Key facts
- Nest plans to move 3.5 billion pounds ($4.6 billion) in emerging market equities to Wellington Management.
- The shift is from passive index investing to an active management strategy.
- Nest aims to better influence governance at companies through a more focused portfolio of 100-150 stocks.
- Wellington Management manages $1.3 trillion in assets, with $44 billion in emerging market equities.
- The MSCI Emerging Market index is up 22% year to date.
- Nest has about 5.2% of its assets in emerging market equities.
Britain's largest workplace pension scheme, Nest, is planning a significant shift in its investment strategy for emerging market equities, moving approximately 3.5 billion pounds ($4.6 billion) from a passive index approach to active management under Wellington Management. This move, announced on October 1, aims to enhance engagement with companies on sustainability issues and potentially achieve higher returns.
Nest, which serves over 14 million workers and manages 68 billion pounds in assets, has historically favored passive investing to minimize fees, a trend seen across the global market. However, the scheme's director of public and private markets, Rachel Farrell, stated that a purely passive approach was not sufficiently engaged. By concentrating its investments into a more focused portfolio of around 100-150 stocks, Nest hopes to gain greater influence as a shareholder in the companies it invests in, addressing concerns related to climate change, diversity, and workers' rights.
This decision represents a substantial win for Wellington Management, a US-based investor with $1.3 trillion in assets under management, including $44 billion in emerging market equities. The transition follows an internal review initiated in 2024. While the passive strategy met its return objectives, the new active strategy will be benchmarked against the MSCI Emerging Market index, with Wellington targeting an additional 100 basis points of outperformance, citing the relative inefficiency of emerging markets as an opportunity for active managers.
The MSCI Emerging Market index has shown strong performance, up 22% year-to-date, outperforming the MSCI World Index. Demand for emerging market assets has reportedly picked up in the latter half of 2025, following outflows since 2021. Nest currently allocates about 5.2% of its assets to emerging market equities. This strategic shift by Nest mirrors a similar move by The People's Pension last year, which transitioned its emerging markets equity allocation to a more active, quantitatively driven strategy.