Exclusive-Thailand pension fund allocates $11.6 billion to overhaul global investments By Reuters

By Panu Wongcha-um

BANGKOK (Reuters) – The underperforming $77 billion social security fund will invest $11.6 billion in a new foray into global private assets, an executive told Reuters as part of an overhaul strategies to address weak profits amid growing demand from an aging population.

Thailand’s biggest sovereign wealth fund, which supports healthcare, unemployment benefits and pensions for 25 million workers, has averaged returns of less than 3 percent over the past 10 years, well below its potential, and is trying to fix that thing next year, diversifying away from its country-focused strategy, investment board member Petch Vergara said in an interview.

Petch, a former executive at Goldman Sachs who managed private wealth for ultra-high-net-worth individuals for nearly a decade, said the fund’s high concentration of domestic and low-risk investments was unsustainable.

“At this rate, the fund could go bankrupt by 2051,” said Petch, who joined the Social Security Fund earlier this year.

“The fund’s current investment portfolio is too concentrated in Thai assets,” she said, adding that “low-risk investments may look safe in the short term, but harm potential long-term returns.”

The change comes as Thailand’s population ages, with a fifth of its 66 million people aged over 60 at the end of last year, compared with 10% two decades ago, according to the Department for the Elderly at Social Development and Human Security. ministry.

The over-60 population has doubled from 6.2 million in 2004 to 13 million in December 2023, the data shows.

NEW FACES, REFORMIST SUPPORT

The more aggressive strategy comes after a recent shake-up in the fund’s board, after some members were elected to their posts for the first time in December. Before that, most members were appointed by generals who seized power in a 2014 coup.

Last year, two-thirds of the 21-member board were elected. Many were nominated by labor groups and the Progressive Party which won last year’s general election on promises of major institutional reforms but was blocked from forming a government by conservative MPs allied with the royalist army.

The new board approved an investment framework starting in 2025 that will reduce the fund’s share of low-risk assets from 70% to 60% and increase the concentration of higher-risk investments to 40% from the current 30% in the next 2 – 1/2 year, Petch said.

The goal was a 50-50 split by mid-2027, she added.

Of the higher-risk investments, 15 percent or 375 billion baht ($11.56 billion) will be allocated to global private asset investments such as private equity, private credit and hedge funds by mid-year 2027, Petch said.

“The idea is to make the portfolio more global to find more long-term returns,” she added.

MAIBE RETURN

A 2023 study by the non-profit Thinking Ahead Institute of global pension assets in 22 major pension markets showed an average annual return of 7.7% over the past five years for pension funds with investment portfolios consisting of 60 % global shares and 40% global. bonds.

By comparison, the social insurance fund’s portfolio in Thailand, Southeast Asia’s second-largest economy, has averaged just 2.7 percent returns over the past five years.

Analysts have long advocated a shift in focus to meet growing public demand, but point to trust issues and a lack of public confidence due to the fund’s history of mismanagement, high operating costs and poor performance.

According to Worawan Chandoevwit, social security adviser at the Development Research Institute of Thailand, 700,000 retired workers are currently eligible for pensions from the fund, but this number will increase significantly.

Based on independent research, there will be more people taking money out than contributing to the fund and there will be a clear deficit by 2045, she said.

“Soon we will have more people using the pension and also living longer,” Worawan said, “So the money coming in and going out is a very different amount.”

“High returns are essential over the long term to ensure the long-term viability of the fund,” she said. “Good long-term governance of the fund’s investments is key.”

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