The Govern­ment Pen­sion Fund plans to ad­just its as­set al­lo­ca­tion next year be­cause of changes in the mar­ket sit­u­a­tion.

The Govern­ment Pen­sion Fund’s chief ex­pects greater long-term re­turns af­ter an eas­ing of in­vest­ment al­lo­ca­tion guide­lines.

Bangkok Post - - BUSINESS - By Nuntawun Polkuamdee

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.

RE­VIEW­ING IN­VEST­MENT

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 high­risk as­sets to cap­ture bet­ter re­turns for longterm 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.

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.

WISH­FUL THINK­ING

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.

Sec­re­tary-gen­eral Srikanya Yathip says the GPF will in­vest care­fully and seek higher re­turns based on the ad­justed guide­lines.

BANGKOK POST GRAPH­ICS

Source: Govern­ment Pen­sion Fund

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