn by 2030.
Nest, which has £68bn in assets under management, said it was seeking to formalise its existing allocations to growth equity and increase exposure to “late-stage, high-growth businesses”.
Mark Fawcett, chief executive of the master trust’s wholly owned investment subsidiary Nest Invest, said: “As Nest has grown, we have continued to evolve our investment approach, opening up new investment opportunities for our members. We are delighted to expand this approach further into venture capital, providing injections of cash that growing businesses need to scale.
“As a large, long-term investor, Nest is well positioned to support ambitious private companies. Our members save with us over decades, which allows us to invest patiently and back innovation through different stages of growth.”
The master trust also cited feedback from its members, collected through a recent “member assembly” exercise, which found that Nest savers were keen to see their pension fund investing in growing UK startups to tap into investment returns while also helping to create jobs and contribute to economic growth.
Fawcett added that Nest would seek to “build a more meaningful allocation to late-stage venture capital” over the next few years, with an emphasis on UK-based companies.
Hitting the £1bn mark would be subject to the availability of assets, Nest said, and reflects its expected growth rate as pension pots get bigger, more employers and savers join the master trust, and investments provide growth. Nest expects its wider private markets allocation to reach 30% of its overall investment portfolio by 2030.
Domestic investment in practice
Pension funds have been under pressure from the government and others over recent years to increase domestic allocations, including in private markets. This led to the Mansion House Accord, launched last year and signed by 17 pension providers including Nest.
“Commitments of this scale send an important signal to the market that there is a compelling investment case for UK innovation, and we hope it encourages other pension schemes to accelerate their own plans.”
Tim Creed, head of private equity investments at Schroders Capital, said: “The UK is already Europe’s largest venture hub, and the world’s third largest. It is one of the most efficient venture ecosystems globally, growing unicorns at pace – however, domestic capital has not historically participated at the same rate.
“As a global innovation leader, the UK has a significant and largely untapped opportunity to bring this growth to pension portfolios. By increasing pension fund and institutional participation in the UK venture market, we can unlock compelling opportunities for millions of UK savers – while supporting the next generation of scale-ups and retaining more value within the UK economy.”
The venture capital “sleeve” of Nest’s portfolio includes stakes in companies such as Wayve, an autonomous driving technology firm, and Synthesia, a specialist in AI video creation. These companies are also in Schroders’ UK Innovation long-term asset fund, which has gained investment from other master trusts and funds within the Local Government Pension Scheme.
Michael Moore, chief executive of trade body UK Private Capital, said the investment was “a significant and welcome milestone for the UK venture capital market”.
“It demonstrates growing confidence that backing innovative, high-growth businesses can deliver attractive long-term returns for pension savers while supporting the UK’s future economic growth,” Moore said.
“Commitments of this scale send an important signal to the market that there is a compelling investment case for UK innovation, and we hope it encourages other pension schemes to accelerate their own plans to invest in private capital… A thriving pensions and VC ecosystem will be essential if the UK is to unlock the full potential of our entrepreneurial economy.”
