I was dismayed by a series of slides presented to AsianInvestor’s recent Hong Kong asset owner event. Our annual jamboree, AI Week, is usually an upbeat celebration of the industry’s progress, with our Asian Investment Summit the flagship conference for asset owners, fund managers and service providers.
But the case of Thailand shows that for this industry, two steps forward is followed by one step back.
Pisit Leeahtam, president of the Provident Fund Association of Thailand, presented data showing how asset allocation has changed over the past decade among major Thai institutions. His slides came during a panel discussion, led by AsianInvestor’s Richard Newell, on portfolio construction – a talk that inevitably included risk management, total performance, goals, capabilities and how funds are directed.
In the case of Thailand, the data seems clear: drift, a lack of good governance, and a basic failure by government to pay attention has doomed a generation of savers. We can only hope the information sharing and lessons from events such as ours, along with research from consultants and fund managers, can give experts such as Pisit the ammunition required to effect some real changes.
So what did the data show?
We saw the asset allocation compared between 2004 and 2014 for the Government Pension Fund, the Social Security Office and for other aggregated provident funds.
The assets under management are substantial for Thailand: from 2004’s combined Bt775 billion (about $23 billion at today’s exchange rate), today the three account for Bt2.7 trillion ($80 billion), with the Social Security Office alone managing Bt1.2 trillion.
The huge asset inflows into the two state-run giants, SSO for all employees and GPF for civil servants, have been squandered by poor asset allocation.
In both cases, almost all inflows over the past decade have gone to domestic government bonds. For SSO, in absolute terms this means holdings of government securities has risen from Bt91 billion in 2004 to Bt835 billion in 2014. Although all other assets also saw net growth, except for bank deposits, these are very modest in comparison.
For GPF, the story is even weirder. Thai fixed income (which in this case may include corporate bonds) rose from Bt135 billion to Bt452 billion – not as dramatic an increase. But other than domestic equity, which enjoyed a very small increase, and some moves into global asset classes, allocations elsewhere declined in absolute terms, including domestic real estate and mutual funds.
That’s the trend for absolute holdings. Let’s look at the charts for asset allocation as percentages. Take SSO first.
SSO in 2004 had 34% of its total assets positioned in government bonds and treasury bills. Bank deposits made another 25% and state enterprise bonds another 23%. Equities, property and international exposures accounted for less than 4%.
As of 2014, the SSO has more asset classes, with equities up to 9% and property and foreign allocations another 4%. But everything else has shrunk as a portion of the total allocation because government bonds now account for 67% of SSO’s portfolio. Sixty-seven percent!