By Panu Wongcha-um

BANGKOK (Reuters) - Thailand's underperforming $77 billion social security fund will invest $11.6 billion in a new foray into global private assets, an executive told Reuters, part of a strategic overhaul to address its poor returns amid rising demand from an ageing population.

Thailand's biggest state fund, which supports healthcare, unemployment benefits and pensions for 25 million workers, has seen an average return of under 3% over the past 10 years, far below its potential, and seeks to rectify that from next year by diversifying away from its domestic-focused strategy, investment board member Petch Vergara said in an interview.

Petch, a former executive director at Goldman Sachs who managed private wealth for ultra high net-worth individuals for almost a decade, said the fund's high concentration of domestic and low-risk investments was unsustainable.

"At this rate, the fund could go bankrupt by 2051," said Petch, who joined the Social Security Fund earlier this year.

"The current investment portfolio of the fund is overly concentrated in Thai assets," she said, adding "the low-risk investments may look safe in the short term but it damages potential long-term returns."

The shift comes as Thailand's population grows older, with one-fifth of its 66 million people aged over 60 at the end of last year, compared to 10% two decades ago, according to the Department of Older Persons at the Social Development and Human Security ministry.

The over-60 population has doubled from 6.2 million in 2004 to 13 million in December 2023, the data shows.

NEW FACES, REFORMIST BACKING

The more aggressive strategy follows a recent change in the composition of the fund's board after some members were elected to their roles for the first time ever in December. Before that, most members were appointed by the generals who seized power in a 2014 coup.

Last year, two-thirds of the 21-member board were elected. Many were nominated by labour groups and by the progressive party that won last year's general election on promises of major institutional reforms, but was blocked from forming a government by conservative lawmakers allied with the royalist military.

The new board has approved an investment framework starting in 2025 that will lower the fund's weighting of low-risk assets from 70% to 60%, and increase the concentration of higher-risk investments to 40% from the current 30% over the next 2-1/2-years, Petch said.

The aim was for a 50-50 split by mid-2027, she added.

Of the higher-risk investments, 15%, or 375 billion baht ($11.56 billion) will be allocated towards investment in global private assets, such as in private equity, private credit and hedge funds, by mid-2027, said Petch.

"The idea is to make the portfolio more global to find more returns in the long term," she added.

MEAGRE RETURNS

A 2023 study by the non-profit Thinking Ahead Institute on global pension assets across 22 major pension markets showed an average annual return of 7.7% over the past five years for pension funds with investment portfolios that consisted of 60% global equities and 40% global bonds.

By comparison, the portfolio of the social security fund in Thailand, Southeast Asia's second-biggest economy, has seen an average return of just 2.7% in the past five years.

Analysts have long advocated a change in tack to meet swelling demands from the population, but point to trust issues and a lack of public faith due to the fund's history of mismanagement, high operating costs and underperformance.

According to Worawan Chandoevwit, an advisor on social security at the Thailand Development Research Institute, 700,000 retired workers are currently eligible for pensions from the fund but that number is set to increase significantly.

Based on independent research, there will be more people drawing out money than contributing to the fund and there will be a clear deficit by 2045, she said.

"We will soon have more people utilising the pension and they will also live longer," Worawan said, "So the money going in and coming out is a very different amount."

"High return is key in the long term to ensure the long-term viability of the fund," she said. "Long-term good governance on the fund's investments is key."

($1 = 32.4500 baht)

(Reporting by Panu Wongcha-um; Editing by Martin Petty and Christian Schmollinger)