Thailand’s Pension Fund Allocates $11.6 Billion for Global Investment Revamp, Reports Reuters

By Panu Wongcha-um

BANGKOK – Thailand’s struggling $77 billion social security fund is set to invest $11.6 billion in global private assets as part of a strategic overhaul aimed at improving its underwhelming returns. This initiative comes amid rising demands stemming from an ageing population.

The country’s largest state fund, which provides support for healthcare, unemployment benefits, and pensions for 25 million workers, has averaged returns of less than 3% over the past decade, significantly below its potential. Investment board member Petch Vergara highlighted in an interview that the fund intends to shift its focus from a domestic-only strategy starting next year.

Petch, a former Goldman Sachs executive known for managing private wealth, expressed concern about the fund’s heavy reliance on low-risk domestic investments, deeming it unsustainable. "At this rate, the fund could face insolvency by 2051," she warned after joining the Social Security Fund earlier this year. She emphasized that while low-risk investments may appear secure in the short run, they hinder long-term return potential.

This strategic pivot is particularly urgent as Thailand’s demographic landscape changes, with one-fifth of its 66 million residents over the age of 60 as of last year, a significant increase from 10% two decades ago. The over-60 population has grown dramatically, from 6.2 million in 2004 to 13 million in December 2023.

The move toward an aggressive investment strategy follows a recent reshuffling of the fund’s board. For the first time, multiple members were elected in December, breaking a long-standing tradition where board members were appointed by military officials following a 2014 coup. As of last year, two-thirds of the board’s 21 members had been elected, many nominated by labor organizations and progressive political groups advocating for substantial institutional reforms.

The new board has authorized an investment framework for 2025 that aims to reduce the allocation of low-risk assets from 70% to 60%, while increasing the share of higher-risk investments from 30% to 40% over the next two and a half years. Petch noted that the goal is to achieve a balanced 50-50 split by mid-2027. Among these higher-risk investments, 15%, or approximately $11.56 billion, will be dedicated to global private assets, including private equity, private credit, and hedge funds, by mid-2027. Petch stated, "The intent is to make the portfolio more global to seek better long-term returns."

In comparison to this ambitious strategy, a recent study highlighted that pension funds across 22 major markets reported an average annual return of 7.7% over the past five years with a diversified portfolio of 60% global equities and 40% global bonds. In contrast, Thailand’s social security fund has recorded an average return of just 2.7% during the same timeframe.

Analysts have long urged for a change in strategy to meet the growing demands of an ageing population. However, issues of trust and a history of mismanagement have created skepticism about the fund’s ability to effectively manage its resources. Worawan Chandoevwit, an advisor on social security at Thailand Development Research Institute, stated that the number of retired individuals eligible for pensions currently stands at 700,000, a figure that is expected to rise dramatically. Independent research predicts a shift where withdrawals will outpace contributions to the fund, leading to a clear deficit by 2045.

Worawan remarked, "We will soon have more people utilizing pensions, and they will live longer. The amounts coming in and going out will differ significantly." She emphasized the importance of achieving high returns in the long term for the fund’s sustainability, asserting, "Good governance in the fund’s investments is essential for its long-term viability."