NEST moves towards segregated UK real estate mandate as scale grows

NEST is preparing to move towards a segregated domestic real estate mandate as the UK workplace pensions provider seeks greater oversight of underlying assets and opportunities to finance new development. Liz Fernando, chief investment officer at NEST, said the £68bn (€81.6bn) pension fund has selected a preferred investment partner and is working on mandate guidelines. "We're now of a scale where, and we have the team where, we can have more influence and control over what's going on in that portfolio," she said.

The mandate is expected to have objectives similar to NEST's existing pooled UK real estate fund, managed by Legal & General, with a core strategy and the ability to undertake some development. The segregated structure would give NEST greater visibility of individual investments and more control over the sectors it invests in, while the external manager retains responsibility for final investment decisions. The move is part of NEST's wider private markets programme, which now spans real estate, private credit, infrastructure, renewables and private equity. About 19% of the portfolio is in private markets, with UK real estate the largest allocation. Fernando said the priority is to keep deploying capital in a disciplined manner as assets under management grow.

The shift comes amid growing pressure on pension schemes to increase UK investment under the Mansion House Accord. Fernando said domestic opportunities must still compete with international assets on their financial merits. She noted that NEST's members want their savings to support UK infrastructure and productive assets, but also expect good returns. "If you had two exactly identical assets with exactly the same expected return and risk characteristics, one's in the UK, one's internationally, we would choose the UK," she said. "But it's still that competition for capital." NEST uses a total portfolio approach, and UK assets receive no preferential treatment simply because they are domestic.

NEST's productive investment focus is already visible in its build-to-rent joint venture with Legal & General and Dutch pension fund PGGM, which targets up to £1bn in UK rental housing development. Recent venture acquisitions include a six-acre brownfield NHS site in South London for a £350m, 700-home scheme, and a site in Manchester's New Jackson neighbourhood for a 51-storey, 494-home tower being developed with Renaker. Fernando described the partnership as a clear example of productive investment because it adds housing that did not previously exist. NEST's infrastructure and renewables portfolio, managed in part through IFM Investors, also includes new greenfield construction.