The long-awaited Thailand Future Fund, a state-backed infrastructure investment vehicle, is scheduled to make its public debut next month, and some local insurance firms say it will provide an interesting opportunity.

But one chief investment officer (CIO) at a Thai insurer told AsianInvestor privately last month that the fund's relatively low and potentially uncertain expected returns could dampen interest. Others, meanwhile, point to a lack of available assets. 

The initial public offering, which local media reports say will hit the market in October and could raise up to $1.4 billion from both local and foreign investors, looks timely. 

“There is plenty of money in the country that would be suitable for [investing] in this long-term asset,” Sukkawat Prasurtying, CIO of AIA Thailand, told delegates at AsianInvestor’s Thailand Global Investment Forum in Bangkok last week. 

Unfortunately, he noted, there is a shortage of appropriate infrastructure assets for investing in Thailand, so much of that capital could yet struggle to find an appropriate home. And as various speakers at the conference pointed out, Thai regulations continue to restrict the scale of investments that can be made in other alternative assets.

Still, Sukkawat said the type of infrastructure assets to be held by the Thai Future Fund – principally expressways, both existing and planned – would help insurers to better match their liabilities.

“We need to be gradually moving into this area,” he told delegates, welcoming the inducement provided by the Office of Insurance Commission, the country's insurance regulator, after it cut the risk-based capital (RBC) charge on infrastructure investments via the fund to 8% from 25%. 

Sukkawat Prasurtying

This lower capital charge will apply even when a new RBC framework comes into effect next year, said Sarangsri Limparangsri, head of equity and alternative investments at Thai Life, speaking at the same event.

It is understood that other, private infrastructure funds will still receive a charge of 16%.

As a government-led, infrastructure investment vehicle, the Future Fund should also have a relatively lower default risk and a reduced chance of funds being misused, he added.

However, in a separate interview, the CIO of another local insurance firm told AsianInvestor last month that interest in the Future Fund is likely to be subdued given that annual returns are expected to range between 4.3% and 4.6%. 

A further issue, said the unnamed executive, is that there is uncertainty around the future income streams from toll roads.

“Any potential change in toll fees needs government approval," he added. "But an administration inclined towards populist measures might not be inclined to increase toll fees over time, and that could affect future revenues.”

ALTERNATIVE INVESTMENTS

AIA's Sukkawat said the insurer was also keen to expand its investment universe in other ways by investing in bank loans or niche real estate as well as investing more overseas, but here there were still obstacles.

“We proposed some amendments to the regulator [to make it easier to invest], but it wants us to be prudent. [It wants us to be able to] strike a balance between being conservative enough to be able pay our [policy obligations] and generating higher returns,” he said.

Take investing in bank loans, for example, where matching returns with liabilities that potentially stretch out decades is far from straightforward: “Banks [typically] don’t want to hold anything longer than seven years on their books,” Sukkawat said. 

Then there is the question of loan collateral: “Current regulations don’t permit [insurers] to take on loans that are more than 20% of [the value of the] collateral,” he added.

Real estate is another area of interest: “There are lots of new classes for investing such as student housing, which we could call an alternative asset class under real estate," Sukkawat said, citing data centres as another example.

But insurers need to engage with the regulator to explain clearly how these investments would benefit policy holders, he said.

Joe Marsh contributed to this story.