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Thailand's social security fund undergoes major overhaul with $11.6 billion investment in global private assets to address poor returns

But what does this mean for Thailand's economy and its people? The fund's overhaul is a significant step towards addressing the country's pension fund sustainability concerns. With the right investment strategy, Thailand can ensure its social security fund remains solvent and able to support its aging population.

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In a major revamping move, Thailand has announced an investment injection of $11.6 billion to its underperforming $77 billion Social Security Fund.

This investment seeks to address years of underperformance by shifting its investment strategy towards global private assets. As its ageing population becomes a rising issue, experts are concerned over declining funds and expect it to go bankrupt by 2051.

According to Petch Vergara, an investment board member and former Goldman Sachs executive director, the fund's current investment portfolio is unsustainable. "At this rate, the fund could go bankrupt by 2051," she warned.

In an exclusive interview with Reuters, Petch Vergara, an investment board member of the Social Security Fund (SSF), revealed that the fund plans to allocate $11.6 billion into riskier global ventures to increase returns and ensure the fund’s sustainability.

The need for this overhaul arises from the fact that the Social Security Fund, which provides healthcare, pensions, and unemployment benefits for 25 million Thai workers, has been plagued by disappointing returns.

Amidst this declining trend, which dates back to a decade ago, shows the fund has yielded an average return of under 3%, far below its potential. This underperformance has raised concerns about the fund's ability to meet the growing needs of Thailand’s ageing population.

Petch, who previously worked as an executive director at Goldman Sachs managing private wealth for ultra-high-net-worth individuals, said the fund’s reliance on low-risk, domestic investments were no longer viable in the face of Thailand’s changing demographics.

“The current investment portfolio of the fund is overly concentrated in Thai assets,” Petch explained. She further added, “The low-risk investments may look safe in the short term, but they damage potential long-term returns.”

According to the Department of Older Persons at the Social Development and Human Security Ministry, one-fifth of Thailand’s 66 million people were aged over 60 at the end of 2023, compared to just 10% two decades ago. The country’s over-60 population has doubled from 6.2 million in 2004 to 13 million as of December 2023. With a growing number of elderly people relying on pensions and healthcare benefits, the fund must find ways to generate higher returns to meet future obligations.

A recent change in the fund's board composition has paved the way for this aggressive strategy. Last year's elections brought in new members, many nominated by labour groups and progressive parties advocating for institutional reforms.

The revamped board has approved an investment framework starting in 2025, which will rebalance the fund's asset allocation. Low-risk assets will decrease from 70% to 60%, while higher-risk investments will increase from 30% to 40% over the next 2.5 years. This bold move signals a commitment to securing the financial future

of Thailand's 25 million workers. As the fund navigates this critical overhaul, its success will be closely watched.

Petch emphasized the need for a more diversified, international focus to safeguard the fund’s future. "The shift comes as Thailand's population grows older, and we need to generate higher returns to ensure we can meet our obligations," she said.

As Petch warned, sticking with the current strategy could lead to financial disaster by 2051, but with the new reforms in place, there is hope that the fund can generate the returns necessary to meet the future needs of its members.