NEW DELHI: THE central board of trustees (CBT) of the Employees’ Provident Fund (EPF) on Tuesday chose four asset management companies (AMCs) to manage fresh additions to the EPF corpus. Around 4.5 crore workers are expected to gain from their asset management expertise on their retirement savings from September 1. Besides HSBC AMC, ICICI Prudential AMC and the alreadyshortlisted SBI, Reliance Capital AMC too was chosen—in a surprise decision—as an asset manager.
While HSBC AMC quoted an asset management fee of 0.00063%, ICICI’s fee was 0.00075%. Both SBI and Reliance Capital quoted 0.01%.
Reliance Capital, however, was not among the managers shortlisted by the Finance and Investment Committee (FIC) earlier. More so, as SBI scored over Reliance on technical grounds. And only a minimum three companies were to be finalised to replace SBI, which has been the sole fund manager till date. However, CBT decoded the rules to appoint four.
The four finalised AMCs will, however, only manage the annual incremental funds of around Rs 30,000 crore. They will also render custodial services for maintaining the previous investments, currently held by SBI. The funds will continue to be managed as per the existing norms, which allow up to 5% equity investment. At present, the EPFO does not invest in stocks, though there is a proposal to allow the fund to invest up to 10% of its corpus in equity. This plan has been vehemently resisted by trade union representatives on the CBT.
Operations from September 1
At present, the EPFO pays around Rs 5 crore annually as service fee to SBI. But now it could end up saving around Rs 2 crore on the annual service charges, primarily as they have been covered by the fee quotes. Crisil, appointed earlier as consultant by the EPFO on the multiple fund manager issue, will monitor the performance of the selectees. They will begin operations from September 1, 2008. The EPFO is expected to set up a separate investment monitoring body later.
A meeting in August will decide on the proportion of funds that each AMC will handle. Central Provident Fund Commissioner A Vishwanathan said: “The ratio of funds to be managed will be inversely proportional to the fees quoted.”
HSBC, as the lowest bidder, is likely to handle a bigger chunk of the incremental funds than those that bid higher, including Reliance AMC. But the difference in the proportion of funds handled by HSBC and the rest is unlikely to be wide. “In order to avoid the breakout of a bidding war among the AMCs, we will ensure that no one agency has a monopoly share. We will come up with a formula that leaves everyone satisfied,” said Mr Vishwanathan.
Incidentally, the inclusion of the Anil Ambani-owned Reliance Capital AMC is understood to have been strongly opposed by trade union representatives on the CBT. And they alleged “political motivation” as the moving force behind the decision, which was taken unilaterally. Left union members on the board went so far as to charge that Reliance’s inclusion was solely done to accommodate the Congress’ new backers, the Samajwadi Party, at the Centre.
The sole exception was the Congress-backed INTUC, which is said to have backed the decision. Crucially, the FIC had sidelined Reliance in the technical bid rounds though its fee was on a par with SBI’s. “The inclusion of Reliance was a last-minute occurrence suggested by labour minister Oscar Fernandes at the meeting. He suggested the inclusion of a fourth fund manager initially but only brought up Reliance at the tail end. Naturally, we opposed it,” emphasized DL Sachdev of the AITUC (All India Trade Union Congress).
CBT, through Crisil, has been examining the issue of multiple fund managers since two years. The committee of officers shortlisted 17 out of 21 applicants for inviting request for proposals (RFP). Ten fund managers were later shortlisted for the financial bid.
Significantly, HDFC AMC and Birla Sun Life AMC, which were among those shortlisted, made a bid of 0%. But their bids were rejected after legal advice said a zero fee would not constitute a valid contract. While rejecting their quotes, officials suggested that the AMCs were keen on the brand value and respectability that the EPFO account offers and so their investments would be suspect.
Incidentally, it is that same brand value that Reliance Capital would now be adding to its own label despite its suspect technical qualification. More so, as the four new fund managers would later get to manage the investments of EPFO’s huge corpus of around Rs 2,20,000 crore.
