A Bold Shift to Improve Returns

Thailand’s social security fund, essential for millions, is undergoing a major transformation. Currently managing $77 billion, it plans to invest $11.6 billion in global private assets to boost its lackluster returns, which have averaged under 3% for the past decade. Executive Petch Vergara warns that without changes, the fund could face bankruptcy by 2051.

With one-fifth of Thailand’s 66 million citizens aged over 60, the urgency for reform is evident. The number of retirees has doubled in 20 years, increasing reliance on the fund for pensions and healthcare.

A newly elected board, primarily nominated by labor groups, is now guiding the fund, moving away from years of military-appointed leadership. The board aims to reduce low-risk asset allocation from 70% to 60% while increasing higher-risk investments from 30% to 40% within the next two and a half years, targeting a 50-50 split by mid-2027.

The strategy includes directing 15%, or about $11.6 billion, towards global private assets like private equity and hedge funds. Petch emphasizes that diversifying the portfolio is essential for long-term returns.

Past mismanagement and high costs have eroded public confidence, prompting calls for a strategic shift. A recent study shows that diversified pension funds can achieve average annual returns of 7.7%, contrasting sharply with Thailand’s fund’s 2.7% over the past five years.

Experts warn that as retirees increase, the fund could face deficits by 2045. Ensuring high returns and strong governance will be crucial as Thailand’s social security fund embarks on this ambitious strategy to meet the needs of its growing retired population.