TIME TO SEIZE THE UNTAPPED POTENTIAL OF THAILAND’SMUTUAL FUND INDUSTRY

Global wealth is forecast to rise by nearly 26%

over the next five years, reaching USD 399

trillion by 20231. By then, more than a third

of the world’s total billionaire population will

be Asians2. 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 period3.

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 wealth5. 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 growth6.

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).

This growth in clients’ assets has undoubtedly

contributed to the stellar growth of Asia’s

asset management industry; AUM has more

Dr. Somjin Sornpaisarn

Chief Executive Officer

TMBAM Eastspring

------------------------------------------

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% increase8.

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

39

%

India

31Vietnam

35China

30South Korea

38Philippines

31Malaysia

32Indonesia

29Romania

29Thailand

29Poland

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 management10.

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).

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

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

8 88 8 8

14 14 1414 14 1414

171818

21 21 21 2123 2323 23 23

2222 2220

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Feb-

19

No. of Funds No. of Companies

Number of Funds and Asset Management Companies Type of Mutual Funds by Asset Class

1,800 -

1,600 -

1,400 -

1,200 -

1,000 -

800 -

600 -

400 -

200 -

0 -

- 25

- 20

- 15

- 10

- 5

- 0

Funds

Asset Management Company

EquityFixed IncomeMixed

PropertyResolving Financial Institution

InfrastructureReal Estate Investment TrustOthers

0% 60% 80%20% 40% 100%

Dec 18

Dec 07

37 65 101

143

205

175

172

198

245

286 34

6 526 68

3 808

910

1,10

51,

264

1,43

01,

300

1,39

91,

456

1,57

91,

464

1,53

91,

511

1,64

91,

686

429

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

Clients

Pension funds

Insurance companies

Sovereign Wealth Funds (SWF)

HNWI

Mass affluent

Total Client Assets

APAC AuM

Penetration rate

2007

2.1

4.8

1.5

9.9

14.2

32.5

6.4

19.8%

2014

3.8

7.5

2.6

15.1

19.8

48.8

8.8

18.1%

2016

4.0

9.1

2.8

16.9

22.1

54.9

12.1

22.0%

2020e

5.8

11.7

4.0

19.9

25.9

67.3

16.9

25.1%

2012

3.2

6.7

2.1

14.3

19.6

45.9

7.7

16.8%

2015

3.9

7.7

2.7

15.5

20.4

50.3

11.0

21.9%

2017

4.6

10.5

3.1

17.0

22.3

57.5

15.1

26.3%

2025e

6.8

13.7

5.7

28.9

36.6

91.7

29.6

32.3%

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 society12.

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 trillion13

and provident funds of THB1.2 trillion, coupled

with the above stated growth drivers, it is time for

investors and providers to seize the opportunity.

Sources: 1 Global Wealth Report 2018 by Credit Suisse Research Institute 2Knight Frank LLP report Feb 2019 ³Asset and Wealth Management 2025 report by PwC4Defined as those having wealth between USD 100,000 and USD 1 million as per Asset and Wealth Management 2025 reports by Price Waterhouse Coopers 5South East Asia Affluent Consumer Survey 2018 by the Boston Consulting Group’s Center for Customer Insight 6Credit Suisse Research Institute’s Global Wealth Report 2017 7Knight Frank Wealth report 2019. UHNW is defined as those with net assets of USD30 million or more 8Association of Investment Management Companies, Dec 2018 9Price Waterhouse Coopers analysis based on data from OECD, World Bank, FSB, Credit Suisse, SWF Institute 10Association of Investment Management Companies, The Securities and Exchange Commission of Thailand, Feb 2019 11Association of Investment Management of Companies, The Securities and Exchange Commission of Thailand, Eastspring TMBAM 12Aging Population: Global Perspectives by Bank of Thailand, 2017

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