The Employees’ Provident Fund Organisation (EPFO) has decided against hiring private asset management companies for managing its annual corpus to the tune of Rs 1.5 trillion.
The EPFO, a body which handles the provident fund savings of private sector employees, has hired state-owned State Bank of India (SBI) Funds Management Private Limited and UTI Asset Management Company to manage its funds, a senior official said. The decision was taken by the EPFO’s central board of trustees (CBT), led by Labour and Employment Minister Santosh Kumar Gangwar, in a meeting in Hyderabad on Wednesday. The EPFO further decided to equally distribute its equity investments in Nifty 50 and Sensex — the two main stock indices in the country. Earlier, the EPFO was parking 75 per cent of its equity funds in Nifty 50 and the remaining in Sensex. EPFO has so far invested around Rs 70,000 crore in equity investments, in the form of exchange-traded funds (ETFs). The EPFO’s decision to stop investment in the private sector bond market in June this year, following defaults triggered by the crisis in non-banking financial companies (NBFCs), was also approved by the CBT. EPFO used to make investments of Rs 25,000-40,000 crore in private sector bonds every year, according to an official.
“Apart from the need to meet the bidding requirements, the EPFO was apprehensive in roping in private sector players for managing its corpus at a time when some of the past investments are closely scrutinised, following a string of defaults in the bond market. We have decided to hire state-owned fund managers,” a senior EPFO official said, requesting anonymity. UTI AMC and SBI Funds Management Private Limited will manage 55 per cent and 45 per cent of the EPFO’s annual corpus, respectively, for the next three years. HSBC Asset Management Private Limited, Aditya Birla Sun Life AMC Limited, and Reliance Nippon Life Asset Management Limited were the private sector firms which were in fray for becoming the fund managers of EPFO.
Aditya Birla Sun Life AMC Limited and Reliance Nippon Life Asset Management Limited were disqualified for not being “transparent and forthcoming in its disclosures” and for not “following the (bidding) process in true spirit”. HSBC Asset Management Private Limited failed to qualify at the technical bidding stage, according to a source.
Aditya Birla Sun Life AMC Limited had not made disclosure about a show cause notice it received from Securities and Exchange Board of India (Sebi) in May 2019 on allegations of insider trading and Reliance Nippon Life Asset Management Limited didn’t inform the EPFO about the proposed stake sale by its shareholder Reliance Capital Limited to Nippon Life Insurance Company.
The decision to go for equal investments in Nifty 50 and Sensex was taken keeping in mind “point to point return, risk-adjusted returns and return realised by EPFO so far”. “We analysed historical data and found that the returns offered by Sensex was better than Nifty. Hence, we decided to go for an equal allocation,” the official explained.
Around 15 per cent of the EPFO’s incremental funds are invested in ETFs at present. In August 2015, when EPFO started investing in ETFs, it parked 100 per cent funds in Nifty.