New Delhi: The labour ministry-controlled Employees’ Provident Fund Organisation (EPFO) on Thursday appointed four fund managers for its Rs 3.5 trillion pension fund corpus, but dropped “top performer” ICICI Prudential Asset Management Co. Ltd from the list.
The central board of trustees (CBT), the apex decision-making body of the EPFO, which met in New Delhi, decided to appoint State Bank of India (SBI), Reliance Capital, HSBC Asset Management and ICICI Securities Primary Dealership Ltd.
“The CBT after consideration approved four fund mangers for managing EPFO funds for a period of three years beginning 1 September 2011,” labour minister Mallikarjun Kharge said after the meeting.
Though the appointment is for three years, their performance will be reviewed after one year, the minister said. CBT will decide on retaining them for the full three years based on that.
Except for ICICI Securities, the other three have worked with EPFO earlier.
“We have followed the procedure and (rating agency) Crisil has helped us in the selection process. We believe these fund managers will give us a better yield,” the minister added.
Between 17 September 2008 and 31 March 2011, ICICI Prudential AMC was the top performer among the EPFO fund managers with an interest yield of 8.72%. SBI gave 8.61%, HSBC 8.64% and Reliance Capital 8.57% on funds invested in debt instruments, including government securities and bonds.
The selection procedure was based on technical and financial bidding parameters, said central provident fund commissioner Samirendra Chatterjee, when asked why ICICI Prudential was dropped.
“If someone is not fitting in, then what can we do. If they ask for more money to manage funds, then we cannot do anything,” he said.
Earnings are expected to improve with the appointment of the fund managers, labour secretary Prabhat Chaturvedi said. He was non-committal when asked if the 50 million EPFO customers can expect to get a 9.5% interest rate return this financial year as in the previous one.
“It depends on the return we get. Last year, we had said that it was a one-time measure based on the surplus that EPFO had discovered,” he said.
Meanwhile, ICICI Prudential AMC chief executive officer Nimesh Shah said he was “surprised” at the EPFO decision.
“We love to manage the common man’s fund and had even given them the best result. I can say we managed the money well,” Shah said. “I am surprised but have no control over the decision of the EPFO.”
He said ICICI Prudential had quoted a fee of 0.0048%, less than what SBI quoted. SBI had quoted a fee of Rs 1 for managing every Rs 10,000.
“We have already initiated discussions with EPFO,” Shah said, adding that ICICI Prudential will again bid for managing its funds when such an occasion arises.
While selecting fund mangers, CBT gave 20% weight to financial quotations and 80% to technical parameters, Chatterjee said.
Of the total corpus of Rs 3.5 trillion and an incremental fund of Rs 30,000 crore per year, 35% will be managed by SBI, 25% by ICICI Securities and the remaining 40% will be managed equally by Reliance and HSBC.
Eleven bidders had initially expressed interest, of which only 10 were eligible for request of proposal documents. The selection committee sought the approval of the Central Vigilance Commission as a “precaution”, said Chatterjee.
Five were eliminated on technical grounds and the remaining five bids were opened, Kharge said. The winning four were picked by consensus, he said. ICICI Prudential was the fund manager dropped in this last round.
EPFO funds were managed by SBI since its inception in 1952 until 2008, when the pension fund manager appointed private AMCs along with SBI in 2008. After their tenure expired on 31 March, the EPFO gave SBI two extensions to manage the fund on its own till the end of August.