Thailand’s pension fund earmarks US$11.6 billion for world funding overhaul | USAEMALL.com

NEW FACES, REFORMIST BACKING

The more aggressive strategy follows a recent change in the composition of the fund’s board after some members were elected to their roles for the first time ever in December. Before that, 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 were nominated by labour groups and by the progressive party that won last year’s general election on promises of major institutional reforms, but was blocked from forming a government by conservative lawmakers allied with the royalist military.

The new board has approved an investment framework starting in 2025 that will lower the fund’s weighting of low-risk assets from 70 per cent to 60 per cent, and increase the concentration of higher-risk investments to 40 per cent from the current 30 per cent over the next 2-1/2-years, Petch said.

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

Of the higher-risk investments, 15 per cent, or 375 billion baht (US$11.56 billion) will be allocated towards investment in global private assets, such as in private equity, private credit and hedge funds, by mid-2027, said Petch.

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

MEAGRE RETURNS

A 2023 study by the non-profit Thinking Ahead Institute on global pension assets across 22 major pension markets showed an average annual return of 7.7 per cent over the past five years for pension funds with investment portfolios that consisted of 60 per cent global equities and 40 per cent global bonds.

By comparison, the portfolio of the social security fund in Thailand, Southeast Asia’s second-biggest economy, has seen an average return of just 2.7 per cent in the past five years.

Analysts have long advocated a change in tack to meet swelling demands from the population, but point to trust issues and a lack of public faith due to the fund’s history of mismanagement, high operating costs and underperformance.

According to Worawan Chandoevwit, an advisor on social security at the Thailand Development Research Institute, 700,000 retired workers are currently eligible for pensions from the fund but that number is set to increase significantly.

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

“We will soon have more people utilising the pension and they will also live longer,” Worawan said, “So the money going in and coming out is a very different amount.”

“High return is key in the long term to ensure the long-term viability of the fund,” she said. “Long-term good governance on the fund’s investments is key.”