The National Employment Savings Trust is in talks to sign up to the Pension Infrastructure Platform, becoming the first UK defined contribution scheme to invest directly in the asset class.
In an exclusive interview with portfolio institutional, NEST chief investment officer Mark Fawcett (pictured) said the organisation was “very interested” in signing up to the platform as part of an ongoing drive into more illiquid asset classes.
The move would see the national pension scheme, launched in August 2011, join some of the UK’s largest defined benefit funds as signatories, and would be an unprecedented step for a British DC scheme.
“I think we will probably be the first ever DC scheme in the UK to invest in direct infrastructure,” said Fawcett. “[DC schemes] will invest in global listed infrastructure and that sort of thing, but no one, as far as I am aware, has ever invested directly.”
The PIP is being set up by the National Association of Pension Funds (NAPF) and the Pension Protection Fund (PPF) in a bid to encourage schemes to invest in national infrastructure projects.
The NAPF announced earlier this week that 10 of the UK’s largest pension schemes have so far signed up to the platform, each making a “soft commitment” of £100m and so providing a minimum of £1bn in seed capital ahead of the planned launch in the first half of this year.
The talks between NEST and the NAPF, which are understood to be at an advanced stage, are focussed on how the structure of the platform could work for a DC scheme. One option under consideration is allowing the scheme to provide funding on an ongoing basis rather than through a large initial outlay.
“All the seed investors are DB or DB-like schemes, so it is a question of whether we can operationally make it work for a DC scheme where our cash flows are small but constant, rather than a big lump sum,” said Fawcett.
He added the platform was of particular interest because it had been set up with pension funds’ needs in mind, but did not rule out speaking with other providers.
“We will work with them and potentially any other infrastructure manager. If another infrastructure manager can come up with that sort of structure, then we need to have a conversation with them.”
Fawcett said NESTS structure of constantly maturing target date funds created an “internal market”, allowing it to simply pass on illiquid assets from one set of funds to another and effectively avoiding the need to sell.
“Our aim is never to go into a market when we can do it internally, because that way there would be no transaction costs,” he added.
“It means with things like infrastructure, which are hard and expensive to sell, we shouldn’t need to sell. If a fund is disinvesting, there will be another fund to buy them.”
You can read the full interview with Mark Fawcett in the February issue of portfolio institutional, available from Wednesday 27 February.
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