Britain’s largest workplace pension scheme, Nest, is moving its entire £3.5 billion ($4.6 billion) emerging-markets equity portfolio to US asset manager Wellington Management, ending more than a decade of passive investing as it seeks greater influence over companies and stronger control of sustainability risks.
The decision marks a notable shift for one of Britain’s largest institutional investors at a time when pension funds and other long-term asset owners are reassessing the balance between low-cost index investing and active management.
Nest, which manages £68 billion for more than 14 million workers automatically enrolled into its pension plans, had invested its emerging-markets allocation passively since 2014. The approach allowed the scheme to gain broad exposure at relatively low cost, but it also left Nest holding small positions in a very large number of companies.
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That became a growing concern as Nest placed greater emphasis on shareholder engagement over issues including climate change, diversity, workers’ rights and corporate governance.
Nest moved from a conventional passive mandate with Northern Trust to the manager’s Climate Aware Emerging Markets Equity Strategy in 2021. But the portfolio still contained more than 1,000 stocks, making it difficult for the pension scheme to exert meaningful influence over individual companies.
The new Wellington mandate will concentrate the portfolio in roughly 100 to 150 stocks.
Rachel Farrell, Nest’s director of public and private markets, said the change would allow the pension scheme to devote more resources to understanding individual companies and using its position as a shareholder.
“A pure passive approach… just wasn’t engaged enough,” Farrell said. “We weren’t really spending time understanding each of the stocks that we would own in our members’ portfolios.”
“To influence as a shareholder, you need to be an important owner of that particular company,” she added.
The shift reveals a tension at the heart of passive investing for large institutional investors. Index strategies offer diversification, transparency, and low fees, but investors have limited flexibility to allocate more capital to companies where they believe engagement can produce meaningful change.
The issue is particularly relevant for Nest because emerging markets contain thousands of companies with widely varying standards of corporate governance, environmental practices and labor policies. A concentrated portfolio gives an active manager greater scope to select companies and engage directly with their management teams.
Nest’s decision followed an internal review that began in 2024. Farrell said the previous passive strategy had met its return objectives, suggesting the move was not prompted by a failure to generate investment returns. Instead, Nest is betting that active management can add value in a market where company information, governance standards and investor coverage vary substantially.
The Wellington portfolio will be benchmarked against the MSCI Emerging Markets index, with the US manager targeting an additional 100 basis points of annual outperformance.
“Emerging Markets is one of the markets that is somewhat less efficient,” Farrell said. “There is evidence that an active manager can add value.”
The mandate represents a significant win for Wellington, which manages about $1.3 trillion in assets globally, including $44 billion in emerging-market equities. It also comes as emerging-market equities have delivered a strong performance this year. The MSCI Emerging Markets index is up 22% year to date, compared with a 9% gain for the developed-market MSCI World index.
The recent performance has helped revive investor interest in emerging markets after years of weak flows. Asset manager Ashmore said in a February report that demand increased during the second half of 2025 following large outflows from emerging markets since 2021. It estimated total emerging-market equity assets at about $1.4 trillion.
Nest has about 5.2% of its assets allocated to emerging-market equities, with most of its public-equity exposure invested through a systematic developed-markets strategy.
The move also places Nest within a broader institutional shift toward more active approaches to emerging markets. People’s Pension, another major UK workplace pension provider, last year moved its index-tracking emerging-market equity allocation into a more active, quantitatively driven strategy.
The decisions suggest that some pension investors are becoming less willing to treat emerging-market equities simply as a low-cost basket of securities. Instead, they are looking at active ownership, corporate governance and company-specific risks as part of the investment process.
There is also a scale argument behind Nest’s decision. The pension scheme receives about £700 million in contributions each month and expects its assets to approach £100 billion by 2030. Its membership currently covers roughly a third of Britain’s working population and is expected to reach half by the end of the decade.
As the pool of retirement savings grows, even relatively small improvements in investment performance can have a material effect on members’ eventual pension outcomes. But active management also introduces higher costs and the risk that a manager fails to deliver its targeted excess return.
Nest did not disclose the cost of transferring the mandate or the fees Wellington will charge.
Therefore, the new arrangement places the focus on whether Wellington can justify the additional complexity of active management through sustained performance and meaningful shareholder engagement.
The move represents a broader evolution in how it manages members’ money for Nest. After more than a decade of using passive strategies to obtain inexpensive exposure to emerging markets, the pension scheme is now concentrating its holdings and giving its external manager greater discretion to identify companies where active ownership can potentially influence long-term value.
The decision does not amount to a rejection of passive investing across Nest’s portfolio. Rather, it shows how a large pension fund is applying different investment approaches to different markets as its assets grow and its responsibilities as a long-term shareholder become more significant.