India’s Employees’ Provident Fund Organisation has barred its private sector asset managers from taking positions in group companies as cross investments by the same has led to erosion in value.
The retirement corpus floated a ‘Request for Proposal’ (RFP) on the 12th of June and four mutual funds - Aditya Birla MF, SBI MF, Reliance Nippon Life Asset Management and UTI MF, bid to be portfolio managers.
However, this time around new provisions have been added that prevent investment in portfolio manager’s group company. Last Financial Year, Reliance AMC invested in Reliance Capital in the hope of a healthy return but instead lost a little more than 70p.c. of the value invested within the last three quarters.
EPFO currently has an exposure of about Rs 2,500 crore in the Anil Dhirubhai Ambani group of companies of which a fifth were in Reliance Capital securities. This is believed to be the genesis of the provision that prevents asset managers to cross invests in group companies.
Nearly a month ago, ratings company CARE downgraded Reliance Capital’s debt securities to ‘BBB’ from ‘A’ the reason being defaults by two of its subsidiaries — Reliance Home Finance (RHFL) and Reliance Commercial Finance (RCFL).CARE also said it would keep the firm on credit watch with developing implications. The same company was rated triple-A (SO) a few years earlier.
The retirement fund is not permitted to invest in any corporate bond rated below AA+. However, on the bright side portfolio managers have met Reliance Capital management to get clarity on repayments. The board of trustees are confident that an arrangement can be banged out between the two parties.
Last financial year, SBI MF, Reliance MF, HSBC AMC, ICICI Securities Primary Dealership and UTI AMC were fund managers of the EPFO. They managed thousands of crores on behalf of the country’s largest debt investor. The auction for managing the same will close at the end of the month.