The Government Pension Fund of Thailand is continuing to expand its in-house team, as part of its ongoing efforts to better diversify its investment portfolio, in order to improve returns and better manage risk. 

GPF has an existing five-person team that looks after its offshore alternatives investments, which accounts for over 39% of its total allocation to assets such as global real estate, private equity and infrastructure. However, Man Juttijudata, the assistant secretary of risk management group at GPF, told AsianInvestor it could add another two people to take care of allocations to global GPs and strengthen its ability to invest offshore. 

Man Juttijudata, GPF

In addition, Man set up a new FX team last year to manage the fund’s hedging strategies, the fund is also looking at expanding the scope of its fixed income division, and its investment team is aiming to bring Asian equities investing in-house.

For Man, the FX division is most important. About 67% of GPF’s portfolio is made up of debt and bond-related assets (mostly in Thai baht) as of September end, but these assets only produced a return of 4.36% in the last calendar year.

As of February 28, the two-year, five-year and 10-year Thai government bond yields stood at 0.802%, 0.853% and 1.056% respectively. Those were below US Treasuries of the same tenor, which respectively yielded 0.86%, 0.89% and 1.13%.

If GPF is to raise its returns it will need more offshore investing. And that requires effective FX management. While it stopped investing in offshore sovereign bonds five years ago due to low yields, the FX team could “do [global fixed income investing] when there’s opportunities to increase or decrease our duration for specific [investment] buckets,” Man said.

He noted that FX team wouldn’t operate a full investment portfolio, but would supplement the global external fixed income mandates the fund already has.  

FX-related duties were previously done within the fixed income team, but these have since last year been carved out and performed by two members, who focus on swaps and monitor the baht and dollar movement, Man noted.

We are going to extend our domestic equity team ... to our neighbouring countries like Malaysia, Singapore, Indonesia, Vietnam

From there, GPF will look to both expand the duties of the equity team. Initially, this is likely to lead to increased regional investing. “We are going to extend our domestic equity team because they are now specialised in the Thai market. We can extend to our neighbouring countries like … Malaysia, Singapore, Indonesia, Vietnam,” Man said. It’s likely to take two to three years for GPF to build up that expertise.

As of September end, 7.5% of the fund’s portfolio was in Thai equities. This was larger than its allocations to developed markets (6.3%) and emerging markets (2.8%).  

Expanding regional equities is likely to lead GPF to cut its allocation to Thai equities, which have suffered from heavy volatility in the past few years as the export-oriented economy struggled to cope with a strong baht. Thailand’s benchmark SET index has slid by nearly 18% over the 12 months to February 27, while the country’s third quarter GDP grew at a slower than expected rate of 2.4%.

Moreover, what Man hopes that GPF’s move into Asian equities will help it fill its gaps in external fund manager mandates, which tend to focus more on developed markets.

PLANNING FOR THE FUTURE

For the longer term, Man believes that emphasising certain sectors for investment will help the fund ride through different economic cycles. 

“Financial technology, nano technology, healthcare…They are investments of the future. It’s the key driver for the long-term growth of the economy,” he said.

And while the pension members may be worried about market volatility, Man believes the primary reason the investment team exists is to overcome that and maximise the retirement funds it has available.

“You have to invest in growth assets, like equities, and the asset classes that give high returns in order to make them sufficient for their retirement,” Man said.

“One day, when [our members] have enough for retirement, they will thank us.”

This article was adapted from an interview that originally appeared in AsianInvestor's Spring 2020 edition.