Having invited bids earlier this year for mandates totalling $600 million for its first global equity and property investments, Thailand’s Social Security Office (SSO) has named one local firm and three foreign houses to manage $200 million of the portfolio.
The SSO plans to conduct another selection process next year to award the remaining $400 million it wants to put into global investments. It is still deciding on an investment consultant to help it with this process, as reported by AsianInvestor in May.
Out of 15 proposals, the organisation decided to award a mandate worth $200 million to be co-managed by Bangkok-based Thanachart Fund Management and three US firms: Franklin Templeton Investments (global bonds), MFS Investment Management (global equities) and AEW Capital (global real estate).
“They were selected based on their excellent track records, low turnover of key investment professionals and clear investment philosophy,” says Win Phromphaet*, head of global and real estate investments at the SSO. “Also, they were picked for being great value-style managers, which should be suitable for volatile markets.”
The foreign firms will manage the three main portfolios, with Thanachart acting as co-manager and also managing the currency risk.
Among the pitches that were unsuccessful were those from domestic houses ING Funds Thailand, Kasikorn Asset Management and Krung Thai Asset Management.
The decision was made in September, but the institution only made it known in early November. This is somewhat later than the original plan to announce the result around April (the RFP was issued in late January), but the recent global turmoil as well as the past month or so of flooding in Thailand have presumably contributed to the delay.
For the next mandate of $400 million, the SSO is yet to finalise the asset classes. “I believe it will include the usual three core assets: fixed income, equity and real estate,” says Phromphaet.
The SSO is expanding its overseas portfolio despite recent and ongoing turmoil, particularly in Western countries. Indeed, Thai institutions will be only too aware of the risks of being too domestically focused, given the recent floods to have hit the country.
“Due to our growing fund size, we still need to further diversify our pension portfolio overseas and into other asset classes,” says Phromphaet. “We plan to increase allocation in alternative investments, especially global real estate, commodities and infrastructure.”
Around 97% of the fund is currently invested in Thailand and 3% is in global investment-grade bonds.
The SSO was set up in 1990 as a government office responsible for managing the Social Security Fund and the Workmen’s Compensation Fund and provides coverage to around 10 million private employees.
The SSO’s move continues the trend for Southeast Asia’s biggest institutional investors to increase their offshore exposure. For example, the Bangkok-based Government Pension Fund chose Towers Watson earlier this year to advise it on its offshore portfolio. Entities such as Malaysia’s Employees Provident Fund and KWAP are making similar moves to diversify internationally.
*An extended Q&A article with Win Phromphaet will appear in the upcoming (December) issue of AsianInvestor magazine.