Time to seize the untapped potential of Thailand’s mutual fund industry

Thailandmutual_fund

Global wealth is forecast to rise by nearly 26% over the next five years, reaching USD 399 trillion by 2023.1 By then, more than a third of the world’s total billionaire population will be Asians.2 Little wonder that Asia-Pacific’s assets under management (AUM) are forecast to rise from USD 15.1 trillion in 2017 to USD 29.6 trillion in 2025. One key beneficiary of this trend will be mutual (retail) funds which is expected to double over the same period.3

By Dr. Somjin Sornpaisarn
Chief Executive Officer, TMBAM Eastspring

May 2019


Rising affluence across Asia is also evidenced by the increasing number of mass affluent4. In major South East Asian markets, the mass affluent account for up to 40% of household wealth.5 In Thailand, for example, household wealth has risen at an annual rate of 8.9% from 2000-2017 with the top wealth segments (ultra-high net worth and billionaires) registering the fastest growth.6 According to research firm Capgemini, total assets of Thailand’s high net worth individuals rose 13% to USD 548 billion in 2017 – the second-fastest growth in the Asia-Pacific region after Indonesia. This rising wealth trend is expected to continue in the coming years (see Fig 1).

Fig 1: Estimated growth rate (%) of ultra-high net worth population from 2018-20237

fig1-mutual-fund

This growth in clients’ assets has undoubtedly contributed to the stellar growth of Asia’s asset management industry; AUM has more than doubled in the 10 years since 2007. Still, the penetration rate remains low, suggesting a huge potential for further growth (see Fig 2). Thailand’s asset management industry has mirrored this growth across Asia. As at December 2007, the assets under management totaled THB1.6 trillion. 11 years on, it rose to THB5.1 trillion, a whopping 214% increase.8

Fig 2: Total client assets across Asia Pacific (USD trillion)9

fig2-mutual-fund

The evolving asset management landscape in Thailand

The number of asset management companies operating in Thailand has more than doubled since the early 90s while the number of mutual funds has seen a colossal growth. About half of the asset management companies in Thailand are either wholly or partially owned by banks and manage around 92% of the industry’s total assets under management.10

The type of mutual funds has also evolved - in 2007, fixed income funds dominated the segment while equity funds comprised less than 10%. Over the last decade, equity funds have gained traction while new fund types such as infrastructure and real estate investment trusts (REITs) have come on the scene (see Fig 3).

Fig 3: Changing profile of Thailand’s mutual fund industry11

fig3-mutual-fund

The introduction of these new fund types came about post the 2008 Global Financial Crisis. The ensuing years of low interest rates drove investors around the globe in search of attractive yields. In Thailand this search for yield created great demand for REITs. Individual REITs, however, generally have certain concentration risk as they hold just one or a few properties. As a result, diversified portfolios which fall into the medium-risk, medium-return spectrum have been developed to provide an alternative to pure bond and REIT funds.

Future growth drivers

Thailand has seen a steady development of the mutual fund industry over the last decade; today, investors have a greater choice of income-oriented investment products that have differing risk-return profiles. Despite the good progress, Thailand has some way to catch up with the more developed Asian markets. But the good news is that the outlook seems promising.

Apart from the growing number of wealthy individuals, Thai consumers are also becoming more financially savvy and therefore much more inclined to investment planning than merely seeking one-off returns. That Thai investment companies’ sales models have moved from individual product offerings to portfolio offerings is proof of the changing customer preferences. Many investment companies are also providing investment advising tools to investors. The Securities Exchange Commission of Thailand (SEC) has also initiated and promoted an investment advisory process for all; to date twenty-six investment companies have joined this project.

Next, a supportive regulatory environment helps. In this regard, the Thai regulator has been proactive in its efforts to attract offshore investments. In 2016, apart from allowing general investors to invest in foreign securities via local intermediaries, the Bank of Thailand (BOT) allowed qualified Thai investors (QI), that is, those with financial assets of THB100m or more, to buy offshore products directly. Last year, the BOT relaxed the definition of a QI for offshore investments for individuals with THB50m in financial assets and allowed offshore investment of up to USD 1m per year; whereas, the investment limit for those QIs with financial assets of USD100m is still at USD 5m per year.

Retirement investing is another area where asset managers have the greatest potential to expand, with several Asia Pacific countries, namely Japan, China, Singapore, Hong Kong, and Thailand, amongst the most rapidly aging economies in the world. In fact, by 2035, Thailand will be the first developing country to enter the hyper-aged society.12

As a policy response to this inevitable trend, Thailand is on the way to introduce a new “mandatory provident fund” that aims to grow employees’ savings such that it provides for a comfortable life after retirement. At present there is a provident fund set up voluntarily between the employer and employees. Unfortunately, the participation rate is insignificant; as of March 2019, only 19,936 companies have signed on, a mere 2.7% of total companies.

While clearly there is more that can be done, these developments suggest a bright future for Thailand’s asset management industry. Given the country’s mutual funds’ AUM of THB 5.2 trillion and provident funds of THB1.2 trillion13 , coupled with the above stated growth drivers, it is time for investors and providers to seize the opportunity.


Dr_Somjin_img

By Dr. Somjin Sornpaisarn

Chief Executive Officer,

TMBAM Eastspring

How to invest in Eastspring's fund(s)

Sources:
1 Global Wealth Report 2018 by Credit Suisse Research Institute
2 Knight Frank LLP report Feb 2019
3 Asset and Wealth Management 2025 report by PwC
4 Defined as those having wealth between USD 100,000 and USD 1 million as per Asset and Wealth Management 2025 reports by Price Waterhouse Coopers
5 South East Asia Affluent Consumer Survey 2018 by the Boston Consulting Group’s Center for Customer Insight
6 Credit Suisse Research Institute’s Global Wealth Report 2017
7 Knight Frank Wealth report 2019. UHNW is defined as those with net assets of USD30 million or more
8 Association of Investment Management Companies, Dec 2018
9 Price Waterhouse Coopers analysis based on data from OECD, World Bank, FSB, Credit Suisse, SWF Institute
10 Association of Investment Management Companies, The Securities and Exchange Commission of Thailand, Feb 2019
11 Association of Investment Management of Companies, The Securities and Exchange Commission of Thailand, Eastspring TMBAM
12 Aging Population: Global Perspectives by Bank of Thailand, 2017
13 As of March 2019

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