Infrastructure becomes key building block in Nest’s portfolio
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 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 to public market equities, 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.”
Notes to editors
Nest announced the launch of the procurement last year saying infrastructure projects can offer stable, long-term returns even in difficult market conditions. CBRE Caledon and GLIL Infrastructure are the final appointments of that procurement, following the recent announcement that Octopus Renewables will help Nest invest directly into green infrastructure projects.
Nest estimates that within a few years infrastructure equity projects will represent at least 5 per cent of the total portfolio. This is expected to take Nest’s investment in private markets up to around 15 per cent, which would be an estimated £13bn in Nest’s portfolio by 2030.
This year Nest is looking to invest up to £800m into unlisted infrastructure equity, including investments made through Octopus Renewables, dependent on the fund managers sourcing the right deals.
Nest was set up by the government to ensure every UK employer could offer a workplace pension to their employees. Since then, it’s grown to become the largest workplace pension scheme in the country with more than 9.8 million members. One in three of the working population is expected to have a Nest retirement pot by the late 2020s.
As a not-for-profit pension scheme, Nest doesn’t answer to shareholders. It’s set up to serve its customers’ interests and aims to help millions of people enjoy a better retirement. Nest’s members benefit from an award-winning investment strategy and one of the most diversified DC portfolios in the industry. By the end of the next decade Nest is expected to have around £100bn assets under management.
About CBRE Caledon
CBRE Caledon Capital Management Inc. is a leading infrastructure and private equity solutions provider. We create long-term value for clients by accessing and managing high-quality investment opportunities and building comprehensive infrastructure and private equity portfolios. Today, our dedicated team of 55 professionals represents over $8.5 billion of assets under management* on behalf of institutional investors globally. CBRE Caledon is a separate business unit within CBRE Global Investors. For more information about CBRE Caledon, please visit www.cbrecaledon.com.
CBRE Global Investors is a global real assets investment management firm with $122.7 billion in assets under management* as of December 31, 2020. The firm sponsors investment programs across the risk/return spectrum for investors worldwide and is an independently operated affiliate of CBRE Group, Inc. (NYSE:CBRE). It harnesses the research, investment sourcing and other resources of the world’s largest commercial real estate services and investment firm (based on 2020 revenue) for the benefit of its investors. CBRE Group, Inc. has more than 100,000 employees serving clients in more than 100 countries. For more information about CBRE Global Investors, please visit www.cbreglobalinvestors.com
*Assets under management (AUM) refers to the fair market value of real assets-related investments with respect to which CBRE Caledon and CBRE Global Investors provide, on a global basis, oversight, investment management services and other advice and which generally consist of investments in real assets; equity in funds and joint ventures; securities portfolios; operating companies and real assets-related loans. This AUM is intended principally to reflect the extent of CBRE Caledon and CBRE Global Investors’ presence in the global real assets market, and its calculation of AUM may differ from the calculations of other asset managers.
About GLIL Infrastructure
GLIL is an Alternative Investment Fund with around £2.5bn of committed capital. The fund was established in April 2015 by Greater Manchester Pension Fund and the London Pensions Fund Authority. It was relaunched in 2018 as an Alternative Investment Fund to invest in infrastructure projects and is now supported by a number of UK Local Government Pension Funds, including Greater Manchester, Merseyside and West Yorkshire Pension Funds, which are known collectively as Northern LGPS, and Lancashire County Pension Fund, Royal County of Berkshire Pension Fund and the London Pensions Fund Authority, which form Local Pensions Partnership.