Thailand’s underperforming $77 billion Social Security Fund (SSF) is set to invest $11.6 billion in global private assets as part of a strategic overhaul aimed at improving returns in light of the growing needs of an ageing population.
The largest state fund in Thailand supports healthcare, unemployment benefits, and pensions for 25 million workers. However, it has reported an average return of under 3% over the last decade, which is significantly below its potential. Investment board member Petch Vergara mentioned in an interview with Reuters that the fund’s current domestic-focused strategy is insufficient to meet future demands.
Ms. Petch, a former Goldman Sachs executive who managed private wealth for ultra-high-net-worth clients for nearly a decade, pointed out that the fund’s heavy reliance on domestic, low-risk investments is no longer viable. “If this trend continues, the fund could face bankruptcy by 2051,” she warned after joining the SSF earlier this year. She emphasized that while low-risk investments may seem secure in the short term, they undermine potential long-term profitability.
As Thailand’s population ages, the statistics are striking—one-fifth of the country’s 66 million people were over 60 at the end of the previous year, up from 10% two decades ago, according to data from the Ministry of Social Development and Human Security. The number of those aged 60 and above has surged from 6.2 million in 2004 to 13 million by December 2023.
The transition to a more aggressive investment strategy coincides with a recent shift in the fund’s board composition. In December, a historic election allowed some board members to be voted in for the first time, replacing many appointees chosen by military leaders following the 2014 coup. Two-thirds of the 21-member board were elected, with many nominees from labor groups and the Move Forward Party, which campaigned on promises of major reforms but was subsequently blocked from forming a government.
Under the new board’s approved investment framework, starting in 2025, the fund will decrease its allocation to low-risk assets from 70% to 60%, while increasing higher-risk investments from 30% to 40% over the next two and a half years. The goal is to achieve a 50-50 split by mid-2027. Petch stated that 15%, or 375 billion baht, will be directed towards global private assets, including private equity, private credit, and hedge funds, by that time. “The aim is to create a more global portfolio to enhance long-term returns,” she explained.
A 2023 study by the non-profit Thinking Ahead Institute found that global pension funds with portfolios consisting of 60% equities and 40% bonds achieved an average annual return of 7.7% over the past five years. In contrast, the SSF’s returns in Thailand, the second-largest economy in Southeast Asia, languished at an average of just 2.7% during the same period.
Analysts have long called for changes in the fund to address the increasing demands of the population, but issues of trust and public skepticism persist due to the fund’s history of mismanagement, high operating costs, and underperformance. Worawan Chandoevwit, an adviser on social security at the Thailand Development Research Institute, noted that while there are currently 700,000 retired workers eligible for pensions, that number is expected to rise sharply. Independent research predicts a significant imbalance where more individuals will be withdrawing from the fund than contributing, potentially leading to a deficit by 2045.
“We will soon have more pensioners who will live longer,” Ms Worawan stated. “This imbalance of money flowing in versus out is concerning.” She asserted, “Achieving high returns will be crucial for the fund’s long-term sustainability, and good governance in investment decisions will be essential.”
