Nest fund manager’s mandate at risk over responsible investment policy concerns

Nest, the UK’s largest workplace pensions provider with over £55bn under management, is reviewing the mandate of one of its pooled fund managers.

The review, which focuses on the manager’s responsible investment policy, has thus far yielded unsatisfactory progress. Consequently, the pension scheme’s executive investment committee has recommended exploring options to hire an alternative manager.

The disclosures, made through Nest’s 2025 responsible investment report, show that concerns regarding one of its pooled fund managers had been brewing for two years.

The report, which does not name the manager, outlines that concerns were related to ‘poor communication, including slow response rates and a lack of engagement with clients on changes made to their responsible investment policy’.

Watchlist

These concerns prompted Nest to place the manager in question on a watchlist. The watchlist is part of Nest’s engagement process with managers and is used as a form of escalation.

Each quarter, Nest’s investment committee internally monitors its fund managers based on performance, mandates and ESG criteria.

“Where we have concerns, fund managers are placed on a watchlist and prioritised for engagement. The watchlist is reviewed every quarter and if concerns persist, we may ultimately decide to terminate a mandate”, the report explains.

This year, a pooled fund manager was placed on the watchlist, following which several meetings were held with the manager to outline Nest’s concerns. These meetings, the report says, yielded unsatisfactory results.

“We raised our dissatisfaction with our executive investment committee, who recommended that we explore options for procuring an alternative manager”, Nest says in its report.

Nest has also conducted a ‘limited market warming exercise’ to explore market alternatives. Findings of this exercise will now be presented to the executive investment committee for review. 

Precedent

Nest has previously disclosed details of asset manager reviews involving the watchlist whilst maintaining the fund manager’s anonymity. 

Between 2023 and 2024, Nest reviewed one of its private markets managers based on concerns over ESG due diligence. The review was triggered when the manager presented a potential investment. The manager was placed on the watchlist and engagement with the manager followed. Disclosures at the time show that Nest perceived an improvement in due diligence following this engagement.

In the year prior, Nest placed a manager on the watchlist citing complaints over the manager’s ESG reporting. A meeting between Nest and the manager’s head of ESG followed and key reporting deliverables were agreed upon. The manager was then removed from the watchlist.

The 2025 pooled manager case is therefore the first disclosure in three years that suggests unsatisfactory progress following Nest’s engagement with the fund manager.

“We’ll continue pushing for higher standards across the fund management industry”, reads Nest’s 2018 responsible investment report aptly titled ‘Building New Norms’. Seven years on, its latest watchlist update shows that Nest is not only pushing for higher standards but also backing them up with its ability and willingness to hold managers accountable.

Nest's escalation comes after other DC funds have cancelled significant mandates with external managers over alignment concerns. In May last year, the £4bn master trust Now:Pension announced that it had parted ways with third party managers, bringing the management of its portfolio in-house. In February this year, the People's Partnership moved £28bn out of State Street citing stewardship alignment concerns.