Pension regulator bats for separate investment category for REITs

MUMBAI: Pension Funds regulator PFRDA is looking to allow pension funds to increase allocation to real estate investment trusts (REITs) and infrastructure investment trusts (InviTs) by creating a separate category for these asset classes.

PFRDA chairman Hemant Contractor told HT that as of now investment in such instruments is grouped as a part of pension funds’ investments in corporate bonds, and capped at 5%.

“We identified REITs and infrastructure investment trusts as an investment opportunity, but there were no REITs available earlier,” he said. “Now, I am told the last hurdles have been cleared for such trusts and hopefully going forward you should see pension investments taking place in these trusts in the next few years.”

While the exact allocation for these instruments has not yet been decided, he said, but it is expected to be similar to the existing (5%) one.

Creating a separate asset class for REITs and InvTs could see investments in these instruments go up, which would bring greater yields for the funds, though these investments are perceived as more risky.

“Investments in REITs would get lost in the multiple investments products that are out there. The way out is to create a separate asset class, like we have done for alternative investment funds (AIFs), to ensure that some investment does go into each of these asset classes,” he said.

Pension funds currently invest in equity, government securities and in corporate bonds. These funds are also increasing exposure to the infrastructure sector via investments in shares and bonds of such companies, though direct investment in infrastructure projects is not under consideration.

“Our current investment in infrastructure is about almost 14%. We invest in companies, which invest in infrastructure, in all forms in stocks, bonds and we are increasing it depending on the quality of the investment opportunity,” Contractor said.

A few months ago, PFRDA also allowed pension funds to invest in alternative investment assets such as venture capital and private equity. Pension funds can invest up to 2% of the AUMs in such assets.

The total corpus of pension funds currently stands at Rs 1.46 lakh crore, with a total subscriber base of 1.41 crore. While the subscriber base is growing at 30-35%, PFRDA expects the total corpus to increase by as much as 45% this year.