Defined contribution pension schemes must approach infrastructure investment with their “eyes open”, Nest chief investment officer, Mark Fawcett has said.

Speaking at the Pensions and Lifetime Savings Association (PLSA) Investment Conference yesterday, 7 March, Fawcett declared that investment into long-term illiquid assets was “absolutely” something DC funds should be looking at, but highlighted some of the challenges in doing so.

Last month, the government published some of the details behind its plans to harness £60bn of DC scheme investment into illiquid assets. As part of the initiative, Nest is working with a number of DC funds along with the British Business Bank to explore options for pooled capital into patient capital.

“Infrastructure is absolutely something we should be investing in. Our youngest member is 16-years-old and probably have a lot of illiquid appetite. There are a lot of potential challenges, but this is the sort of thing we should be investing in rather than worrying about the ticks of shares on a daily basis,” Fawcett said.

“If you look at the big Canadian and Australian pension plans they have very significant infrastructure investments and thats worked very well to their advantage, but you have to go in with your eyes open.”

According to Fawcett, challenges include the potential of overpaying on assets, as well as political and sustainable hurdles that may have to be overcome.

“In the short-term you run the risk of overpaying, because there is so much money chasing these assets … What we are hearing from managers that if you have smaller tickets sizes you can fin some niche areas that are just too small for some managers,” he said.

Nest will be taking £4-5bn a year and Fawcett added that infrastructure investment is a “good way to put that money to work”.

The government backed pension scheme said it is in the process of appointing a number of private credit managers.

The Department for Work and Pensions is currently consulting how to open DC investment into illiquid assets, including smaller and medium-sized unlisted firms, housing, green-energy projects and infrastructure.

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