Continuing the trend for large Asian institutions to expand their overseas portfolios, Thailand's Social Security Office (SSO) has invited fund managers to bid for three $200 million global mandates, one each for equities, fixed income and real estate.
This year is the first time the SSO has invested in global equity and global real estate, says Win Phromphaet, Bangkok-based head of real estate and global investments. The organisation plans to increase its offshore exposure gradually, potentially to include commodities and infrastructure.
The state entity issued the RFP in late January and plans to announce the result late this month or in April.
The main motivation for seeking greater foreign exposure is diversification. “There is also a constraint that, as our fund is growing very fast, the local markets cannot absorb our investment demand,” adds Phromphaet.
The SSO's current allocation to offshore investments is around 3.5%, all of which is in global bonds. In the year to December 31, the SSO generated a total investment income of 33,750 million baht ($1.1 billion), and its annual investment return for the year was 8.30%. Since inception, the fund has earned an average annual investment return of 7.55%.
ING Funds Thailand, Kasikorn Asset Management and Krung Thai Asset Management (KTAM) are all known to have bid for the SSO mandate.
"The requirements are quite tough, so not many firms are qualified [to bid],” says Somchai Boonnamsiri, chief executive at KTAM, and other asset managers agreed.
There are not thought to be any foreign – that is, non-locally incorporated – fund managers bidding. The SSO declined to comment on the fund managers involved in the RFP process.
That said, fund managers have been asked to partner with foreign firms for their investment expertise. One firm, for instance, has partnered with US manager Fidelity on the equities portion and UK-based Schroder Investment Management for fixed income, and with US firm Cornerstone Real Estate Advisors on the property portion, which will comprise entirely of exposure to real estate investment trusts (Reits).
The mandates cover Asia, including Thailand. “The country weight of Thailand in the benchmark is relatively small," explains Phromphaet, “so we don't need to exclude Thailand.”
The benchmark for global bonds is the Barclays Global Aggregate Index and for global equity the MSCI All Country World Index. For global real estate, the SSO is looking for investments in core properties and is considering an absolute-return benchmark.
Initially it has stipulated portfolios based on mutual funds, as they are standardised products with track records. That said, the SSO plans to move gradually towards segregated accounts "in the near future", says Phromphaet.
Both the GPF and SSO have been outsourcing more of their investments on the domestic side as well, say fund managers. “It's a logical move to do so, as the Thai asset-management industry is large enough to provide scale at a very competitive fee level,” says Patchara Sampala, managing director of Kasikorn AM in Bangkok.
“The in-house management team can focus on monitoring performance of external fund managers,” he adds. “Furthermore, hiring of external managers can help alleviate pressures from members of the GPF and SSO funds.”
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 over 9.4 million private employees.
As much as 80% of the portfolio is now invested in highly secured assets, including government bonds, state-enterprise bonds guaranteed by the finance ministry, bank deposits and investment-grade corporate bonds. The remaining 20% of the portfolio is invested in risky assets including other debt instruments, unit trusts (property funds and foreign investment funds), and equities.
Another state entity, the Bangkok-based Government Pension Fund, is making moves to boost foreign investments, and recently chose Towers Watson to advise it on its offshore portfolio, as reported last month by AsianInvestor.