Thailand alternatives growth shackled by short-term views, lack of diversification
30 November 2012
By Toby Garrod
As the global investment community brings alternative investments, such as commodities, private equity, infrastructure, and property, ever closer to the mainstream, Thailand is retaining a more traditional approach to the asset classes due to a local preference for short-term investments, a lack of demand for diversified strategies, and a lack of capable onshore managers, Yingyong Nilasena, the Government Pension Fund’s deputy secretary general, fund management group, tells Asia Asset Management.
“Even though globally speaking, alternative investment products are becoming popular, things are very different in Thailand, where only a few institutional investors are investing in the alternatives space, apart from perhaps property and commodities which are easier to invest in,” says Mr. Nilasena. “Private equity is particularly challenging here. The biggest issue currently is that good managers normally set up the funds offshore. So, most investors would not be looking at the funds.”
The underlying problems, however, are market structure and investor sentiment.
“Though there a lot of good people working in the alternative space, they are only spread between two or three firms. We’re unlikely to see significant expansion of the alternatives market until changes are made to the investor structure in Thailand. You need to be a long-term investor to be able to invest in private equity, and most investors in Thailand are not. Also, you need demand for diversification. The shift toward alternatives is a process that starts with the investors themselves,” he says. “That said; insurance companies may have room to invest a little in private equity, though they would need some educating, and would have to talk with the regulators and the Insurance Committee to make sure requirements are met.
“The Government Pension Fund has a 7-8% weighting in alternative investments, with around 4-5 percentage points of that in property. The rest is mainly in private equity, with some commodity exposure. Five years down the road, I think we will have a little more exposure to the alternatives market, but not much. Our fund has reached a stable stage in which cash inflows and outflows are going to be roughly equal for the next ten years. As such, we’re more cautious in this area. Not like the US where they have increased exposure significantly.”
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