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15 of world's top 20 pension funds head for India

September 01, 2008 09:33 IST

Foreign pension funds are making a beeline for India despite the turmoil in global markets. More than 40 such funds (endowments and university and family foundations) have registered with the Securities and Exchange Board of India in the past seven or eight months.

The Bombay Stock Exchange's benchmark Sensex is more than 40 per cent off its peak this year. Yet out of the top 20 global pension funds, more than 15 are investing in India, according to Watson Wyatt.

Watson Wyatt estimated global pension assets at $24,932 billion at the end of last year. Even if India were to receive 5 per cent of this, it will mean a boom for Indian markets.

"From what we have learnt allocations to emerging market equities are certainly going up simply because developed markets are slowing down," said Rashmi Mehrotra, business leader at investment consulting firm Mercer, which advises pensions, endowments and charities on the relative returns of fund managers managing different asset classes.

"Pension funds want to allocate more to alternative asset classes," she added, "so when we say foreign institutional investors are withdrawing from India, it may not actually be pension funds because these are long-term players."

Rolls-Royce Pension Fund, Walt Disney Retirement Plan and Teachers' Retirement System of Texas are some of the top pension funds that have registered in the current year (see table). Foundations such as Broad Foundation and Malaysian Community and Education Foundation have also found a place.

One reason for pension funds' interest in India is easier regulation by Sebi. Last October, Sebi allowed pension funds to register as FIIs even if they are not regulated by their domestic securities market regulators but provided they are regulated by some other regulator like a tax authority in their home country.

Some prominent pensions, foundations and endowments
* Canada Pension Plan Investment
* College Retirement of Equities Fund
* Denmark Pension Fund
* William Penn Foundation
* The City of Edinburgh Pension Fund Scheme
* Universities Superannuation Scheme
* Vanderbilt University
* The Duke Endowment

"These funds, on account of their large capital base and longer-term commitments, are more stable and more resilient against temporary downturns in a market, focusing on long- term fundamentals that continue to be relatively strong for India," said Siddharth Shah of Nishith Desai Associates.

Many of these pension funds and endowments are LPs (limited partners) in India-focused private equity funds. Private equity and venture capital funds admit that there has been little change in their fund allocation stance except for taking a company's track record into greater account.

A case in point is Lightspeed Venture Partners, which recently raised a $600-million fund. "It has not been difficult for us. In fact, we received more subscriptions than needed," said Srini Vudaygiri, managing director.

"They take a fairly long-term view because they have seen many of these market cycles. They expect anything ranging from three to four times their investment as returns," added Sateesh Andra, venture partner at Draper Fisher Jurvetson.

Vandana in Mumbai