Nest, the UK pension scheme managing £43 billion of assets on behalf of a third of the UK workforce, has announced a new partnership with Legal & General (L&G) and PGGM to collectively invest up to £1 billion into building Build to Rent housing schemes across the UK.
Initially backed by £350 million of combined investment, the new partnership will build on L&G and PGGM’s existing joint venture.
With locations already lined up, all new rental schemes will be targeting net zero in operation by 2030 and will be built on brownfield sites in city centres.
Nest Chief Investment Officer Elizabeth Fernando said: “We’ve been carefully considering the UK market and where best to invest so that we can help boost our members’ pensions and support economic growth.
“We can see there’s a critical shortage of housing supply, coupled with increasing demand for high-quality rental homes. By building more properties, we can extend to our members a great investment opportunity while helping to meet this demand and bolster the rental market.
“After working with L&G for many years, we’re delighted to extend our partnership into this new area. L&G and PGGM have already been successfully investing in UK Build to Rent sites, giving us confidence that this is a tried and tested approach we’ll now be extending to Nest members.
“This is a great deal for our 13 million members and the UK. By also drawing in international investment from PGGM, we’re amplifying our impact and providing much needed residential properties across the UK.”
L&G and PGGM have been investing together in UK Build to Rent schemes through a joint venture called the Access Development Partnership (ADP).
Launched in 2016, the ADP was established to expedite the delivery of high-quality rental homes across the UK whilst aiming to drive stable returns for institutional investors.
Since then, L&G has deployed over £3 billion of capital into the Build to Rent sector, delivering more than 10,000 rental homes – forming a key part of its growing residential platform, one of the largest and most diverse in the UK.
Monday’s announcement is for the second phase of the ADP partnership, in which Nest will also now co-invest.
Legal & General CEO António Simões said: “Today’s announcement and focused growth of our residential platform marks an important milestone for L&G’s ambitions in private markets and crowding in third-party capital.
“We’re proud to have facilitated investment from domestic pension schemes as well as international private capital – underpinning the UK Government’s push to boost investment into productive assets, accelerate growth, and deliver pensions savings.
“With an inherent supply and demand imbalance, there is a big gap to fill – and thus a need to drive up the delivery of all homes, across all tenures. Institutional investment has an important role to play, and we expect investor demand in the UK’s Build to Rent sector to continue to grow.
“The launch of ADP in 2016 was the catalyst that has enabled L&G to deliver 10,000 high-quality rental homes across the UK’s city centres. We’re therefore delighted to re-capitalise with PGGM and welcome a new co-investor in Nest.
“Thanks to this commitment, we are not only accelerating delivery but also unlocking DC pensions access to the investment opportunity within the residential sector. It’s a strong step forward in putting pensions to work.”
Dirk Bootsma, senior investment manager Private Real Estate at PGGM, said: “This new partnership with renowned investors L&G and Nest fits perfectly in our PGGM strategy to realise sustainable, high-quality mid-segment rental homes in the UK.
“This investment not only generates stable financial returns for our client PFZW, the Dutch pension scheme for healthcare workers, it also contributes to relieve a stressed housing market which poses a huge challenge to key workers.
“For PFZW, investments in sustainable real estate contribute to reaching its climate impact goal to reduce the equivalent of 15 Mega ton CO2 by 2030 through measurable impact investments.’’
The UK government has previously called on the UK defined contribution pension industry to consider boosting investment in UK assets to aid UK economic growth.
Emma Reynolds, UK Minister for Pensions, said: “Today’s announcement highlights the opportunities for our pensions sector to contribute to our communities and grow the economy.
“I am delighted that Nest is harnessing the financial power of pensions to deliver more of the homes this government has pledged to build, which also serves as an excellent investment opportunity for future pensioners in their scheme.
“The Government’s landmark pensions review seeks to unlock billions of pounds of investment in the UK economy and drive pension capital into long term growth assets to make every part of Britain better off.”