The Anil Dhirubhai Ambani Group?s Reliance Capital AMC emerged a last-minute entrant in the list of fund managers to be appointed by the country?s largest retirement fund, the Employees? Provident Fund Organisation (EPFO). Reliance Capital will be the fourth fund manager to handle EPFO?s incremental assets of Rs 27,000-30,000 crore annually. HSBC AMC, ICICI Prudential AMC and State Bank of India (SBI) were the three fund managers recommended by the EPFO board?s finance & investment committee (FIC).
Employee union representatives on the EPFO?s central board of trustees opposed the move to appoint private fund managers, but minister of state for labour & employment Oscar Fernandes decided to clear the fund managers? appointments by majority vote. While the meeting went on for nearly three hours, Reliance Capital?s name came into the picture only towards the end when Fernandes decided to appoint four fund managers instead of three.
The financial bids of Reliance Capital and SBI were the same at 0.01% of assets, but the FIC had decided to recommend SBI as the third fund manager after HSBC and ICICI-Prudential, as its technical evaluation score was higher than that of Reliance. Even as Reliance?s inclusion came as a surprise to board members, the decision to disqualify the two bidders who had bid to manage EPF monies without any fees–HDFC AMC and Birla Sun Life AMC?was also questioned by some.
?It was pointed out that even if EPFO?s legal advisor had opined that zero bids should be rejected since no contract can be entered into ?without consideration?, the two players could have been called in and asked to quote a nominal fee,? a member said. At least one of the two bidders has formally protested their disqualification and the selection process.
While the FIC is expected to decide the final formula for allocation of funds to the new managers, the lowest bidder selected (HSBC AMC) will manage the largest corpus. ?This is a travesty of justice. We expected to be evaluated on our technical expertise. Now you have a situation where the fund manager with the lowest technical score and a financial bid higher than the lowest bid, will manage a bulk of the money,? said an official from one of the disqualified players.
Fund managers that didn?t make the cut may explore legal options to contest the selection process, but the labour ministry is upbeat. Apart from annual savings of over Rs 2 crore from the current Rs 5 crore paid to SBI as investment management fees, it expects better returns on EPF monies thanks to competition among fund managers.
The new fund managers are expected to take charge on September 1 as SBI has already been served severance notice from its current monopoly from that date.
