The head of Thailand’s second biggest fund house has seen a growing shift by domestic investors from fixed income towards equity and asset-allocation products. SCB Asset Management is also looking increasingly to tap the insurance and endowment client segments, said Smith Banomyong, the firm's president.
Returns from fixed-income and money-market investments – long the largest portion of portfolios in Thailand – would barely keep up with inflation, he told AsianInvestor. Headline inflation averaged 2.2% last year and is estimated to be the same this year and 2.1% in 2015, according to the country's central bank.
“So we’re trying to migrate our customers from their money-market asset base into well-diversified asset allocation strategies within an acceptable risk appetite,” he said.
Meanwhile, Smith was sanguine about the prospect of rising competition from foreign players as a result of the recently launched Asean Collective Investment Scheme.
Asked about potential opportunities arising from the Asean passport, he said: “We expect overseas players to operate in the Thai market – but it will be difficult, because fee margins tend to be lower here than for our neighbours.”
That said, they have been gradually rising in recent years. The average Thai mutual fund industry fee margin was 0.51% in 2013, noted SCB AM.
Upfront fees charged by mutual funds in other Southeast Asian countries, such as Malaysia and Singapore, are significantly higher than in Thailand, he noted. So customers are far more fee-sensitive than asset managers are used to in those markets, he said. “They will have to calculate whether it’s worth it.”
A further obstacle for foreign firms is that distribution channels in Thailand are virtually closed to external players. SCB AM’s parent, Siam Commercial Bank, is currently closed to other fund firms, but it is in the process of selecting partners. “Our aim is to be more open,” said Smith.
Local rival Kasikornbank is understood to have only recently started to put foreign funds (other than feeder funds) onto its platform.
Hence the Thai funds market has been a difficult one for overseas asset managers to penetrate, but the CIS is likely to see more products sold cross-border. Indeed, demand for international exposure is rising fast among local investors, both retail and institutional, noted domestic fund houses.
That said, local regulators are keen – like those elsewhere in Asia – to build a strong domestic asset management industry.
Does SCB AM itself plan to use the Asean passport?
Smith said SCB AM needs to develop its skill set to ensure it has a competitive advantage in other Southeast Asian markets. “We have debated this at length, and we are not going to open a branch just to be there. We will not take an immediate step, but build up capabilities to compete.”
This may involve hiring more investment staff or partnering with another firm or firms, he added: “We are looking at potential options.”
Other growth drivers for asset managers in Thailand in the coming year will be the likes of insurance companies and university endowments, noted Smith.
The vast bulk of the money from endowments has traditionally been in deposits. But with more modern boards of trustees at the universities, attitudes to risk and return are changing, given their growing awareness of investment by the likes of the Harvard and Yale endowment funds in the US.
Smith said Thai universities are following the likes of more sophisticated local investors such as the Social Security Office and the Government Pension Fund. SSO has $30 billion and GPF $19 billion in assets under management, by AsianInvestor numbers.
Thai life insurers are also expected to prove increasingly fertile ground for asset managers. They have typically managed their own money (the bulk of which is in bonds), noted Smith, but there are many medium-sized insurers that don’t have the economy of scale to manage certain asset classes.
Smaller insurers and endowments – with a balance sheet of, say, $1 billion – are likely to have very small equity, corporate bond and offshore exposure, he said. Assuming they are to increase these, the cost of setting up an internal investment team is not justified, noted Smith. Hence this has created opportunities for third-party fund managers to expand.
Real estate investment trusts (Reits) represent another area of growing opportunity for fund managers in Thailand. Smith expects such investments to pull in more money from wealthy investors following the introduction of the new inheritance tax in which the cabinet just endorsed the draft last month.
“If that comes in, a lot of rich individuals will put their money in trusts,” he said, “and the only one that works in Thailand now is the Reit structure.”
Reits were launched in the industry since last year, and SCB AM was the first Reit trustee in the retail (shopping mall) sector in Thailand – and more are to come, said Smith, declining to give more details.