Nest has announced today at the PLSA Conference in Manchester that it has awarded another private credit mandate to a new fund manager.
Nest has appointed BNP Paribas Asset Management to begin sourcing suitable diversified global loans and anticipates deploying capital before the new year. These types of loans include:
European commercial real estate and infrastructure financing,
loans to UK SMEs, and
loans to European and US mid-market corporates.
Nest is anticipating to commit around £500 million across its private credit mandates over the next 12 months but will not force money into the market. The scheme aims to have an initial allocation of around 5-6% per cent in total assets in private credit after the initial ramp up phase in 2020.
Speaking at the PLSA Conference Mark Fawcett, Nest’s Chief Investment Officer, highlighted how this decision will benefit Nest members: “Nest’s movement into private credit is an important step in diversifying our portfolio, helping to deliver the strong risk-adjusted returns we want for our members; these mandates will allow us to earn a premium over public bonds throughout the credit cycle.
“In a very competitive tender process BNP Paribas’ expertise, commitment to ESG and innovation really stood out and caught our attention. They’ve found a way in which we can confidently allow our members to benefit from the lower volatility and enhanced returns that unlisted debt can offer.
“We hope to see more DC schemes follow in our footsteps. The opportunities private credit can offer are significant and should be available to the millions of new savers created through auto enrolment.”
Guy Davies, UK CEO of BNP Paribas Asset Management, also commented: “We are proud to have been selected by Nest and look forward to a long-term strategic partnership with them. In recent years we have made significant investments into our private debt platform, our pensions solutions business and our sustainable investment offering.
“This mandate brings together all three in the form of a market-leading innovation that will enable Nest’s individual DC members to access private markets that can offer lower volatility and enhanced returns relative to their public market equivalents. It is also testament to our commitment to private debt and real assets, as well as our ability to tailor solutions for pension plans which offer diversified exposure on a global basis.”
This announcement follows one made by Nest last month (September) when it confirmed Amundi and BlackRock would be manage global real state and infrastructure mandates debt respectively. BNP Paribas is the latest fund manager confirmed by Nest following an open tender in which nearly 40 organisations applied.
Nest will continue to consider further opportunities to invest in private credit and will make additional announcements once any contracts have been agreed.
Speaking last month Stephen O’Neill, Nest’s Head of Private Markets, believes Nest is getting into private credit at the right time: “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.
“We’re long-term investors - our youngest member is just 16 and she could be investing with us for more than 50 years. She’s the perfect person to be entering into private markets. We can be patient with her investments so she’ll benefit from the illiquidity premium you get with these types of loans.
“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. Our positive cash-flows will ensure members retain the ability to move their savings around.”
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