Manulife Asset Management Thailand -- like other international fund houses without the backing of a nationwide bank distribution network in that market -- would be like David battling Goliath in the local mutual fund industry.

Manulife AM Thailand is keeping its sights set on attracting high-net-worth and institutional clients, and plans to expand its assets under management (AUM) by introducing more onshore products. At present, Manulife AM Thailand manages around $94 million for Manulife Insurance and $50 million in mutual funds.

The operation is relatively small, with a staff of 18 people compared with Aberdeen Asset Management Thailand, another international fund house operating in that market which has a staff size of around 50. While asset management companies that are part of Thai banks have a powerhouse distribution network of around 500 to 600 branches, Manulife AM relies mainly on tied agents or agents of its parent, Manulife Financial, and other selling agents.

So far, Manulife AM Thailand has eight product offerings, including four domestic equity funds, three foreign investment funds (FIFs), and one domestic fixed income fund. Its FIFs invest in China, Eastern Europe, and energy, resources and gold.

"We need to have a full range of products in order to succeed in this market," says Sukkawat Prasurtying, the CIO and acting CEO of Manulife AM Thailand. He has been heading the business since the departure of Alan Kam, the former CEO in July last year. 

Sukkawat Prasurtying
Sukkawat Prasurtying

The plan is to offer more fixed-income instruments -- where demand from investors in Thailand is overflowing -- that invest both in the domestic market and overseas. Prasurtying couldn't provide more details, citing regulatory restrictions. According to Boston-based financial services firm Cerulli Associates, 77% of the Bt616.3 billion in mutual fund net sales in Thailand in 2008 went to fixed-income funds.

Expanding the fixed-income offering will likely benefit retail sales more than the institutional and high-net-worth business however. For the institutional and high-net-worth market, the focus is to make available Manulife products managed outside Thailand as well as those from other fund management companies.

"Around 80% of Thai investors prefer fixed income, our job is to find the remaining 20% and cater to them," says Prasurtying.

The preference for fixed-income instruments is by no means a new development. Although the global financial crisis has led more local investors to turn to fixed income, the demand is rooted as far back as the 1997-1998 regional financial crisis.

Before the Thai baht collapsed and caused the stock market turmoil across the region in July 1997, Thai investors were actually heavy on equities. That meant a lot of them got burned by the Asian financial crisis. The Stock Exchange of Thailand Index peaked at 1,789 in 1994 and is now a mere third of that, closing at 570.43.

"A lot of investors got burned (during the 1997 regional financial crisis) and have never recovered from that experience," says Prasurtying.

Among the other opportunities that Manulife AM Thailand sees is the eventual creation of a national pension scheme, something that has long been awaited in the local market. This has been discussed in the past, with varying levels of noise, but there is some newfound hope that this will finally move forward.

If things proceed as intended, Thailand is expected to establish a National Pension Fund (NPF), within the next two years with an aim of building a safety net for workers currently outside of existing state pension programmes, such as the Government Pension Fund (GPF).

Manulife AM Thailand believes the NPF will follow the GPF's structure, which generally outsources a part of the fund to third-party managers.

"This offers potential business for Manulife to grow its AUM," says Prasurtying.

The national pension fund is designed to be a mandatory savings programme for an estimated 24 million workers nationwide. Thailand's pension system now covers only an estimated 11 million workers through the GPF for civil servants, voluntary provident funds and the Social Security Office.

The Ministry of Finance has prepared a proposed bill that will require members to contribute Bt100 to Bt1,000 per month to the NPF, with the government providing contributions of Bt50 per month per worker. After two years of operations, the NPF will require members of the Social Security Office to also contribute to the new fund. The government hopes the fund will help raise pension savings for workers in retirement to the equivalent of 50% of their final month's salary.

The Ministry of Finance expects the NPF to have Bt40 billion ($1.1 billion) in inflows per month, including Bt15 billion ($428 million) in contributions by the government. The NPF will invest funds in the capital market, including government bonds, equities and other asset classes.

Manulife AM Thailand expects the size of the NPF to be as large as Bt480 billion ($13.7 billion) in its first year of operation.

The current controversy surrounding the GPF is not expected to derail the progress of the proposed national pension scheme. Neither is it expected to affect the overall investor sentiment in Thailand. So far, the impact of the GPF's woes have been limited to its members.

The GPF manages around Bt400 billion ($11.4 billion) in assets for about 1.2 million civil servants in Thailand. Its secretary-general, Visit Tantisunthorn, resigned from his post on June 2 amid allegations of management irregularities, including one case of alleged insider trading by fund executives. Instead of accepting his resignation, the GPF board terminated his employment contract. The GPF has since assigned a recruitment panel, chaired by Civil Service Commission secretary-general Preecha Vajrabhaya, to find Visit's replacement.

Among the alleged irregularities cited by Thailand's Public Sector Anti Corruption Commission (PACC) was the creation of a sub-committee to manage part of the GPF's portfolio. Under the law, the GPF board has the authority to decide on the fund's investment strategies and allocations. In its preliminary findings, PACC has blamed the alleged management irregularities for the portfolio losses incurred by the GPF in 2007, estimated at between Bt18 billion ($529 million) to Bt24 billion ($706 million) in 2007.

The impact of the GPF controversy has been felt more by managers, and in a good way, says Prasurtying.

Thailand's Securities & Exchange Commission has sent fund houses a letter reminding them to be more vigilant with compliance to prevent what happened at the GPF from happening in the private sector.