Thai industry veteran seeks overhaul of pension fund asset allocation framework
23 November 2012
By Toby Garrod
The best way for Thai pension funds to deal with the ongoing problem of weak adherence to the investment objectives of employer-funded schemes is to ultimately shift the decision-making responsibility away from retirement fund committees toward the individual pension members themselves, says Somjin Sompaisarn, CEO of TMB Asset Management and chairman of the Association of Investment Management Companies.
“Many retirement fund committees [in Thailand] are based in human resources departments; therefore they lack authority,” Mr. Sompaisarn tells Asia Asset Management. “To some extent, most of the committee members in Thailand consider investments on an annual basis and are overly focussed on principal protection rather than returns, which detracts from the investment objective of preparing for a pension. I think this is the most challenging problem.”
The key to resolving the problem, he says, is to ensure that pension funds are managed by separate departments and ensure that the decision-making responsibility is gradually passed to individual members, after educating them and training them.
“We have a few major funds here in Thailand that have assigned departments to take control of the retirement funds, rather than just leaving it to HR departments. They have also adopted employee-choice frameworks for their members. Through years of education, we have seen the level of equity exposure rise to 20-30%, compared to 14% traditionally,” he says. “This resembles the superannuation funds in Australia, where members have a choice-based system. Through years of experience, people tend to learn that at the end of the day, it is more appropriate to have a better balance that matches the ultimate objective of return,” he remarks.
“To do this, we have to introduce a good education system and I think one way to implement this would be to have a few set menu plans that are simple enough to understand. We can of course limit the levels of equity exposure, or exposures to risky assets in those plans. The members can make their own choices, and learn, and with this the equity portions will tend to increase.”
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