Indian pension regulator considers opening door to PE

Funds under the National Pension System (NPS) can only buy government and corporate bonds and equities, but a PFRDA-appointed panel tasked with reviewing investment guidelines has submitted a report that could lead to a relaxation of these restrictions.

"We are envisaging a phased roll-out of new products in which the industry can invest and we are very actively looking at putting aside some money in private equity and venture capital area also, this is something we are very actively looking at," Hemant Contractor, the PFRDA's chairman, told an event organized by the Associated Chambers of Commerce & Industry of India.

The panel, led by G.N. Baipai, who has previously served as chairman of both the Securities & Exchange Board of India (SEBI) and the Life Insurance Corporation of India (LIC), addresses issues such as investment patterns, fund managers and fee and commission structures. It will form the basis of recommendations that are put to the PFRDA board.

Contractor said the regulator is aware of the need for pension funds to diversify their asset bases as well as the potential merits of switching from a directed investment regime to a system under which fund managers have greater autonomy. However, he stressed that the onus is on the industry to develop the skills required to properly assess private equity and venture capital investment opportunities.

"Our pension fund managers need to build up some skills for putting in money in private equity and venture capital as right now the level of skills is not of the order in which they can make an informed decision about investing in these assets," Contractor said. "The industry can probably do some hand-holding in the form of making them more literate about these kinds of investments."

The NPS is a defined contribution pension system launched in 2004 with the objective of providing retirement income for all Indian citizens. Participation is mandatory for government employees and voluntary for other citizens of working age, who can opt in under corporate schemes or on an individual basis.

Retirement plan options are also available through the Employees' Provident Fund Organization (EPFO) and private operators.

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