Thailand’s Social Security Fund Shifts Strategy to Boost Returns

By Panu Wongcha-um

BANGKOK (Reuters) – Thailand’s underperforming $77 billion social security fund will invest $11.6 billion in a new foray into global private assets. This decision comes as part of a strategic overhaul to address poor returns amidst rising demand from an aging population.

The largest state fund in Thailand supports healthcare, unemployment benefits, and pensions for 25 million workers and has seen an average return of under 3% over the past 10 years. According to board member Petch Vergara, the fund plans to rectify this by diversifying away from its domestic-focused strategy starting next year.

Petch, a former Goldman Sachs executive, stated that the fund’s high concentration of domestic and low-risk investments is unsustainable. She emphasized, “At this rate, the fund could go bankrupt by 2051.”

The current portfolio is overly concentrated in Thai assets, and while low-risk investments appear safe short-term, they compromise long-term returns.

As Thailand’s population ages—one-fifth of its 66 million people were over 60 last year, up from 10% two decades ago—the fund’s strategy shift is crucial. The numbers of people over 60 doubled from 6.2 million in 2004 to 13 million in December 2023.

New Faces, Reformist Backing

This aggressive strategy coincides with a recent board composition change. Two-thirds of the 21-member board were elected last year, with many nominated by labor groups and a progressive party promising reforms. Previously, most members were appointed by military generals who took power in a 2014 coup.

The new board approved an investment framework starting in 2025, reducing low-risk assets from 70% to 60% and increasing higher-risk investments to 40% from 30%. The goal is a 50-50 split by mid-2027.

Of the higher-risk investments, 15% (approximately $11.56 billion) will go towards global private assets like private equity and hedge funds. Petch noted, “The idea is to make the portfolio more global to find more long-term returns.”

Meager Returns

A 2023 study by the Thinking Ahead Institute highlighted that pension funds in major markets averaged a 7.7% return over five years with a 60% global equities and 40% global bonds portfolio. In contrast, Thailand’s fund achieved an average return of just 2.7% in that period. Analysts suggest a need for change, citing trust issues stemming from mismanagement and underperformance.

Worawan Chandoevwit, an advisor at the Thailand Development Research Institute, indicated that 700,000 retired workers are currently eligible for pensions, a number set to grow significantly. Independent research predicts more withdrawals than contributions by 2045, resulting in a clear deficit.

She warned, “High return is key in the long term to ensure the long-term viability of the fund. Good governance on investments is essential.”