Thai asset managers set for hedge fund, pensions boost
Thailand’s funds industry is set for some big positive changes in the coming months, said Duangkamon Phisarn, managing director and secretary general of the Association of Investment Management Companies (AIMC) in Bangkok.
This week the country celebrates the start of its new year, which is likely to see the introduction of a mandatory pension scheme for all formal private-sector employees, and rules allowing a wider variety of funds to be sold locally, including hedge funds.
The industry has been working closely with the regulator on new rules around fund structure, product type and adviser conduct, Phisarn told AsianInvestor.
“Both the Securities and Exchange Commission [SEC] and the Bank of Thailand [the central bank] are trying to move forward on product liberalisation, to encourage a wider range of funds, including high-yield bond funds and hedge funds,” she said.
Phisarn added that both watchdogs recognised it was time to relax regulations and ensure that investment rules, accounting treatment and risk management are up to international standards.
Hedge fund developments
The SEC issued rules allowing asset managers to set-up hedge fund-like products on January 16. The funds will initially be available only to ultra-high-net-worth (UHNW) clients – those with at least $30 million in net assets – and institutional investors.
Phisarn could not say when the first hedge fund products would be introduced, noting that it would take time for asset managers to prepare funds and gain regulatory approval. However, she said the first funds were likely to be feeder funds into existing offshore hedge funds.
In Thailand, the funds industry – including private vehicles – grew from AUM of $155 billion at the end of 2015 to $177 billion by the end of last year, according to AIMC.
Bond funds remain the dominant asset class, with more than $70 billion of assets, up from $62 billion in 2015, representing 54% of the mutual fund market. Equity products account for 25% of the market and mixed funds 6%.
Passporting ambitions
Cross-border fund harmonisation and mutual recognition are also high on the AIMC’s agenda, said Phisarn. “In the last year we [the industry and regulators] have worked to bring the funds rules in line with [Europe’s] Ucits funds,” she said.
This not only has implications for funds sold in Thailand, noted Phisarn, but would also facilitate the next step: for Thailand-domiciled funds to be registered for sale in other countries under the Asia Region Funds Passport (ARFP).
Mutual recognition of funds between Thailand and other countries looking to participate in the ARFP scheme is a key focus. Countries currently looking to participate in the ARFP include Australia, Malaysia and the Philippines. Singapore has concerns about tax treatment of funds under the programme at present.
But Phisarn said she could not comment on when mutual recognition would be implemented or which fund groups were likely to be first movers.
Progress on pensions
Pension reform is under way in Thailand, which will drive growth of the local mutual funds market, noted Phisarn. Ten million people are expected to join the new mandatory scheme, out of a total working population of 15 million.
The Ministry of Finance approved the scheme in January this year, under which contributions will be tax-deductible, and the pension act is now under the legislative process, she said. The scheme is on schedule for introduction later this year, confirmed Pisut Sampatanukul, director in the strategy department of Thailand’s Government Pension Fund.
Once the legislation becomes effective, Phisarn said, the investment industry and government will conduct a major investor education campaign, to ensure the new funds meet members’ needs and risk tolerances.
Fintech focus
Another big talking point in the Thai funds industry is financial technology. Phisarn said the funds industry had looked at nearby countries to identify technologies that asset managers could use.
India and Bangladesh, for instance, are moving towards allowing the sale of mutual funds through electronic platforms. Phisarn said this was being implemented without the face-to-face interaction of the conventional know-your-customer relationship normally required to comply with anti-money laundering rules. The KYC process is covered by the initial online data-gathering process.
While Thailand is studying this initiative, noted Phisarn, changes would be needed, because there are regulatory barriers to its introduction locally.
******
AsianInvestor will be holding its inaugural Thailand Global Investment Forum in Bangkok on June 8.
For programme details, please contact Alastair Hills at [email protected], and for sponsorship information, please contact Terry Rayner at [email protected]