Thai rule changes to benefit foreign fund managers

The financial market overhaul under way in Thailand, which is expected to be completed this year, will help offshore asset managers compete with their local counterparts. However, some domestic firms will retain the advantage of having a local distribution arm ready-built into their businesses.

Thailand's Securities and Exchange Commission (SEC), the capital-markets regulator, wants to create a more open fund market, says Somchai Boonnamsiri, Bangkok-based chief executive at Krungthai Asset Management (KTAM), a state entity.

The changes will mean every qualified entity, including foreign firms, will be able to apply for a licence to sell fund products onshore directly without having to go through a local distributor, he says, and it will be easier to do so. As a result, Somchai expects to see more foreign asset managers coming into the market.

However, the Thai fund industry relies on a strong retail investor base, he adds, making it not all that easy for foreign managers to achieve good distribution. "Local firms like us with bank arms [Krungthai Bank in this case] can use our own branches," says Somchai, adding that Thai banking is very branch-intensive.

Foreign fund managers agree the rule changes are a good thing. "The current moves [towards allowing more foreign investment into and more domestic investment out of the country] are going to give a great fillip to the asset management industry," says Grant Bailey, regional general manager of ING Investment Management, the fifth biggest fund manager in Thailand, with around $6 billion in AUM.

"It's a country of 65 million people, with young demographics and people wanting to have more discretion over their savings," he adds. "That's similar to what we're seeing elsewhere in Asia. The country's got strong potential for growth in terms of its investment market."

However, it will not achieve the scale of the biggest Asia-Pacific markets, says Bailey. "Thailand has an $80 billion mutual fund market, and that will get bigger," he says, "but even with strong compound growth, it won't hit the $900 billion level you see in Australia, for example."

The SEC has already made several regulatory amendments "to fit the new environment for investors", says Duangkamon Phisarn, secretary general and president of the Association of Investment Management Companies in Bangkok. For example, there have been changes to the requirements on fund prospectuses to make them easier to understand, reflecting similar plans in other jurisdictions, such as Hong Kong.

The SEC also wants to allow investment in a wider range of -- and more complex -- products, and is consulting on introducing more principles-based product disclosure requirements, from the current prescriptive rules. "Previously all types of disclosures were narrative-style," says Phisarn. "Now the SEC is looking at something called a 'risk spectrum' type of disclosure to illustrate the risks associated with each fund type."

The regulator wants to be more relaxed and allow investment in assets such as commodities, derivatives, hedge funds and so on, says Phisarn, but wants to ensure the market is well prepared. This is particularly significant since Thai investors tend to be very conservative -- a typical mutual fund portfolio comprises 65% fixed-income assets and just 18% equity. It is also early days for Thais investing in foreign assets; they have only been allowed to do so for five years.