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Infrastructure becomes key building block in Nest’s portfolio

Published: 19 April 2021

  • Pension scheme announces new partnerships with CBRE Caledon and GLIL Infrastructure
  • Nearly £3bn expected to be invested by the end of the decade, infrastructure to make up 5% of Nest’s portfolio
  • Nest: “We believe direct infrastructure equity investments can offer diversification benefits and a return premium to public market equities, at lower levels of risk”

The auto enrollment pension scheme Nest has appointed CBRE Caledon Capital Management Inc. (CBRE Caledon), the private infrastructure investment arm of CBRE Global Investors, and GLIL Infrastructure to help invest nearly £3bn into infrastructure equity by the end of the decade, here in the UK and around the world.

CBRE Caledon’s mandate is to help Nest invest directly in global core and core-plus infrastructure projects. They will provide Nest access to an infrastructure fund sponsored by the firm, with the opportunity to also co-invest in select investments to help Nest members take advantage of bigger projects. 

GLIL Infrastructure is a unique organisation, representing a joint venture between a number of major local authority pension plans. Nest will invest in the fund along with GLIL’s members, with its open-ended fund giving access to new opportunities in UK core infrastructure. GLIL’s investments to date include equity stakes in Anglian Water, Clyde Windfarm, Forth Ports, a rolling stock fleet of 65 intercity trains on the East Coast Mainline, and investments in biomass and anaerobic digestion energy generation.

Along with Nest’s recent announcement of Octopus Renewables, this is the first time a UK defined contribution pension scheme has been able to significantly invest directly into infrastructure. It represents a major step in the sophistication of Nest’s investment strategy, bringing infrastructure to at least 5% of its total portfolio.
Types of infrastructure Nest could be investing in include fibre networks, social housing, water and waste treatment plants, and seaports. Nest's estimated initial commitment to these mandates will be £650m, with significant further commitments in subsequent years.

Stephen O’Neill, Nest’s Head of Private Markets, believes both fund managers have offered innovative solutions for Nest, meaning they came out top during the procurement process:
“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. 

“We believe direct infrastructure equity investments can offer diversification benefits and a return premium over equivalent public markets, at lower levels of risk.

“I’m therefore excited to announce these new partnerships. After a very competitive procurement, we’ve emerged with excellent fund managers that can deliver exactly what we were aiming for.

“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.
“We’re delighted our members can benefit from investments that have previously been out of reach for auto enrolled savers.”

Commenting on the announcement John Frazer, Nest member, 53, said:
“It’s great news to see Nest investing our money in things that matter to us all. 

“The current global Covid pandemic has made lots of people think carefully about what matters, what they really want for the future and realise how hugely reliant we all are on our infrastructure; whether that’s renewable power supplies, broadband, roads, schools or hospitals. 

“Nest is showing it understands what matters to its members and is clearly focused on giving us access to the best financial opportunities for their pensions, to give people like me a better retirement, instead of the best investments just being available to the wealthy few.”

CBRE Caledon and GLIL Infrastructure will make investments directly as owners of infrastructure projects, negotiating bespoke deals and managing the construction and operation of assets so Nest members are suitably rewarded for injecting new funding. Nest expects to have long-term relationships with both firms, drawing on their expertise to help find lucrative investments that will produce steady, strong returns for years to come.

Andreas Köttering, Portfolio Manager and Head of Infrastructure Europe at CBRE Caledon, commented:
“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.

“We look forward to building Nest a portfolio that will provide stable risk-adjusted returns across varied market conditions for their investors while helping to shape a green economy.”

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.”