Thailand's Pension Fund Takes Bold Steps with $11.6 Billion Global Investment Plan: Is It Enough to Save the Future?

BANGKOK: In a groundbreaking move, Thailand's struggling $77 billion social security fund has announced plans to invest a whopping $11.6 billion into global private assets. This strategic overhaul aims to counter the fund's dismal average return of under 3% over the past decade, a figure that has drawn increasing scrutiny amid a rapidly aging population demanding more robust financial support.

With over 25 million workers reliant on this fund for healthcare, unemployment benefits, and pensions, the urgency for reform has never been greater. Investment board member Petch Vergara, who previously held a key role at Goldman Sachs, revealed that the fund's heavy reliance on low-risk domestic investments is not only unsustainable but could lead to bankruptcy by 2051. “At this rate, the fund could go bankrupt by 2051,” Petch warned, underscoring the dire need for diversification as the current portfolio is heavily weighted in Thai assets.

The demographic landscape in Thailand is shifting dramatically; approximately 20% of the country's 66 million citizens were over 60 years old at the end of last year, and this proportion has significantly increased from just 10% two decades ago. The elderly population has ballooned from 6.2 million in 2004 to around 13 million in December 2023, further stressing the need for enhanced pension sustainability.

Leadership Changes Sparking Reform

This bold investment strategy comes on the heels of a major shift within the fund's board, which has recently seen a wave of reformist members elected for the first time, breaking away from the previous military-appointed system. Last year, two-thirds of the board, comprising 21 members, were elected, promising a fresh approach to governance.

Under this new regime, a framework has been approved to transition the fund's investment strategy starting in 2025. It aims to reduce the proportion of low-risk assets from 70% to 60% and increase higher-risk options from 30% to 40% within the next 2.5 years. The ultimate goal? Achieve a 50-50 split between low and high-risk investments by mid-2027.

By 2027, the fund plans to allocated approximately 375 billion baht (around $11.56 billion) to global private assets, including private equity, private credit, and hedge funds, as part of a global strategy designed to enhance long-term returns. “The idea is to make the portfolio more global to find more returns in the long term,” Petch elaborated.

A Picture of Underperformance

Comparatively, a recent study by the non-profit Thinking Ahead Institute revealed a stark contrast in performance. Pension funds such as those from 22 leading markets recorded an average annual return of 7.7% over the past five years, while Thailand’s social security fund lagged behind with a mere 2.7% average return during the same period.

Experts have long urged a change in strategy to better address the increasing demands of an aging populace. However, trust issues stemming from historical mismanagement and significant operational costs remain a barrier to effective reform. Worawan Chandoevwit, a social security advisor at the Thailand Development Research Institute, warns that the number of retired workers eligible for pensions is anticipated to skyrocket, leading to a situation where payout demands vastly outstrip contributions.

"High return is key in the long term to ensure the long-term viability of the fund," Worawan stated. "We will soon have more people utilizing the pension and they will live longer, meaning the dynamics of cash flow into and out of the fund will change dramatically."

In light of these challenges and substantial changes underway, many wonder: Will Thailand's bold investment overhaul truly be enough to secure a stable future for its aging population? Only time will tell, but the stakes couldn't be higher.