BANGKOK, Sept 27 (Askume) – Thailand’s underperforming $77 billion social security fund will pump $11.6 billion into new investments in global private assets as demand from an ageing population grows, a senior executive told Askume, as part of a shift in strategy to address the issue.
Thailand’s largest sovereign fund, which provides health care, unemployment benefits and pensions to 25 million workers, has averaged less than 3% returns over the past decade, far below its potential, investment committee member Petch Vergara said in an interview. The company will try to improve the situation through diversification strategies and move away from domestic-focused strategies.
Page, a former Goldman Sachs executive director who has managed the private wealth of the super-rich for nearly a decade, said the fund’s heavy concentration on domestic and low-risk investments was unsustainable.
“At this rate, the fund could be insolvent in 2051,” said Page, who joined Social Security earlier this year.
“The fund’s current portfolio is highly concentrated on Thai assets,” he said.
The change comes as Thailand’s population is aging. As of the end of last year, a fifth of the country’s 66 million people were over 60, up from 10% two decades ago, according to the Department for Older Persons of the Ministry of Social Development and Human Security.
The data shows that the population above 60 years of age will double from 6.2 million in 2004 to 13 million in December 2023.
Support new faces and reformists
The more aggressive strategy follows recent changes to the composition of the fund’s board, when some members were elected for the first time in December. Previously, most members were appointed by the generals who seized power in a 2014 coup.
Last year, two-thirds of the 21-member board were elected. Many of them were nominated by labor groups and progressive parties .
Page said the new board approved an investment structure starting in 2025 that will reduce the weight of the fund’s low-risk assets from 70% to 60% and increase the weight of riskier assets over the next 2-1/2 years.
The goal is to achieve a 50-50 split by mid-2027, he said.
Petch said that by mid-2027, 15%, or 375 billion baht ($11.56 billion), would be allocated to higher-risk investments such as global private asset investments such as private equity, private debt and hedge funds.
“The idea is to make the portfolio more global to generate higher returns in the long run,” he said.
Short return
A study of global pension assets in 22 major pension markets by the not-for-profit Thinking Ahead Institute shows the average annual return over the past five years for pension funds with portfolios made up of 60% global stocks and 40% equities. Global bonds are at 7.7%.
By comparison, social security fund portfolios in Thailand, Southeast Asia’s second-largest economy, have averaged returns of just 2.7% over the past five years.
Analysts have long argued for a change in strategy to meet growing public demand, but they have also pointed to trust issues and a lack of public confidence due to mismanagement of funds, high operating costs, and a history of poor performance.
Voravon Chandowit, a social security consultant at the Thailand Development Institute, said currently 700,000 retired workers are eligible to receive pensions from the fund, but that number will increase significantly.
He said independent research shows the fund will have more withdrawals than donors and will run a significant deficit by 2045.
“Soon more people will reach their retirement and they will live longer, so there will be a huge difference in the amount of money coming in and going out,” Mr Warlawn said.
“High long-term returns are critical to ensuring the fund’s long-term viability,” he said. Good long-term governance of the fund’s investments is important.
(Starting at $1 = 32.4500)
