Nest favours institutional-first managers as retail exodus pressures private credit

Private credit managers that prioritise institutional clients will be more favourably viewed by Nest, the UK’s largest workplace pension fund, in its manager selection process.

The £61 billion ($82 billion) fund awarded a £450 million ($605 million) US direct lending mandate to Crescent Capital this month, through an evergreen structure that will see the capital deployed over multiple years, citing the manager’s institutional-client-first approach as a key attraction.

The move comes as several prominent private credit managers, including Blue Owl and Apollo, have gated their funds since February pressured by individual investors’ redemption requests.

Nest director of public and private markets, Rachel Farrell, says Crescent Capital, the latest to join its private credit manager roster, has a “de minimis exposure” to the retail market which was one of the things Nest liked about the manager.

“We recognised that the approach to the retail market could potentially be different than the approach to the institutional market, and we wanted a manager very focused on the institutional market,” Farrell tells Top1000funds.com in an interview.

“Asset-liability mismatch has been an issue in the market for as long as, you know, you’ve had asset liability mismatches.

“So that’s really an asset liability mismatch in terms of how well the investors understood the liquidity of the investment in the retail market. I think perhaps that was somewhat problematic in terms of how it [retail private credit product] was sold – that doesn’t reflect on necessarily the underlying investment itself.”

The volatility in private credit may lead to “marginally better pricing”, though Farrell says the fund didn’t allocate to the new mandate with that expectation.

“Crescent has looked at some of the credit that potentially was looking to come to market to facilitate some of this liquidity, but to my knowledge, they haven’t actually transacted,” she says.

“We expect to invest over multiple years, to have diversification in actually each deal, but also each year, each period we do… so that could present some opportunities, but we’ll see.”

Nest’s private credit portfolio currently represents 3 per cent of the £61 billion assets under management. It doesn’t have a target allocation for the asset class but will grow with the overall private markets exposure, Farrell says, which stands at 19 per cent of the total portfolio.  Nest wants to boost it to 30 per cent by 2030, and acquired a 10 per cent stake in the Australian super fund-owned infrastructure manager IFM Investors last year to facilitate that ambition.

Nest first invested in private credit in 2019 and Crescent is the fourth manager in its asset class roster, joining Amundi, BlackRock and BNP Paribas Asset Management. Farrell says Nest’s current exposures weigh heavily towards asset-backed lending such as real estate and infrastructure debt, as well as being Europe and UK-centric, but that it has a “minimal” presence in the deepest and largest corporate lending segment.

“We like the middle market segment because it tends to have better underwriting, better contracts and more direct relationships with the borrower, which we believe is very important to understand who you are lending to,” she says.

“You also tend to be the sole lender, the senior lender, or within a very small club of lenders, which allows you to have much more control ultimately on tracking the performance of the company and getting the right oversight for that credit.

“We went through a very rigorous search process to find the right manager for this. It’s a very important allocation for us. Crescent, we felt had extremely good underwriting skills… [and] invests very carefully, which is very important in the middle market segment.”

Being the UK’s largest defined contribution scheme means Nest has the advantage of stable cash inflows – the fund received £8 billion total annual contribution in the year to March 31, 2025.

The evergreen structure of the mandate is attractive to Nest as it allows the private credit mandate to grow with the fund, Farrell says. She adds that “it takes a good five years to properly evaluate a manager and what they’ve accomplished”, and the fund will conduct periodic assessments before deciding whether it wants to commit more capital beyond the original mandate.

“We monitor that on a quarter-by-quarter basis, but you want to give managers time to build up a portfolio,” she says.

“You look at the one-year mark, you look at the three-year mark, you look at the five-year mark, and you just keep getting more and more information.”