NPS trustees questions fund managers on portfolio

The trustees have ordered random checks on the portfolios of the scheme's seven fund managers after the last two quarterly reviews of the NPS revealed that at least four of them had invested in products issued by their promoter group companies.

 

The seven fund managers, which between themselves handle a corpus of around Rs 9,500 crore belonging to some 26 lakh government and informal sector employees, were found to be in violation of ceilings for various investment categories.

 

The trustees have asked advisor Morningstar India to also ascertain whether these investments could have yielded better returns if parked elsewhere.

 

But the scheme's regulator, the Pension Fund Regulatory and Development Authority, or PFRDA, played down the concerns raised by the trustees, saying there were "no major violations", minutes of the last trust meeting in ET's possession show. PFRDA chief Yogesh Agarwal did not respond to a detailed questionnaire.

 

Some experts, however, expressed concerns about the deviations from investment norms. "If the NPS managers are not sticking to limits for investment categories specified for the various pension schemes, then this is a serious breach of understanding for investors," said Dhirendra Kumar of Value Research, a fund tracking firm.

 

The NPS Trust, chaired by former Rajya Sabha Secretary General Yogendra Narain, is meeting this week to review fund managers' performance for the quarter between June and September.

 

In its last meeting on August 18, the NPS Trust's board had ordered a performance audit of three pension fund managers in charge of the retirement savings of government employees for 2010-11.

 

Retirement savings of more than 17 lakh central and state government employees are mandatorily parked into the NPS and managed by pension fund arms of UTI, SBI and LIC.

 

These savings are invested as per the investment pattern allowed for non-government provi-dent funds, such as the Employees' Provident Fund Organisation. Up to 15% can be invested in equities, while the limit for money market tools and state development loans are 5% and 10%, respectively.

 

The pension fund arms of both LIC and UTI had more than 10% investment in state loans at the end of June 2011. The state loan holdings of SBI's arm breached the 10% mark in March 2011, but it offloaded these to comply with norms by June.

 

Both SBI and UTI exceeded the 5% money market limit in June, while UTI breached the 40% limit for corporate bond investments.

 

The trustees' found that the pension fund arms of both UTI and LIC had invested in products of their parents, although UTI since told the NPS trust that it has stopped such investments. When the Trust questioned LIC about these investments, it said that "all these investments pertain to the first lump-sum money received in 2008" and no fresh investments have been made since then into the promoter group.

 

"Investing in MF schemes is violative of the fundamental low-cost spirit of the NPS as there's a hidden duplication of costs," said Kumar. Some 9 lakh people belonging to the unorganised sector and parts of India Inc have also invested in NPS schemes on a voluntary basis. These schemes are managed by pension fund arms of UTI, SBI, IDFC, Kotak, Reliance and ICICI Prudential.

 

Reliance Capital Pension Fund had invested in its own MF's index products under the equity scheme. It told the Trust that these investments had "already been redeemed". ICICI Prudential had almost 18% of a scheme's money in liquid funds at the end of June when the set limit was 10%.

 

IDFC had 50% invested in liquid funds in March, which was reduced to 13% by June. Kotak Mahindra's pension fund manager, the NPS Trust noted in the last meeting, was investing in its own group's MFs. Asked to explain, it is learnt to have told the Trust that it was being done 'for the short term'.

 

"No pension fund manager is expected to invest in securities issued by own group companies for reasons of conflict of interest," said a Kotak Mahindra spokesperson. The official explained that the size of the pension fund inflows being low, it is not possible to directly invest in the Nifty or Sensex basket of securities in the same proportion.

 

"It therefore makes sense to invest in the indices only through an index fund or an exchange traded fund (ETF” data-scaytid=”50″>ETF)," the spokesperson said. Kotak Mahindra has parked almost its entire NPS equity exposure in Kotak Sensex ETF units, but unlike index funds, these are traded like a stock on the exchanges and can only be purchased through a broker.

 

ET sent detailed queries to each fund manager. SBI Pension Fund declined to comment. "These issues are privileged information as per regulatory guidelines, so we are unable to offer our comments," said chief investment officer Brajraj Krishna.

Source: Economic Times