GPF poised to diversify into higher-risk assets
The Government Pension Fund's chief expects greater long-term returns after an easing of investment allocation guidelines.
The Government Pension Fund (GPF) plans to adjust its strategic asset allocation (SAA) next year because of changes in the market situation stemming from the Covid-19 pandemic and low investment return.
SAA is an important investment strategy for long-term funds: it is the investment guideline for various asset classes in the portfolio and rebalances the strategy by setting the right investment direction.
Adhering to SAA guidelines will help fund managers improve asset allocation and produce a good investment return in line with the fund's target, said GPF secretary-general Srikanya Yathip.
The GPF has three layers of asset management: a long-term investment plan of 15-20 years, medium-term asset allocation, and tactical asset allocation for a short-term investment strategy.
With the SAA guidelines as an investment mantra, the GPF will adjust next year's guidelines to suit economic conditions and deliver long-term returns, Mrs Srikanya said.
Some 60% of the GPF's investment structure is allocated to low-risk assets like government bonds, Bank of Thailand bonds, US treasury bills and deposits.
The remaining portion is invested in higher-risk assets like stocks, real estate investment trusts (REITs), private equities, alternative investments and commodities.
The GPF will review its investment plan for next year, citing constant changes in factors affecting the global economy.
Some of the factors influencing the global economic landscape include liquidity injection by governments and central banks around the globe, fund flows towards different regions with a bias for Eastern economies, and digital disruption.
These factors are poised to bring lower investment returns in the future if funds do not formulate good investment plans, Mrs Srikanya said.
The average age of GPF members has declined from 45 at the fund's establishment in 1997 to about 40 at present.
Members can opt to investment in high-risk assets to capture better returns for long-term investment.
The GPF's foreign investment will be increased to 40%, effective Oct 1, from the existing limit of 30%.
The GPF now invests in global assets at 28.5% of total assets in the portfolio. The fund will have to assess its management of global asset allocation in anticipation of the investment ratio for foreign assets increasing soon.
Fund managers around the world have separated foreign exchange management from the management of asset classes, equating to setting aside foreign currency risk in another portfolio, Mrs Srikanya said, adding that the GPF will explore this option next year.
GPF secretary-general Srikanya Yathip. No photo credit
FOUR ASSET CLASSES
At present, the asset classes in the GPF's SAA strategy are divided into 60% low-risk and 40% high-risk assets.
The investment guidelines will depend on economic conditions and balancing of the four asset classes in the portfolio, including growth stocks, government bonds, corporate bonds, and commodities and REITs.
The investment portion in growth stocks will increase given a positive economic outlook, while government bonds are classified as safe-haven assets.
Corporate bonds are identified as an asset for diversification, with commodities and REITs clustered in the inflation-sensitive segment.
Global economic activity has been blunted by the Covid-19 pandemic, but continuous easing of lockdown policies worldwide is supporting an economic recovery, with the progress of vaccine development adding a boon to the momentum, Mrs Srikanya said.
With this view, the GPF has started to reduce its investment in low-risk assets from 65% to 61% while increasing the investment portion in high-risk assets such as commodities and global equities in developed markets and China, which are poised to generate more returns compared with the domestic equity market this year.
Once the ceiling for overseas investment is increased to 40% next month, the fund will invest in stocks in developed markets, especially new tech businesses and other potential growth stocks, Mrs Srikanya said.
The GPF allocated 28.5% of its investment to global assets as of August, including 1% in gold and alternative investment assets.
The GPF has an optimistic outlook for the second half of 2020 and sees an economic recovery in 2021, due to progress in development of Covid-19 vaccines and loose fiscal and monetary policies aimed at boosting growth.
The fund will increase investment in foreign bonds with high investment grades and diversify asset allocation to hedge against uncertainties and inflationary pressure.
The GPF has an average return since its inception in 1997 of 6.15%. The average return during the past five years was 3.52%.
The fund started with a net asset value (NAV) of 6.80 baht per unit. The current NAV has reached about 25 baht per unit, Mrs Srikanya said.
This year's investment return goal is chiefly to beat the benchmark stock index, government bond yields and inflation.
But the target remains difficult to predict precisely, owing to constant market fluctuation from economic headwinds.
"The GPF will invest carefully and seek higher returns based on our investment guidelines," Mrs Srikanya said. "GPF members have seven investment choices to properly align each option with each person."
The GPF had assets under management of 1 trillion baht as of July 30, with 420 billion baht stemming from GPF member contributions and the rest from reserved funds contributed by the government as an emergency fund for pension payments.