Nest to Replace State Street with Northern Trust as Its Administrator

The U.K.’s growing pension fund, the National Employment Savings Trust, has replaced its longtime administrator and custodian, Boston-based State Street, with another U.S. firm, Chicago’s Northern Trust.

The announcement, made Monday, did not specify why Nest (assets: 36 billion pounds, or US$45 billion), made the switch. State Street has handled those roles for Nest since 2010, shortly after the retirement program’s founding; the Boston firm had a 10-year contract and was re-appointed in 2020 to a five-year pact. State Street will continue until October 2025, when it hands off its responsibilities to Northern Trust, which has a 10-year contract.

“Northern Trust really impressed us in what was a competitive procurement,” said Mark Fawcett, CEO of Nest Invest, the program’s investing arm, in a statement. “We have specific requirements for asset allocation and rebalancing, and their capability to manage sophisticated strategies is particularly strong. The flexibility they can offer, to evolve the services we need around our future growth, will be crucial.”

For the past five years through the end of 2023, Nest has posted good returns. The organization’s flagship among its five funds, Nest 2040 Retirement Date Fund, logged an 8% annual growth rate over that time span. The Morningstar 60-40 index, which has an asset breakdown much like Nest’s, generated a 4.8% return for the similar period.

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Nothing in Nest’s financial strategy has changed in recent years. Fawcett relinquished the CIO post in 2023 to Liz Fernando, who had been deputy CIO. Fernando told CIO in an interview last June that she would maintain the same strategy, which features a big move into alternative investments and a devotion to renewable energy.

Nest was established in 2008 to furnish retirement income to British workers who are not covered by traditional pensions. It is a government-mandated defined contribution program that covers all such employees. All of those workers are enrolled automatically, but they may opt out if they choose.

The program has said it will reach 100 billion pounds by the decade’s end, around three times its current level. Nest is Britain’s largest pension system by membership, with 13 million members. Northern Trust administers $16.5 trillion worldwide.

Ian Hamilton, head of asset owners, U.K., at Northern Trust, said in a statement, “This mandate is testament to Northern Trust’s track record in supporting complex asset owners deliver transformative change and we are thrilled to partner with the U.K.’s largest Defined Contribution Master Trust and a leading innovator in the pension sector.”

State Street did not respond to a request for comment.