Nest has announced its third private credit mandate to a new fund manager, appointing BNP Paribas Asset Management to source diversified global loans.
Nest plans to commit around £500m across its private credit mandates over the next 12 months, with the aim of an initial allocation of around 5 to 6 per cent in total assets in private credit after a ramp up phase in 2020.
The BNP mandate is expected to start deploying capital before the new year. The types of loans that will be invested in include European commercial real estate and infrastructure financing, loans to UK SMEs, and loans to European and US mid-market corporates.
BNP is creating an open-ended diversified private credit fund that will be a collaboration between BNPP AM’s Multi-Asset, Quantitative & Solutions (‘MAQS’) and Private Debt & Real Assets (‘PDRA’) investment divisions. MAQS will manage strategic asset allocation to optimise the illiquidity premium of the underlying asset classes, with the specialist PDRA teams originating private market transactions. The fund will offer active asset allocation in evergreen form, with principal repayments and interest reinvested to provide a total return for Nest’s members.
Nest CIO Mark Fawcett says: “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.”
BNP Paribas Asset Management UK CEO Guy Davies says: “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.”