Thailand’s Social Security Fund to Invest $11.6 Billion in Global Private Assets

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, an executive told Reuters, as part of a strategic overhaul to address poor returns amid rising demand from an ageing population.

Thailand’s largest state fund, which supports healthcare, unemployment benefits, and pensions for 25 million workers, has seen an average return of under 3% over the past decade, significantly below its potential. To rectify this situation, it seeks to diversify away from a domestic-focused strategy starting next year, according to investment board member Petch Vergara.

Petch, a former Goldman Sachs executive, stated that the fund’s concentration in domestic and low-risk investments is unsustainable. “At this rate, the fund could go bankrupt by 2051,” she explained. “The current investment portfolio is overly concentrated in Thai assets, and low-risk investments may seem safe short-term but undermine long-term returns.”

As Thailand’s population ages, one-fifth of its 66 million people were over 60 years old at the end of last year, a significant increase from 10% two decades ago, per the Department of Older Persons data.

New Leadership and Investment Strategy

The new aggressive strategy follows a recent overhaul of the fund’s board, where two-thirds of its members were elected in December, marking a shift from appointments by military generals post-2014 coup. Many new board members were nominated by labor groups and the progressive party that promised significant institutional reforms.

The board has approved an investment framework that will reduce low-risk assets’ proportion from 70% to 60% and increase higher-risk investments from 30% to 40% over the next 2.5 years, with a goal of achieving a 50-50 split by mid-2027.

Fifteen percent, or $11.56 billion, will be allocated towards global private assets like private equity, credit, and hedge funds, aimed at enhancing long-term returns.

Returns and Future Projections

A 2023 study by the Thinking Ahead Institute showed an average annual return of 7.7% for pension funds with a 60% global equities and 40% global bonds structure. In contrast, Thailand’s fund reported just 2.7% over the past five years.

Analysts emphasize that due to demographic shifts and historical mismanagement, public trust in the fund has waned. Currently, 700,000 retired workers draw pensions, with projections indicating that more retirees will soon exceed contributors, leading to a deficit by 2045.

Worawan Chandoevwit, an advisor at the Thailand Development Research Institute, stresses that achieving high long-term returns is crucial for the fund’s sustainability and that effective governance is vital for investment management.