Corporate Finance, Financial Markets, Global finance, Indian Economy, Investment Banking

What is a Pension Fund and why is it hot?

Global investment

Pension Fund is a fund or a scheme that is designed to provide a steady income to people post retirement. The Indian Government’s Employees Provident Fund Organization (EPFO) is an example of a pension fund. So why are these funds so hot? Why do we keep hearing about them in news articles? This is because they are custodians of a large amount of money. People start contributing to these funds when they start working and enjoy their benefits only when they retire. This gives the fund an opportunity to invest this money for a long period of time.

Pension Funds across the globe are said to control a large number of assets due to the funds that they control. Some of the biggest Pension Funds control over $6 trillion in assets. Morgan Stanley estimates that these funds shall soon control assests worth $20 trillion. EPFO alone is said to control assets worth $123 billion. As an investing organization, they become more valuable than most banks, mutual funds, currency reserves, insurance companies, hedge funds, investment banks, private equities and soverign wealth funds. Like the financial institutions mentioned above, Pension Funds look to invest in stock markets and businesses of stable economies.

Due to the positive political climate, investor friendly policies and a steady business outlook, India is seen positively by these Funds. Hence, we read a lot of news articles about Pension Funds investing in the Indian Financial Markets. Western Pension Funds like the Canada Pension Plan Investment Board (CPPIB), Ontario Teacher’s Pension Plan (OTPP),  Caisee de depot et placement du Quebec (CDPQ), Public Sector Pension Investment Board (PSPIB) and the Dutch Pension Fund APG have invested a thousands of crores in India since 2014. This inflow has given a lot of boost to businesses.

In order to manage their money appropriately, these Funds hire a lot of people in the country of their interest for doing due diligence. They need experts in corporate finance, mergers and acquisition, project finance, investment banking, etc. to help them invest and track their investments. As investors they sometimes get seats on a company’s board. It is because of this that professional skilled in Global Financial Markets are in great demand and are sought after by these financial behemoths.

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