Low interest rates, a relaxing regulatory environment and steady economic growth are pushing affluent investors to funnel cash into Thailand’s fund industry. Indrajit Basu reports. Thailand’s mutual funds industry contains a little over 5 trillion baht ($150 billion) and that number is growing all the time. According to the Association of Investment Management Companies – a group comprising licensed mutual fund companies in the country, including foreign firms – Thailand’s industry assets rose 1% in the first four months of the year. Foreign investment funds have been especially successful lately and now account for about a quarter of Thailand’s mutual funds industry. Wealth managers say the appetite of Thai investors to invest outside the country has been growing for more than a decade. Over the past five years, investing habits have changed considerably, with more and more Thais giving up their traditional preference for fixed income funds in favour of other opportunities. Clearly, the country is attractive to local and global firms that want to raise assets. But incoming managers must be aware of regulatory uncertainty and limitations in the market. Feeder funds
“Traditionally, Thais were investors in primarily fixed income options,” says Win Phromphaet, chief investment officer, CIMB-Principal Asset Management, a South Asia-centric asset management firm. “But lately, they have started going beyond fixed income to equity, offshore, real estate, commodities and even technology funds.” Phromphaet adds that the growing demand for wealth products outside of fixed income options has been observed not only among rich Thais, but also with the mass affluent, who are keen on replacing low-yielding bank deposits. Interestingly, to tap into the benefits of diversification, investment preference is also shifting to solutions from foreign fund houses. “In the past three years, domestic fund management companies’ investment in offshore funds, called feeder funds, has gone up from $2 billion to $35 billion approximately,” says Stewart Aldcroft, senior adviser, investor services, Asia-Pacific, Citi. This indicates a large shift. Aldcroft adds that about three years ago, 98% of all funds sold in Thailand were invested in Thai securities. Now, the proportion that invest in foreign securities has risen to 20%, “which is not great, but better than 2%”. Rules relaxing
Thai investors have also been egged on by the government’s easing of regulations, which makes it easier for them to diversify their portfolios. “For many years, Thailand had fairly strict exchange funds flow regulations and that meant a high domestic focus of investors whose investments needs were satisfied by the big Thai banks. That was the Thai wealth management industry,” says Paul Gambles, co-founder and managing partner, MBMG Group, a Bangkok-based wealth management firm. “But at the same time, private bankers from Hong Kong and Singapore, taking advantage of the lack of sophisticated investment culture there, were helping Thai high-net-worth individuals to circumvent the exchange regulations and get funds out of Thailand through all sorts of different means into Hong Kong and Singapore.” These monies were used to meet many different needs, including political investments, exposure to a wider range of products, or simply for the safety of having assets held offshore. “But gradual relaxations of foreign exchange rules have made it much easier now for Thai investors to move money out of Thailand,” says Gambles. In 2015, for instance, the limit on overseas property investments was increased to $50 million each year; the ceiling on foreign currency allowed to be held by Thais in domestic banks was also lifted. Then, in January last year, a big regulatory change allowed investors to buy offshore funds directly from a broker or bank, avoiding the master feeder scheme. Until then, all foreign funds had to be wrapped in master feeder schemes floated by local financial institutions. Regulation was loosened a bit more in September last year when the country raised the ceiling for investment in foreign assets from $75 billion to $100 billion. Getting savvy
Thailand’s large and educated population is getting more prosperous with the booming economy of the past several years. As the wealth market evolves, like elsewhere in the world, the need for products that can supplement income is accelerating. “Over the last 12 months, the main investment theme, like the rest of Asia, has been income funds, which are producing 4% to 5% returns net of fees,” says Michael Reed, chief executive officer, Manulife Asset Management (Thailand). As rich Thais get increasingly savvy and develop an understanding of complex products, they are also seeking more diversification of funds not only for their personal and family wealth, but for their businesses as well. Small wonder that foreign fund managers are rushing in. In 2016, for instance, Credit Suisse set up its first wealth management service in Thailand, which the Swiss bank says is already one of the fastest-growing regional wealth management markets. Credit Suisse’s peers such as Lombard Odier, as well as others such as Citibank, Manulife and CIMB Group, are among several foreign fund managers that have identified Thailand’s potential as an increasingly attractive country. “Thailand is a big market with a large and highly educated population of 70 million that is getting more prosperous as its economy grows,” says Aldcroft of Citi Markets. According to Capgemini, a research firm, the total assets of Thailand’s approximately 100,000 high-net-worth people rose 13% to $548 billion in 2017 – the second-fastest growth in the Asia-Pacific region after Indonesia. Wealth management is evolving too. According to Aldcroft, although Thailand is still largely an institution-driven wealth management market, the concept of open architecture is moving in slowly. An open architecture service involves satisfying all the financial needs of a client, and acting in each client’s best interests by recommending financial products best suited to that client’s needs, even if they are not proprietary products. “Up until now, [wealth management] had been primarily product selling,” says Aldcroft. But as rich Thais get increasingly savvy and develop an understanding of complex products, they are also demanding more sophisticated and structured wealth advisory services. “Consequently, fund managers are moving towards more and more wealth management solutions [rather than hawking just products],” Aldcroft adds. Lack of advisers
Yet a fast-evolving and growing wealth market is also throwing up challenges. “There are many sophisticated investors but not too many sophisticated fund advisers,” says Gambles of MBMG Group. “In Thailand, there are lot of good skill sets for the domestic market but there is a real shortage of skill sets for offshore investments. “If you look at the Thai assets that have been transferred from Thailand to Hong Kong and Singapore over the years, you will find that the vast majority of that money is still held as deposits and not invested. That’s because those Thai investors have not found good advisers to make them go out and invest in other assets.” Regulatory bodies are pushing for progress, though. The Securities and Exchange Commission and local fund houses are joining hands to usher in technology such as digital wealth advisory services to enable all investors to manage their portfolios and achieve longer-term goals such as retirement. Thailand, a fast-changing market, is tempting for many reasons. ©2018 funds global asia