Govt panel calls for tweaking norms to help pension funds invest in growing list of unicorns

Amid the expanding list of unicorns in the country, and stellar fundraising and jaw-dropping valuations -- like in the case of Zomato IPO and upcoming Paytm Flipkart IPOs --  a parliamentary panel has again called for the need to change norms enabling domestic pension funds and other institutions to invest in start-ups and unicorns.

The Parliamentary Standing Committee on Finance, headed by BJP leader and former minister of state (finance) Jayant Sinha, has sought a change in norms to enable pension funds, insurance companies and banks in India to invest "proportions of their investible surplus" into domestic funds.  

"The committee would like to reiterate that to bring in much needed additional domestic capital for startup investments, large financial institutions such as pension funds, insurance companies and banks in India should be encouraged to channelize the portions of their investible surplus into domestic funds," said the committee in its report tabled in the Parliament on August 3.  

"The committee notes the current regulations governing contributions in alternative asset classes and desires that let these be eased so that successful global models may be replicated in India and greater capital may be mobilised across the country," the Standing Committee on Finance report added.  

"The Committee thinks that the domestic institutions need not shy away from taking exposure and may utilise the large pools of domestic capital as investment sources in the country. Moreover, the strong returns being generated by dozens of domestic unicorns should be made available to domestic investors as well and not simply be captured by foreign institutions," the report added.  

It may be noted that 19 Indian startups have become unicorns in this year, with the global venture capital firms and investors bullish on them. Earlier this week, fintech startup BharatPe raised $370 million at a valuation of $2.85 billion from Tiger Global, which also pumped in $125 million into another Indian startup, Infra.Market this week.  

 The reiteration from the committee on relaxing the norms for domestic institutions for investment into the startup ecosystem follows its dissatisfaction with the action taken by the government on the recommendation made in an earlier report last year.  

Responding to the committees' recommendation made in September last year, the government said in the action taken report that currently 85 per cent of the asset under management in the National Pension System belongs to the government sector employees and the investment is made by pension funds under the investment guidelines issued by PFRDA into the government securities corporate debt and equity of the listed entities.  

"The investment guidelines issued by PFRDA for private sector subscribers under NPS allow investment in SEBI regulated alternative investment," the government said in its reply to the committee. "The investment in unlisted Alternative Investment Funds may not be feasible due to valuation and liquidity challenge," the government added.  

However, not satisfied with the government's stand on the issue, the committee has reiterated its stand in the report tabled earlier this week. The panel had also pointed towards the need for alternative investment funds to be allowed to be listed on the capital market, thereby creating a permanent source of capital for the startup ecosystem.

Also Read: BharatPe raises $370 mn to become unicorn; valued at $2.85 bn

Also Read: Recent unicorn Innovaccer aims to grow at 100% y-o-y