Bumps in pvt manager selection

HDFC Life has gone to court against rejection of its bid; speculation on some bids being too low

The bidding for private sector fund managers in the National Pension System (NPS) has become complicated. HDFC Life’s bid was rejected and it has gone to court. Some others are muttering about low rates being quoted; earlier, there was discontent at existing entities having to re-apply.

HDFC Life has challenged the Pension Fund Regulatory and Development Authority’s request for proposal, the bid process and its own application being rejected. “The company’s operations were launched in August 2013, after PFRDA granted a licence post detailed due-diligence. Surprisingly, PFRDA introduced a re-licensing process early this year and has now unfairly disqualified us at the technical bid stage, thus barring us from getting short-listed for the next stage of the licensing process. This is an unfortunate development, but the Company is left with no other option” the company stated.

There is speculation that the proposal was rejected since the company's profits had not been positive for all the past five years. Sumit Shukla, chief executive officer of HDFC Pension Management Company said the company had been profitable for the past three years.

Some have said the lowest bid from Reliance Mutual Fund, of one paisa for every Rs 100 of NPS funds, seems unviable. Sources said others would have to match the lowest bid, though PFRDA was yet to send an official letter in this regard.

A sponsor, to be eligible for applying, must be in a registered financial services business, monitored by the authority or the Reserve Bank or the Securities and Exchange Board of India or the insurance regulatory body. It must have a positive net worth (meaning, a profit) and be engaged in financial business for the preceding five years.

HDFC Life has sought the Court’s intervention to protect its rights and those of its subsidiary, HDFC Pension, of continuing to undertake the business.

Sources in Reliance AMC told Business Standard it had yet to get a response from PFRDA. “We do not know whether or not we are the lowest bidder,” said an official, who did not want to be named. PFRDA officials were not available for comment.

All the eight pension funds managing private sector workers’ money in the NPS have applied for re-selection. These are SBI Pension Fund, LIC Pension Fund, UTI Retirement Solutions, ICICI Prudential Pension Funds, Kotak Mahindra Pension Fund, Reliance Capital Pension Fund, DSP BlackRock Pension Fund Managers and HDFC Pension Fund. So have two new entities, Tata Mutual Fund and Birla Sun Life Insurance.

NPS is the contributory pension scheme launched by the Union government in January 2004. It was made compulsory for all new government employees. Those in all non-governmental livelihoods, including those not in any organised sector, were invited to join from 2009. As on end-December 2013, the NPS had 5.85 million subscribers, with an AUM (assets under management) of Rs 42,205 crore.

It was formally launched in mid-2012 for private sector participation and three of the eight funds — LIC Pension, SBI Pension and UTI Retirement Solutions — also manage the pension corpus of present and former government employees.

Experts said while the product was an attractive investment opportunity, if the quotes were too low, there was little incentive. The head of a private sector NPS fund manager said the investment management fee was capped at 0.0102 per cent per annum but was later fixed at 0.25 per cent per annum of the AUM. There is worry that with the re-bid, the fee structure might again be capped at a lower level. Further, licences are only valid for five years. “This could mean every five years there are new players and services on offer, with some accounts getting switched to other fund managers. This would lead to confusion,” said a senior fund manager.

NPS IN A NUTSHELL

• NPS is the contributory pension scheme launched by the Union govt in January 2004
• It was made compulsory for all new govt employees
• Those in non-governmental jobs, including in un-organised sectors, were invited to join from 2009
• As on December-end 2013, NPS had 5.85 million subscribers with AUM of Rs 42,205 crore
• It was formally launched in mid-2012 for the private sector; 3 of the 8 funds — LIC Pension, SBI Pension and UTI Retirement Solutions — also manage the pension corpus of government employees