Tag: startups

Pension fund regulator Supratim Bandyopadhyay said on Tuesday that allowing pension fund managers (PFMs) to invest in startups is not off the table but the valuation process of investing in these companies is a hurdle at present.

The comments assume importance in the wake of reports that the government is holding talks with the Employees’ Provident Fund Organsiation (EPFO) and the Life Insurance Corporation (LIC) on investing in startups.

“All investments made by LIC and EPFO are not mark-to-market. Like mutual funds, we have to give the value of funds at the end of the day, which is called net asset value (NAV). Startups do not have valuation on a daily basis,” the Pension Fund Regulatory and Development Authority (PFRDA) chairman said.

All investments today by PFMs are valued at the end of the day, he said. “That is the basic thing that will be very difficult to maintain for PFMs if they go for startups right now, apart from the risk involved,” he added.

PFRDA has apprised the government of this issue once or twice, he said. “If this is sorted out we can really look into that (investing in start-ups),” he emphasised.

Earlier, PFRDA also had issues in allowing PFMs to invest in bonds issued by the real estate investment trusts (REITs) and infrastructure investment trusts (InvITS).

“We had lots of discussions on investing in bonds issued by REITS and InvITS. Initially, we had reservations there as well because these were not treated as securities earlier. If there is default by any chance, the recovery mechanism was not clearly stated,” Bandhyopadhyay said.

In the last Budget, there was a proposal to treat them as securities. “ They have enabled it, we also allowed pension fund managers to go for the bonds and debentures of Reits and Invits. Similarly, if anything comes for start-ups… let us see. I had detailed discussions with IVCA (Indian Private Equity and Venture Capital Association). We told them that these are our issues. Please look at that. But they told us that that is the way companies are formed in this domain,” he said.

However, PFRDA does not prohibit PFMs to invest in the initial public offers (IPOs) of start-ups.

“We have enabled them to invest in almost all categories of IPOs provided they meet the two basic conditions. One is that the issue size should be at least Rs 500 crore and valuation of that stock at the minimum of the price band should be more than 200th top company on BSE and NSE, post-IPO,” Bandyopadhyay said.

Apart from these conditions, the authority has not talked about companies’ track record of profitability, track record of dividend payment for the purpose of investing in IPOs, he said.

“So technically, PFMs are enabled to invest in IPOs of loss-making companies too. It is their call, they have to do their own valuation, they have to form their own judgment and reading of that particular company,” the pension fund regulator said.

PFRDA allowed PFMs to invest in IPOs about a fortnight back. But so far, none of them has invested in any IPO, he disclosed.

Now the market is full of IPOs and it is up to PFMs to look into their valuation and take a call in investing in them, he said.

PFRDA recently also allowed PFMs to invest in the top 200 stocks on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Till then, PFMs were allowed to invest in the companies in the futures and options (F&O) segment, provided the market cap of these companies were at least Rs 5,000 crore.

To a query whether expanding the investment opportunities this way will not increase risks for PFMs, Bandyopadhyay said rather they will get new choices of investments. “We don’t think that this will increase any additional risks for PFMs,” he said.

To substantiate his view, he said the market cap of the top 200th company listed on BSE and NSE had a market cap of Rs 17,800 crore as on July 31, higher than the requirement in the F&O segment.

He informed reporters that the Insurance Regulatory and Development Authority of India (IRDAI) has formed a committee to look into inflation-linked annuities. Once IRDAI decides to come out with it, PFRDA will be interested to explore those opportunities, he said.

The National Pension System (NPS), regulated by PFRDA, has crossed three million subscriber base in the non-governmental sector, doubling in a span of three years. Total asset under management (AUM) under PFMs stood at Rs 97,000 crore for the non-governmental sector as on August 14. New customers stood at 2,41,000 as on August 12 this financial year which is almost 50 per cent more than the last year’s. PFRDA has set a target of having one million new customers this year which Bandhyopadhyay said is definitely possible.

Equity investment has given a compounded annual growth rate of 12.94 per cent for the last 12 years. This was largely in the F&O segment since investment in stocks and IPOs was allowed only recently, Bandhyopadhyay said.