Thailand's Government Pension Fund (GPF) is focused on one particular goal: its need to best meet the needs of its fast-aging population. As part of that key focus, the civil servant pension fund is likely to lead to more foreign partnerships.

Man Juttijudata, GPF

Assistant secretary of risk management group Man Juttijudata told AsianInvestor that GPF is likely to partner up with global pension peers to co-invest in alternative assets in particular. He noted that the approach makes sense, as investors in other geographies will better understand what opportunities exist locally, much as GPF does in Thailand. 

“Every pension fund should be specialised in their own market, and when they want to invest in alternatives in another market they co-invest with other pension funds so they share expertise,” he said during a phone interview.

Partnering up to co-invest offers another benefit: it’s relatively cheap. Man noted that private equity or real estate funds run by general partners typically charge a 2% management fee and 20% of performance-driven carried interest.

“When we discussed with other pension funds, the trend is to do co-investments among ourselves,” he said. “We want to save our costs in investing in alternative asset classes abroad, like if we want to invest in Canada, we can co-invest with a Canadian one.”

It's also looking more possible than ever. In December the Bangkok Post reported that GPF would seek approval from the Finance Ministry in the same month to relax the overseas investment cap from 30% to 40%, and that it would prioritise adding alternatives and absolute return funds after the request is approved. Final approval is still pending.

GPF isn’t the only one looking to make allies across borders to co-invest in alternative assets. On 16 January Korea’s Public Officials Benefit Association (Poba) and California State Teachers’ Retirement System agreed to set up a $312.5 million joint venture into US multifamily residential real estate equities.

And the preference of pension funds to co-invest in private equity rose from 40% in 2014 to 42% last year, according to alternative data specialist Preqin.

While GPF is interested in global co-investment partnerships, its plans are still in the works. Man said the biggest concern to date have been discrepancies between its asset size and that of bigger pension funds in other countries.

“Even if we join them with a 5% allocation to alternative investments, our commitment is not that significant,” he said, without elaborating on what sort of allocation it would like to secure. 

FIDUCIARY DUTY

The pension fund's efforts to seek new investments overseas are part of an ever-broadening approach to investing, in the 14 years Man has been at the pension fund.

“We are like parents,” Man said. “We want the children to have enough in the future,” adding: “One thing that I tell my team is that you have to be proud to play a role in fiduciary duty for the members.”

Man has been part of those efforts, joining the civil servants pension fund in 2006 when its investment portfolio stood at around Bt317 billion ($8.77 billion). Just two years later the fund was struck by the global financial crisis. 

GPF made an investment loss of 5.17% that year. The fund quickly shifted its investment strategy as a result, improving its annual returns from that low point to a positive 8.92% the following year. And despite navigating some difficult periods the organisation’s portfolio has expanded in the years since to Bt940 billion, or almost $30 billion, of which Bt418.5 billion comes from private pension contributions and benefits, and the rest from government contributions. 

Man has been seen as key to these efforts. Indeed, his contributions led AsianInvestor to name him for his Individual Contribution to Institutional Investment in our most recent Institutional Excellence Awards

In the years since Man joined, his role has evolved to look after multiple facets of investing, including covering investment risks and its strategic and tactical asset allocation. Part of doing that entails exploring new asset classes, such as alternatives.  

Five years ago GPF first dipped its toes in alternative investments, portioning 5% of its assets to private equity, infrastructure and real estate. That portion had almost tripled to 13% by the end of September 2019. 

Alternative assets offer a particularly lucrative option. Man noted the average annual returns of global private equity investments range from mid-teens to up to 20%, while that of real estate and infrastructure sits between 10% and 15%. That compares to Thailand’s domestic interest rate benchmark, which dropped 25 basis points to a historical low of 1% in February. 

GPF has an annual inflation-adjusted target return target of around 2%, and with local rates so low it has little choice but to look both to alternative assets and offshore investing to beat that target. 

This article was adapted from a feature on GPF that originally appeared in AsianInvestor's Spring 2020 edition.