Nest Moves £3.5 Billion Emerging Markets Portfolio to Active Management

Nest, the UK's largest workplace pension scheme, has moved its entire £3.5 billion emerging markets equity portfolio to Wellington Management, ending more than a decade of passive investing in the asset class. The £68 billion scheme, which covers more than 14 million workers, said the shift is intended to give it greater control over sustainability risks and company engagement by reducing its emerging markets portfolio from more than 1,000 holdings to around 100 to 150 stocks.

 

Why Nest Is Moving Away From a Broad Passive Portfolio

 

Nest first awarded an emerging markets passive mandate to Northern Trust in 2014 and later moved to the manager's Climate Aware Emerging Markets Equity Strategy in 2021. While that approach allowed the pension scheme to spread its exposure across a large number of companies, Nest said the breadth of the portfolio made it harder to spend meaningful time understanding individual holdings and engaging with management.

Rachel Farrell, Nest's Director of Public and Private Markets, said the scheme wanted to become a more influential shareholder. With a smaller number of holdings, Nest expects to have a larger position in each company, which could give it more weight when engaging on issues such as climate change, workers' rights, diversity and governance.

 

The Sustainability Case Is Being Linked to Investment Returns

 

The move does not mean Nest believes its previous passive strategy failed. Farrell said the portfolio had met its return objectives, but the scheme concluded that emerging markets may offer more room for an active manager to identify opportunities and manage company-specific risks.

Wellington will manage the new portfolio against the MSCI Emerging Markets Index and will target 100 basis points of additional performance. The mandate therefore combines two objectives: improving the scheme's ability to engage with companies while also seeking returns above the benchmark.

 

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A More Concentrated Portfolio Changes the Stewardship Model

 

The biggest change is the scale of concentration. Moving from more than 1,000 holdings to roughly 100 to 150 gives Nest and Wellington more room to assess how individual companies manage sustainability and governance risks rather than relying mainly on index construction and exclusions.

That matters because stewardship is harder to carry out when a fund owns very small positions across a large number of companies. Nest's approach is based on the view that being a more important shareholder can make engagement more practical and give the scheme a stronger reason to follow each company's strategy, governance and sustainability performance closely.

 

The £3.5 Billion Mandate Is a Major Win for Wellington

 

The mandate is significant for Wellington Management, which oversees about $1.3 trillion in assets globally, including $44 billion in emerging market equities. Nest began reviewing its emerging markets approach in 2024 before deciding to move the allocation to active management.

The decision also comes at a time when emerging markets have been performing strongly. The MSCI Emerging Markets Index was up 22 percent year to date at the time of the announcement, compared with 9 percent for the MSCI World Index, while investor demand for emerging market equities had begun to recover after several years of outflows.

 

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Nest's Scale Makes the Shift More Significant

 

Nest currently holds about 5.2 percent of its assets in emerging market equities, with most of the remainder invested through a systematic developed markets strategy. The scheme receives around £700 million in new contributions each month and expects total assets to approach £100 billion by 2030.

Around a third of the UK's working population is currently invested with Nest, a figure the scheme expects to reach half of the workforce by 2030. That scale means changes in how Nest manages sustainability and stewardship can affect a large pool of long-term retirement capital rather than a small specialist fund.

 

The New Portfolio Will Test Whether Concentration Improves Engagement

 

The move will now test whether a smaller active portfolio gives Nest the stronger company relationships it is looking for without giving up the cost and diversification advantages that made passive investing attractive in the first place. Wellington's ability to deliver the targeted 100 basis points of outperformance will also matter, particularly because Nest said the previous passive strategy had already met its return objectives.

The wider question is whether other large pension schemes reach the same conclusion about emerging markets. The People's Pension made a similar move last year, suggesting that some UK retirement investors are already reconsidering whether broad index exposure gives them enough control over stewardship and sustainability risks.