Thailand's SSO makes first offshore investments

Pension fund awards $25 million mandates to Merrill Lynch and Loomis Sayles to manage its global fixed-income portfolio.

The Bt280 billion ($7.4 billion) Social Security Organization (SSO) of Thailand recently appointed two external fund managers to manage its offshore fixed-income portfolio. Merrill Lynch and Loomis Sayles have been awarded $25 million mandates to invest in global sovereign bonds through their local asset management partners, Kasikorn and One Asset Management respectively. The move follows the recent relaxation of Bank of Thailand regulations in late 2003 allowing local institutions limited exposure to global sovereign bonds.

Win Phromphaet, fund manager at SSO's investment division, says that the four-month long manager search was conducted without any assistance.

"It was important for us to look at both the expertise of the foreign fund managers as well as their local partners," says Win. "We looked for a foreign manager with an experienced team and a sound investment and risk management process. We also paid close attention to their local partners who will be responsible for hedging all investments into Thai bhat, as required by the Bank of Thailand."

SSO's current $50 million offshore allocation represents less than 1% of its total portfolio. Win says the group is currently in discussions with the Bank of Thailand to convince it to broaden the range of offshore instruments SSO can invest in.

"We'd like to invest in corporate bonds as well as offshore equities as we believe this would help to diversify our risks," Win says.

If approval for further offshore investment is obtained, SSO will seek to increase its offshore allocation up to 5% of its total portfolio. Win also says that it will consider seeking an investment consultant to advise on portfolio allocation and manager selection.

SSO currently has 20% of its portfolio in bank deposits and 65% in bonds. Over the next 12 months, it is looking to bring down the allocation to deposits to10%. "The low interest rate environment and government's moves to abolish blanket guarantees on depositions make this an increasingly risky asset class," says Win.

He predicts an increase in allocation to equities, which currently stand at 7%, as well as property investments, which currently make up less than 1% of the SSO's total portfolio.

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