Sopawadee Lertmanaschai is the new secretary general of Thailand’s Government Pension Fund (GPF), which manages nearly US$13 billion in assets for 1.16 million civil servants. Lertmanaschai took over the post on January 18. It was previously held by Visit Tantisunthorn from 2001 until he was dismissed in June 2009, due to alleged irregularities. Just weeks into the job, the former chief marketing officer of the Stock Exchange of Thailand shares her plans for the GPF with IPA’s Rita De Ramos.
IPA: Now that you are the new secretary general of the GPF, what are your key priorities?
Lertmanaschai: The first priority, and the most challenging issue, is to increase members’ confidence and relationship with the GPF, especially after the financial crisis during 2008 and 2009. The focus this year is to regain public confidence and to build a clear understanding of the long-term investment philosophy. More effective public relations programs regarding GPF investments will be launched through different channels, such as television, radio, member training courses and seminars, as well as GPF journals. The main communication topic will aim to educate members about investment philosophy and the importance of retirement savings. The GPF will also encourage members to be more interested in understanding their own investment plans.
IPA: How does your current job differ or compare with your previous job as chief marketing officer of the Stock Exchange of Thailand in terms of the responsibilities and the challenges you expect to face?
Lertmanaschai: The significant difference is the objective of the organization. During my time with the SET, the key objective was to develop and sell the products and services that meet investor requirements and to attract them to invest in the market. However, at the GPF, the goal is to create welfare and provide quality retirement for our members. This becomes totally different in terms of how to reach out to members or customers.
The other big difference is the investment stance, the change from sell side to buy side. The SET is the service and product provider, while the GPF is the second largest institutional investor in Thailand. The management aspect has changed from finding the best approach to meeting the investor requirement toward developing the best methodology to select the optimum benefits available in the market for our members. I believe the experience from sell side will help contribute to an effective buy side mission. The knowledge in marketing of investment products provides the insight on how the product is planned to be sold. This will assist in the process of selecting and searching for quality investment products that will best fit with member interest.
IPA: What do you expect to be the greatest challenges of your new post, and how do you plan to handle them?
Lertmanaschai: The first challenge is to increase member’s confidence. The other challenge is to build the trust and relationship with the GPF board and staff. Although the organizational structure might be altered to be more effective, the new philosophy of human resource development will be applied as well. Currently, the GPF has a lot of high-quality personnel with the potential to rise to management level. The staff will be trained and provided with the opportunity to grow within the organisation based on their potential and performance.
IPA: The past year was quite controversial for the GPF, because of allegations that involved the former secretary general. Has the GPF moved forward from that controversy? How is the GPF going to rebuild the confidence of its members?
Lertmanaschai: Currently, the GPF is moving to restore the organisation’s reputation and member confidence. The GPF has already implemented a scheme to strengthen the organisation’s image as well as its credibility. The plan is designed to tackle two key components internally and externally.
For the internal scope, all employees need to strictly comply with GPF codes and investment-related staff will refrain from stock dealing. For the external scope, we are gearing toward reconstructing an image of a corporation with good governance. The GPF, as an institutional investor, is committed to improve social well-being and to enhance good practices at companies we invest.
Furthermore, we are reinforcing our public relations team in order to communicate actively and effectively with our members. We are determined to improve the benefit and welfare to meet with members’ desire and also to provide our members with financial education.
IPA: I understand that the GPF now allows civil servants to select their own investment priorities. Could you please elaborate on why this decision was taken and explain how you believe this would benefit members? Do you have other initiatives that will benefit the members?
Lertmanaschai: The plan for Member Investment Choice (MIC) has been initiated since last year. The benefit of the MIC plan is it will allow our members to select the investment plans that fit their risk appetite. The MIC will include several plans: higher risk, lower risk, capital protection and default fund. Currently, we are concluding the system and investment platform to manage the MIC scheme. We plan to launch the MIC in the second half of this year.
The GPF also provides other benefit and welfare to our members on a regular basis. For example, the program for low interest rate home loan and student loan, the discount price arrangement for hospitals and life insurances, etcetera. We continue to improve those offers to fit our members’ interest based on the feedback from the services.
IPA: What is the total asset size of the GPF?
Lertmanaschai: The GPF is the largest pension fund in Thailand, with an asset size of US$12.84 billion as of end-2009. The assets separate into two accounts, Member Fund and Reserve Fund. The Member Fund is about US$10.07 billion. The Reserve Fund is the amount to secure the government’s payments for defined benefit scheme, and that asset size is about US$2.78 billion.
IPA: What is your investment allocation at the moment, in terms of asset classes? Are you planning to change that allocation in any way?
Lertmanaschai: The GPF’s main investments are traditional assets which are equity and fixed income, domestically and internationally. We also have certain investments in alternative asset such as private equity and real estate. Our allocation is based on a three-year Strategic Asset Allocation (SSA):
IPA: What is your investment allocation in terms of geographies/locations? Are you planning to change that?
Lertmanaschai: Currently, 85% of the GPF’s investment is in the domestic market and 15% is in the global market, mostly in developed markets. Investment in Asia ex-Japan represents a small portion.
We have considered developed markets are our major investment destination due to their good risk-adjusted returns, high liquidity and well-regulated environment, which fits to our long term investment objectives. We may seek additional returns in some areas of emerging markets in the future.
IPA: What kind of exposure do you have in alternative investments?
Lertmanaschai: The GPF has had experience in alternative asset for almost 10 years. One of very first investment in alternative investments is our head office’s building, the Abdulrahim Building. Currently, we have 4% exposure in Thai private equity and another 4% in Thai real estate. Regarding Thai private equity, GPF invests through three channels which are direct investments, strategic investments and private equity fund. In the same approach, GPF invests in real estate through property fund and directly acquiring physical assets.
IPA: How much of your assets are allocated to external managers? Out of those external managers, how many are locally based managers and how many are international managers?
Lertmanaschai: Nearly 30% of the GPF’s total assets are externally managed. We have 16 external mandates, including three domestic equity managers, three domestic fixed income managers, six global equity managers and four global fixed income managers. Global mandates represent 40% of the outsource amount.
IPA: Many pension funds across the globe are reassessing the way they manage their assets, partly due to the lessons learned from the global financial crisis and partly due to pressures to meet liabilities. Is the GPF undergoing any such reassessments as well? If so, what specific areas of your management of assets are you looking to adjust?
Lertmanaschai: The previous global financial crisis has produced lessons for the GPF. Most investors faced difficulty despite a recovery in 2009. However, we would say that the volatility of the past two years is actually the nature of investments. Historically, markets experience these eruptions from time to time. The key to tackle this kind of situation is to have a proper investment strategy along with a clear explanation to our stakeholders, while not forgetting the goal of beating long-term inflation.
In terms of risk management, there is uncertainty in all asset classes. Correlations are not stable and risk is not a fixed measurement. This combination means that we are all working with the best estimate of the relationships between risk and return. Obviously, correlation risk has dramatically increased at the time of the crisis, beyond any estimation. To counter such risks in the future, the GPF has been adopting more tools and resources to make sure that we can get some early bird warnings. For example, the GPF is moving toward a new Strategic Asset Allocation (SAA) approach with short-term target management. With this approach, the GPF will be more dynamic in terms of portfolio adjustment.
IPA: Please share with us the results of your investments in 2008 and 2009. What was the net return of the GPF in those two years, and how does that compare with its five-year return? Do you have any specific targets or expectations for 2010? How do you view 2010 - will it be relatively easier or more challenging compared to the past two years?
Lertmanaschai: The GPF produced a -5.17% and 8.92% net return in 2008 and 2009, accordingly. In the last five years, our net return was 4.5% while the return since inception (March 1997) was about 7.1%. Last year was a good year for the equity market in Thailand and the rest of the world. We made a 60% return on our equity investment.
This year seems very challenging. US GDP growth is projected to slow down in the third and fourth quarter. We expect volatility in the market since US consumption has not fully recovered due to high unemployment rate, slow growth in housing, and auto sales. We will closely monitor the world movements and promptly respond to it in our investment strategies. By nature, the GPF is the defined contribution scheme. We do encourage our members and stakeholders to focus on long-term returns but not to overlook short-term volatility.