This will lead to a rise in investment flows into equity markets.
With India’s stock markets being one of the best performing among the emerging markets, a number of global pension funds are planning to make India-specific allocations. Experts said this could mean a significant rise in inflows into Indian equity markets.
Most pension funds allocate to emerging market fund managers. The portfolios are generally benchmarked to the MSCI Emerging Markets Index (created by Morgan Stanley Capital International).
India has a weight of around 7 per cent in the MSCI Index. While passive funds try to replicate this, active funds have a variation of 0-25 per cent.
“Endowments and private banks have been looking at single-country allocations for India for a while, but this is for the first time that we are seeing some interest from pension funds for India-specific allocations,” said Rashmi Mehrotra, principal at Mercer, one of the largest investment consulting firms.
After the general elections last year, which led to a stable government at the Centre, a number of global strategists upgraded India as one of the most attractive destinations. The bullishness of global investors was also due to India having emerged relatively unscathed from the global financial turmoil.
The fact that pension funds are being extremely bullish on India is reflected in the numbers that have registered with the Securities and Exchange Board of India. Pension funds now account for almost 14 per cent of the 1,711 foreign institutional investors in the country. Some global pension funds that registered in 2010 are Ascension Health Master Pension Trust, Abbott Laboratories Stock Retirement Trust, Employees Retirement System of Texas and Municipal Employees Retirement System of Michigan.
Jeroen Touw, head of equities at APG Asset Management, Asia, said: “As of October 2008, we have stepped up our efforts in the Indian equity market by establishing a Hong Kong-based Asian equities team which manages Indian investments from a regional perspective. A regional presence helps us identify promising Indian investment opportunities, which include high-growth mid-cap companies, and directly engage with a wide range of companies in a timely and regular manner.”
APG is one of the largest pension asset managers globally, managing assets worth euro 240 billion. It administrates 30 per cent of all collective pension schemes in the Netherlands
“Apart from India having a sustainable, high-growth economy, Indian companies have a relatively high awareness of cost of capital and how to build shareholder value. Over the long run, we believe this combination warrants a strong presence in the Indian equity market,” Touw added, Recently, CalPERS (California Public Employees Retirement System) said it was looking at a dynamic asset allocation approach to investing. Dynamic asset allocation is used by fund managers looking to actively switch investments.
Canada’s pension fund is also looking to actively participate in BRIC economies. Nikhil Shah, portfolio manager of public market investment at Canada Pension Plan Investment Board, said at the recently held India Investment Summit: “We are trying to reduce passive exposure and looking at taking active interest in BRIC countries. We are also looking to rope in local partners so that we can understand these markets better.”
In an annual poll by Barings Asset Management, 29 per cent British pension funds said they were more likely to allocate to emerging market equity as a result of recent global market volatility. Their equity investments in mature economies have came down in the past three years — to 47 per cent in 2009 from 70 per cent in 2006.
