Key Takeaways
- • Pranay Ranjan Dwivedi, MD & CEO of SBI Pension Funds, suggests an initial allocation of 2-3% of a retirement portfolio to alternative investments, rising gradually to 5%, subject to regulatory limits and available opportunities.
- • Alternative investments such as AIFs, REITs and InvITs could improve risk-adjusted returns over a 10-20 year horizon, but benefits are not automatic and depend on manager selection, valuations, fees and exit strategies.
- • Liquidity and valuation risks are central concerns, as AIFs may have longer investment periods and exit restrictions, and private market assets are harder to value than listed securities.
- • The discussion coincides with PFRDA's review of the NPS investment framework, which could expand pension fund access to infrastructure, real estate and private businesses.
Summary
The National Pension System (NPS) could give subscribers greater exposure to alternative investments as pension fund managers seek to diversify retirement portfolios beyond equities, government securities and corporate bonds, according to Mint. Investments in alternative investment funds (AIFs), real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) could provide additional income and long-term growth, but they also carry lower liquidity, valuation uncertainty and the possibility of losses.
Pranay Ranjan Dwivedi, MD & CEO of SBI Pension Funds (SBIPF), believes a measured allocation could strengthen retirement portfolios over the long term. He suggests starting with around 2-3% of a retirement portfolio in alternatives, which could gradually increase to 5%, subject to regulatory limits and the availability of suitable opportunities. The discussion comes as the Pension Fund Regulatory and Development Authority (PFRDA) reviews the NPS investment framework.
Dwivedi said alternatives could improve risk-adjusted returns over 10-20 years, but the benefits are not automatic. Private equity offers exposure to business growth, while private credit, real estate and infrastructure can generate income. Real estate and infrastructure may offer some inflation protection, depending on underlying contracts and costs. He stressed that outcomes depend heavily on choosing the right managers, entering at reasonable valuations, controlling fees and having credible exit strategies.
Liquidity is a key constraint. Unlike listed shares and conventional bonds, some alternatives are difficult to sell quickly, and AIFs may have longer investment periods and exit restrictions. This could become a concern if pension funds need to rebalance or meet liquidity requirements. Dwivedi said greater exposure could also make NPS portfolios more complex, since private market assets are harder to value and monitor. He argued that professional pension fund managers should evaluate these investments and clearly communicate where subscribers' money is invested, why, at what cost and with what risks. He cited Canada's CPP Investments as an example of a global pension investor using private equity, private credit and real assets with strong governance.
Dwivedi also pointed to the NPS Trust's Bharat Fund of Funds initiative, which provides centralised evaluation, due diligence and ongoing monitoring of eligible AIFs, while pension funds retain investment responsibility. He concluded that alternatives could help NPS portfolios balance growth, income and resilience, but diversification should not come at the cost of inadequate risk management or liquidity. PFRDA, the NPS Trust, pension funds and AIF managers all have a role in ensuring subscribers receive clear information.
Pranay Ranjan Dwivedi, MD & CEO of SBI Pension Funds (SBIPF), believes a measured allocation could strengthen retirement portfolios over the long term. He suggests starting with around 2-3% of a retirement portfolio in alternatives, which could gradually increase to 5%, subject to regulatory limits and the availability of suitable opportunities. The discussion comes as the Pension Fund Regulatory and Development Authority (PFRDA) reviews the NPS investment framework.
Dwivedi said alternatives could improve risk-adjusted returns over 10-20 years, but the benefits are not automatic. Private equity offers exposure to business growth, while private credit, real estate and infrastructure can generate income. Real estate and infrastructure may offer some inflation protection, depending on underlying contracts and costs. He stressed that outcomes depend heavily on choosing the right managers, entering at reasonable valuations, controlling fees and having credible exit strategies.
Liquidity is a key constraint. Unlike listed shares and conventional bonds, some alternatives are difficult to sell quickly, and AIFs may have longer investment periods and exit restrictions. This could become a concern if pension funds need to rebalance or meet liquidity requirements. Dwivedi said greater exposure could also make NPS portfolios more complex, since private market assets are harder to value and monitor. He argued that professional pension fund managers should evaluate these investments and clearly communicate where subscribers' money is invested, why, at what cost and with what risks. He cited Canada's CPP Investments as an example of a global pension investor using private equity, private credit and real assets with strong governance.
Dwivedi also pointed to the NPS Trust's Bharat Fund of Funds initiative, which provides centralised evaluation, due diligence and ongoing monitoring of eligible AIFs, while pension funds retain investment responsibility. He concluded that alternatives could help NPS portfolios balance growth, income and resilience, but diversification should not come at the cost of inadequate risk management or liquidity. PFRDA, the NPS Trust, pension funds and AIF managers all have a role in ensuring subscribers receive clear information.
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