In a significant move to bolster domestic capital formation, the Pension Fund Regulatory and Development Authority (PFRDA) is set to establish a specialized fund-of-funds platform within the National Pension System (NPS). This platform will channel pension savings into carefully selected Alternative Investment Funds (AIFs), positioning long-term retirement money as a cornerstone for India's private market growth.
A Framework for Prudent and Confident Investment
PFRDA chairman S Ramann made the announcement on Tuesday while speaking at the IVCA DII & Exits 2025 conference. He outlined that the regulator has spent recent years building a robust foundation for this initiative. This groundwork includes creating clearer classifications for alternative assets and strengthening governance structures to ensure safety and transparency.
Ramann revealed that PFRDA has now classified all alternative investment instruments into two broad categories: equity and debt. This classification follows the Securities and Exchange Board of India's (Sebi) decision to categorize Real Estate Investment Trusts (REITs) as equity instruments. "Over the last few years, we have worked to classify alternate assets more clearly, strengthen governance structures, and build a centralised and transparent NPS fund-of-funds platform that can select AIFs with rigour and credibility," Ramann stated.
Unlocking the Power of Domestic Patient Capital
The core vision behind this initiative is to tap into the vast pool of domestic, long-term capital that pension assets represent. Ramann emphasized that India's next phase of capital formation must be built on strong domestic sources of patient capital. Pension funds, by their very design, are inherently long-term and stable, making them an ideal match for private market investments that require time to mature.
"Pension assets, by design, are long-term and stable, and our effort at PFRDA is to create a framework that allows these funds to participate meaningfully in India’s private market growth," he said. This framework is designed to be inclusive, enabling every pension fund, regardless of its size, to deploy capital into AIFs confidently without compromising on prudence and risk management.
Moving Beyond Cyclical Risk Capital
Ramann acknowledged that traditional risk capital is often cyclical. However, he argued that a well-diversified portfolio of AIFs, backed by strong regulatory oversight and the long investment horizons of pension money, can deliver beneficial outcomes for NPS subscribers. He stressed the need for India to evolve beyond typical seven- to ten-year fund structures.
The PFRDA chairman advocated for the adoption of longer-tenor and even perpetual investment vehicles that better reflect the decades-long nature of retirement savings. This alignment is crucial for maximizing returns and supporting infrastructure and private equity projects that need extended timelines.
Building Trust for Wider Institutional Participation
For this strategy to succeed at scale, Ramann highlighted the importance of aligning incentives and deepening trust through impeccable processes. "If India is to unlock the full power of domestic institutional investors, we must align incentives, deepen trust through process excellence, and enable wider participation from pension, insurance, and retirement assets," he remarked.
He concluded on an optimistic note, stating that the opportunity is immense. With the right guardrails in place, domestic capital can become a powerful anchor for India's long-term economic growth story, reducing over-reliance on foreign investment flows and creating a more resilient financial ecosystem.
