NIF managers asked to cut fees

With the National Investment Fund (NIF) corpus set to touch the billion dollar mark, the Centre has asked its three fund managers?UTI Asset Management Company (AMC), SBI Funds Management and Jeevan Bima Sahyog Asset Management (LIC)?to cut their management fees. The three fund managers charge a measly 0.12% in fees, but the government is asking them to bring it down further as this is over 1,333 times the fee they are charging the New Pension Scheme (NPS) ? 0.0009%.

SBI, LIC and UTI were charging 3 to 5 basis points (0.03% to 0.05%) when they were appointed as fund managers for the NPS in 2007. But when the Pension Fund Regulatory and Development Authority opened up the field to private players earlier this year, aggressive bidding led to the fee falling to 0.0009%.

The aggressive bidding for NPS monies, in turn, was triggered by the astonishing response received from fund managers interested in getting a pie of the Rs 3,00,000 crore Employees? Provident Fund Organisation (EPFO).

When the EPFO invited bids for new managers to break the State Bank of India?s monopoly over its funds in June 2008, players like HDFC and Birla Sun Life were willing to manage the money for free. Though their zero bids were disqualified, the EPFO finally appointed three new managers ? Reliance Capital AMC, ICICI Prudential AMC and HSBC AMC. Along with SBI, these players now charge the EPFO 0.0063% to 0.01% in fees.

?The fund managers are charging us 12 basis points to manage the NIF, while their fees for the NPS and EPFO are much lower. We have been talking to them to bring down their rate,? a senior government official told FE.

The head of one of the three NIF managers confirmed that the Centre is in talks with them to cut the fee. ?It is an ongoing negotiation and we are hoping it will get resolved soon,? the fund manager said.

The NIF was created in 2005 to park disinvestment proceeds, with the intent of spending 75% of its annual income on social sector projects and the rest on reviving sick public sector units (PSUs). But only two PSUs saw stake sales took place from 2005 till 2008-09 ? Power Grid Corporation and Rural Electrification Corporation.

On a corpus of Rs 1814.45 crore, the NIF managers delivered an average return of 8.47% in 2007-08 and 10.02% in 2008-09. With the economic downturn straining government finances, UPA-II, in its disinvestment policy cleared in November, decided that earnings from PSU stake sales completed by March 2012 will bypass the NIF and go straight to the Centre?s coffers.

But since the IPOs of both OIL India Limited and NHPC had taken place in August and September, the Centre?s earnings from the dilution of its stake are being transferred to the NIF through the Supplementary Demands for Grants cleared by the Lok Sabha last week. Consequently, the NIF?s corpus will grow to Rs 4,954.35 crore ? about a billion dollars.