Thailand's $77 Billion Social Security Fund Initiates $11.6 Billion Global Private Assets Investment to Combat Poor Returns
By Panu Wongcha-um
BANGKOK (Multibagger) - Thailand's $77 billion social security fund is undertaking a radical investment overhaul, earmarking $11.6 billion for global private assets in a bid to counteract its historically poor returns and meet the increasing demands of an aging population, according to an executive in a recent interview with Multibagger.
Thailand's largest state fund, which provides healthcare, unemployment benefits, and pensions for 25 million workers, has reported an average return of under 3% over the past decade. This is significantly lower than its potential, prompting a strategic shift from a predominantly domestic-focused strategy. Petch Vergara, a member of the investment board and former Goldman Sachs executive, highlighted the necessity of this diversification starting next year.
Unsustainable Domestic Focus
Vergara, who managed private wealth for ultra-high net-worth individuals for nearly a decade, indicated that the fund's heavy reliance on low-risk domestic investments could lead to insolvency by 2051 if left unaddressed. "The current investment portfolio of the fund is overly concentrated in Thai assets," she stated. "While low-risk investments may seem safe in the short term, they hinder potential long-term returns."
Socioeconomic Pressures
Thailand's demographic landscape is rapidly changing, with one-fifth of its 66 million citizens aged over 60 by the end of last year, doubling from 6.2 million in 2004 to 13 million in December 2023. This aging population is increasing pressure on the social security fund, necessitating a more aggressive investment approach.
New Leadership and Reformist Momentum
Recent changes in the fund's board composition have paved the way for this strategic shift. For the first time in December, two-thirds of the 21-member board were elected, many nominated by labor groups and the progressive party advocating major institutional reforms. Previously, board members were appointed by the generals who seized power in a 2014 coup.
The new board has approved an investment framework starting in 2025, which aims to reduce the fund's low-risk asset weight from 70% to 60% while increasing higher-risk investments from 30% to 40% over the next 2.5 years. The goal is to achieve a 50-50 split by mid-2027.
Global Investment Strategy
Of the high-risk investments, 15% (375 billion baht or $11.56 billion) will be allocated towards global private assets, including private equity, private credit, and hedge funds by mid-2027. "The idea is to make the portfolio more global to find more returns in the long term," Vergara added.
Comparative Performance and Future Outlook
A 2023 study by the Thinking Ahead Institute on global pension assets revealed an average annual return of 7.7% over the past five years for portfolios comprising 60% global equities and 40% global bonds. In stark contrast, Thailand's social security fund has posted an average return of just 2.7% over the same period.
Despite long-standing advocacy for a more robust investment strategy to address the growing demands of the aging population, analysts point to trust issues stemming from the fund's history of mismanagement, high operating costs, and underperformance.
Worawan Chandoevwit, an advisor on social security at the Thailand Development Research Institute, emphasized the looming financial challenges. "We will soon have more people utilizing the pension, and they will also live longer," she said. "So the money going in and coming out is a very different amount."
The advisor reiterated that high returns are essential to ensure the fund's long-term viability. "Long-term good governance on the fund's investments is key," she concluded.
Breaking Down the Impact
For the layperson: Thailand's social security fund, which supports millions of workers, hasn't been making enough money from its investments. To solve this, they are planning to invest more money in higher-risk, global assets like private equity and hedge funds. This is important because Thailand's population is getting older, meaning more people will soon need to draw pensions. If the fund doesn't make more money, it could run out of cash by 2051. The new investment strategy aims to prevent this by seeking higher returns from global investments, ensuring that there's enough money to support everyone who needs it in the future.
Why it matters to you: If you're a worker in Thailand relying on the social security fund for your future healthcare and pension, these changes could mean better financial security for you as you age. By focusing on higher returns, the fund aims to safeguard its ability to provide for you and millions of others in the long term.