The National Employment Savings Trust (Nest) is looking to invest a fifth of savers' funds in commercial property.
The state-sponsored organisation is looking to move into the property sector, in an effort to diversify from low-interest bonds. In a statement, Mark Fawcett, Chief Investment Officer at Nest, revealed that the firm is looking to invest in offices and retail property in both the UK and overseas. According to the Financial Times, Mr Fawcett said that commercial property has qualities linked to inflation, meaning that "it has good diversification away from equity risk qualities."
Nest has hired the investment division of Legal & General to manage the capital available. It has emerged that 70 per cent of this investment will be placed in direct property, whilst the remaining 30 per cent will be in the shares of UK and global property firms. Because Nest's managed assets are just £11 million, this initial investment will act as a toe in the water.
The commercial sector is sure to be a risky move for Nest. After Lehman Brothers collapsed in September 2008, in the height of the global financial crisis, capital values in the UK have fallen as much as 40 per cent within the market. Similar losses have also been seen in Ireland, Spain and the UK. Therefore, this move will undoubtedly be of higher risk than usual fixed income.
There are currently a series of restrictions placed on Nest's exposure to the market however. While the limits are scheduled to expire in 2017, they allow Nest to be the only provider of choice for employers whose staff earn too little to be attractive to large competitors in the industry. The National Association of Pension Funds and the Parliamentary Select Committee on work and pensions have criticised such restrictions.
Nest is estimated to control assets as much as £150 billion by 2030.