India’s youngest pension manager draws up big growth ambitions

The latest entrant to India’s National Pension System is raring to carve its own asset and investment niche in the country’s rapidly growing pensions industry using a combination of a highly active investment approach and technology.

“We are the 11th player in the NPS ecosystem. We see ourselves among the top five in 10 years,” CEO of DSP Pension Fund Managers Rahul Bhagat told AsianInvestor.

“We have an investment team in place, a risk team, a compliance manager and back office and front office staff,” he said, adding that there are plans to further invest in systems and technology.

That's quite ambitious for an entity that started operations only in December 2023.

DSP Pension Fund Managers is the wholly owned subsidiary of DSP Asset Managers, a 160-year-old Indian financial giant with $18 billion in assets under management (AUM).

The family behind DSP’s businesses was instrumental in starting India’s first stock exchange, the Bombay Stock Exchange.

NPS, a market-linked defined contribution retirement scheme with $139 billion in AUM at the end of March 2024, is managed by managed by 11 money managers.

It is a mandatory scheme for central government employees and voluntary for all other citizens.

Money managers under NPS invest in four asset classes – equities, corporate bonds, government bonds and alternative investments.

ACTIVE MANAGEMENT

The Mumbai-based executive said one of the ways DSP Pension Fund Managers aims to distinguish itself from the rest of the NPS managers is mainly with its money management approach.

“Even in the first seven months of the year, our funds have beaten the benchmark by almost 400 basis points,” said Bhagat.

“Our performance is good because we make active investments and are also very selective about the companies we invest in.”

It had about Rs5.77 billion ($68 million) in assets under management at the end of August 2024, with about 43% invested in equities and the rest in debt.

The pension manager's investment universe for equities is the BSE 200 index, an index of select companies based on market capitalisation.

“Our exposure is just 29 companies, which is highly concentrated,” said Bhagat.

“We don’t believe in having too many companies, so our bets are very concentrated. Yet we are very conservative and traditional in our investment approach. Our picks are those that have no leverage and have strong long-term business models.”

The closest competitor in the NPS ecosystem in this regard is another manager that has 59 companies in its equities portfolio, added Bhagat.

"We follow a value investing approach and try to find intrinsic value in companies that we invest.

"But it’s a constant battle to find the right investments, especially in an environment where stocks are consistently rising."

Indian stocks have climbed relentlessly in the past five years. The BSE 200 has soared to 11,930 points from around 4,600 levels in October 2019 – a gain of more than 155%.

Another widely tracked equity benchmark, Nifty 50, has also more than doubled over the same period to trade around the 26,000 mark.

FAITH IN TECHNOLOGY

Technology, including artificial intelligence, will also be in focus for the young pension money manager.

“The intent is to use technology to our advantage and not have very large teams. Can I have an investment team of 4 instead of 10?” he said.

He has strong faith in the potential of artificial intelligence: “AI is likely going to be phenomenal because of the productive enhancements it promises – and the promise holds for everyone.”

While companies in the US have analytics and processes using AI to identify companies for investing, India’s current usage revolves around more basic stuff.

As other asset owners have told AsianInvestor, AI, while becoming more prevalent and pervasive, is never going to fully replace the human element in investing.

“Investing is a process and a lot of ‘gut feel’ and ‘instinct’ follow the process,” Bhagat said.

“The feeling you have is related to a lot of factors including your understanding of the markets and how debt can be impacted by foreign factors, for example.”

The human value will always be the differentiating factor, said Bhagat, although “you can enhance a lot of processes with AI.”