James Turner (pictured) of the UK’s largest workplace pension scheme talks US direct lending jitters, software concerns and why now might be a good time to deploy into private debt.

“A lot of what we do in private markets is just not accessible in public markets,” says James Turner, head of credit at UK state-backed fund Nest, with now seemingly looking like a good time to deploy into US direct lending.

Nest, the £68.4bn defined contribution (DC) master trust, has been investing in alternatives for years, initially moving into both US and European private credit in 2018. The pension scheme invests across three segments of the asset class: corporate direct lending, infrastructure debt and real estate debt, with a heavier weighting towards the latter two.

Currently, Nest’s exposure to private assets sits at about 18 per cent of its net asset value, with a view for this to grow to 30 per cent. This comes as UK DC funds have been gradually pushing into private markets following the 2025 Mansion House Accord, with Nest appearing to be one of the early movers among its industry peers.

Within private credit, its exposure sits at just under four per cent, with a current ambition for this to tick up to roughly six per cent, says Turner, although this is not “set in stone”.

“We invest [in private markets] as we think the illiquidity is rewarded, and something we couldn’t do in public markets,” Turner tells Alternative Credit Investor.

“Within infrastructure and real estate debt, the types of projects we are getting exposure to don’t exist in public markets. Similarly, the nature of the companies we invest in within private credit and private equity are smaller and below the public market region. So, it gives us that diversification.”

Over the past year, the UK master trust has been moving further into private credit. In June, it committed £200m to climate-focused infrastructure debt through a partnership with IFM Investors, while in April it awarded Crescent Capital an initial £450m mandate focused on investing in US middle-market companies.

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Scrutiny and concerns

Over the past year, US direct lending has undergone heightened scrutiny over credit quality concerns and the risk of AI disruption, due in part to its high exposure to the software sector. Stress has been seen in business development companies (BDCs), which have experienced a flurry of redemptions from retail investors over the past two quarters, with these expected to continue.

Asked directly whether this is a concern for Nest, given its current allocation to US corporates, Turner said the pension fund is not currently worried about its portfolio, instead saying that now is potentially a good time to deploy.

“We have seen a slight improvement in pricing, in terms of private credit conditions, due to the fear and the media narrative around the asset class,” Turner says. “I think some people have held back from the space, with retail vehicles being under stress. We have seen a very, very slight improvement [in pricing], so it’s potentially becoming a better time to deploy.”

US managers have recently told ACI that there has been some spread widening across the core middle market in particular, as US retail redemptions from BDCs have prompted some larger lenders to pull back from bigger deals, leading some to suggest that now is a good time to deploy.

Alongside the potential changes in conditions within the US direct lending market, Turner says one of the main reasons he is less concerned about Nest’s current portfolio is that it has very little software exposure across both sides of the Atlantic.

A lot of the concern around software companies is focused on the 2020 and 2021 vintages, prior to interest rate rises, but Nest has very little exposure to these, Turner explains.

He adds that the pension fund deploys capital over multiple years, meaning its portfolio is diversified across vintages rather than concentrated in 2026. He also notes that all of its investments within the direct lending space are new loans, rather than secondaries.

“We are comfortable deploying now as managers are aware of the current circumstances and have knowledge of tariff uncertainty, interest rates getting higher and AI type risks,” he says. “All that can be factored into the decision making and underwriting.”

Valuations and liquidity

Another concern around DC funds pushing into private assets is the liquidity, valuation and fee considerations that come with it.

On liquidity, Turner explains that Nest manages this through the structure of its investment vehicles, with all of its private credit allocations held through separately managed accounts (SMAs), a structure that is becoming increasingly popular among institutional investors tapping into the asset class.

“Through SMAs we are not subject to the whims of other investors,” explains Turner. “We don’t have to worry about gates on funds, runs on funds or the funds having to hold 10 per cent in cash to maintain a liquidity buffer. We manage that all ourselves through a relationship with the manager.”

Alongside this, Nest has a young membership base and currently has 14 million members, meaning that the scheme is cashflow positive, which helps with liquidity constraints around private markets.

On valuations, Turner explains that Nest requires its assets to be valued quite frequently, looking for independent valuations.

While on fees, the factor that helps Nest is its scale, as it can negotiate and famously refuse to pay performance fees.