Pension Funds

IE
Vikas Dhoot

The Sensex was at 5,000 when the government proposed switching to a new pension scheme for government employees that would allow investment of 10 per cent in equities. Three years and 16,000 points later, while the government, under pressure from the Left, dithers on that scheme as well as stock investments by the Employees’ Provident Fund Organisation that covers private sector workers, pension funds from across the world are flocking to Dalal Street to cash in on the market.

Consider this: when California Public Employees’ Retirement System (better known as Calpers), one of the world’s largest pension funds, registered as a Foreign Institutional Investor with the Securities Exchange Board of India in July 2004, there were only about a dozen and a half global pension funds active in India.


Now, as many as 152 global pension funds from 18 countries are here and the number is growing fast—46 registered in the last 12 months.

Pension funds now make up for almost 13 per cent of the 1,240-odd FIIs in the country. Last month, Microsoft registered its 401 (K) plan (the US pension system for private sector workers) with SEBI, following the who’s who of the global corporate world who have registered in recent months like Citigroup, JP Morgan Chase, Cargill, Hewlett Packard and Xerox.

Following Calpers’ lead, other states, counties and cities in the US, Canada and UK have also joined the action—in 2007 alone, public employees pension funds were registered from Chicago, Florida, Ohio, New York, Strathclyde, Hartford city, Detroit, Utah, Ontario, Cheshire, Westminster, Colorado, Mississippi and Pennsylvania, among others.

Apart from regional school employees and teachers’ pension funds, even the top universities have registered—Massachusetts Institute of Technology in March 2007 and Duke University as recently as on January 8.

Countries such as Malaysia, South Korea, Northern Ireland, Australia and New Zealand have, in fact, started investing their national pension funds as well as civil servants’ pension funds in India. And on May 18, 2007, the Pension fund for members of the European Parliament entered India.

Jayanth R Varma, finance professor at the Indian Institute of Management, Ahmedabad, says, “Globally, pension funds constitute the single largest pool of managed money and they tend to be long-term investors as they have to invest for pensions to be paid 15 to 20 years from now, if not longer. So they won’t churn their money every three months and bring depth and resilience to the market.”


Pension funds the world over are fiercely regulated as they deal with the ‘sacred’ funds people work all their lives for—to retire in peace. As for Indian workers who would prefer to move some of their PF money out of 8-per-cent-yielding government bonds to high-yielding stocks, Varma points out that the framework is already there. “All you need to do is open up the new pension scheme for civil servants to everybody. The option of allowing workers to invest 10 per cent in index stocks instead of individual stocks is also good as in the long run, they won’t lose their capital as feared,” he says.