The beleaguered fund management industry can look forward to some new long-term business?this week, the Pension Fund Regulatory and Development Authority (PFRDA) is inviting potential fund managers to manage the retirement corpus of citizens who join the New Pension Scheme on a voluntary basis after April 1, 2009. While the PFRDA had confined the management of government employees? pension corpus to public sector players, this time, the fray would be open for private sector players as well.
?We are inviting Expressions of Interest (EoIs) from all investment management firms? private sector or public sector? to manage the corpus of citizens who join the NPS after April 1, 2009,? a senior PFRDA official said. The EOIs are expected to be out this week.
Apart from allowing private sector players, the modalities for appointing the new fund managers will remain the same as those laid down for the existing fund managers?Life Insurance Corporation of India (LIC), State Bank of India and UTI Asset Management Company (UTI AMC). Potential bidders should have at least five years of experience and Rs 10,000 crore of assets under management (AUM). The current public sector fund managers will also be allowed to compete for the new scheme being launched in April. The final selection will be done by an independent evaluation committee. Simultaneously, the PFRDA is also working to appoint points of presence (PoPs), which will be responsible for collecting the contributions of the informal sector workers and citizens who join the NPS voluntarily. Pension contributions of government employees come through without such PoPs as they are deducted by the pay and accounts offices and deposited with the NPS banker Bank of India.
The interim regulator is scheduled to invite EoIs for points of presence in next few weeks. This is part of PFRDA?s strategy to have the complete architecture in place by January 31 and begin user testing for products by February 2009. While new fund managers and points of presence will be roped in, the National Securities Depository Ltd which is the central record keeping agency for government employees will also maintain records for voluntary subscribers. NSDL is currently tweaking its systems to enable PoPs to register new members.
While appointing the points of presence, the PFRDA is planning to throw open its doors to all financial institutions regulated by the Reserve Bank of India, the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority. ?The objective is not to license a limited number of points of presence. We will prescribe minimum eligibility criteria and who so ever qualifies, will be registered,? the official said. Apart from banks and insurance companies, the regulator is also hopeful of roping in post offices for the purpose.
To ensure that transaction costs are kept at a bare minimum, the regulator will fix a ceiling on the administrative fees charged by the points of presence, like in the case of the mutual fund industry. ?Since the voluntary subscribers will have to pay the fees out of their own pockets, it is essential that the transaction costs for the points of presence as well as the fund managers are kept low,? the official said. The Centre takes care of the transaction costs incurred on the pension corpus of its own employees, while the 22 states are expected to do the same.
The tender floated in May last year for managing the pension corpus of government employees was restricted to public sector entities only. UTI-AMC, which quoted the lowest fund management fee of 3 basis points (bps) of the AUM was selected to manage 55% of the Rs 1,700-odd crore corpus. SBI which bid 5 bps was given charge of 40% of the corpus, while LIC which quoted a fee of 60 bps was asked to match SBI?s fee and given 5% of the assets.