The Employees’ Provident Fund Organisation (EPFO) will tread cautiously as it starts investing in infrastructure investment trusts (InvITs) and real estate investment trusts (REITs.) While it will leave trusts sponsored by private sector out of its investment ambit, up to 5% of its fresh accretions might go to AAA-rated PSU-sponsored issues, sources said.
The finance committee of the Central Board of Trustees (CBT), the highest decision-making body of the EPFO, has recently suggested that any investment under the “asset backed, trust structured and miscellaneous” category under which EPFO can invest up to 5% of its fresh accretions, shall be made only in InvITs and REITs units that have AAA rating by at least two rating agencies.
The entire assets provided by the sponsor for InvITs or REITs should be fully operational assets, the Finance Investment and Audit Committee (FIAC) has suggested, adding “no investment in units of REITs and InvITs shall exceed 5% of the units issued by a single InvIT or REIT issue.”
EPFO’s receives a little over Rs 2 trillion as subscription from its around 6.5 million members in a year. The FIAC has asked the EPFO to put in place a team of experienced investment and project managers which have a credible track record to monitor investments in InvITs and REITs.
“The cumulative investment in units of REITs and InvITs shall not exceed 3% of the total portfolio at any point of time,” the FIAC has recommended. EPFO’s corpus, as on March 2022, stood at Rs 18.32 trillion.
The CBT at its meeting in November last year removed investment restrictions placed on these asset classes and empowered the FIAC to decide on investing in the asset classes included in the pattern of investment and also prescribe the criteria and guidelines for making such investments.
While FIAC’s recommendations require concurrence of the CBT and the government to take effect, the EPFO wants to diversify its investment avenues that generate better returns since its investment in debt instruments have been falling steadily over the years.
InvITs will provide the EPFO an opportunity to take part in the government’s monetisation programme. Though the national monetisation pipeline, unveiled last year, the government intends to mop up Rs six trillion through asset monetisation over a four-year period, from FY22 to FY25. Currently, InvITs sponsored by NHAI and PowerGrid are two options available for the EPFO to invest. Sources said the government is likely to launch new InvITs through PSUs in roads, railways, power, shipping and other infrastructure assets.
The Pension Fund Regulatory and Development Authority (PFRDA) has also framed guidelines for investment in InvITs and REITs. The PFRDA has also decided that its investments in InvITs and REITs shall not exceed 3% of the total asset under management of the pension fund at any point of time. It will also not invest more than 5% of the units issued by a single InvIT or REIT issue.