The creation of a Thai sovereign wealth fund (SWF) has been debated in the country for several years.
Most recently, Supavud Saicheua, chairman of the National Economic and Social Development Council, reiterated his support for the proposal, pointing to Singapore’s success as a model. Established in 1981, Singapore’s SWF has grown to manage assets of roughly US$1.2 trillion, contributing returns equivalent to 20% of government revenue.
The Joint Standing Committee on Commerce, Industry and Banking also voiced its backing, viewing an SWF as an additional tool to manage capital flows and foreign exchange.
Payong Srivanich, chairman of the Thai Bankers’ Association, said such a fund could help raise demand for US dollars, giving the central bank another instrument to stabilise the baht and manage currency fluctuations.
He also urged the regulator to develop new instruments to maintain financial stability in a rapidly changing global environment.
What is a sovereign wealth fund?
These funds are set up by a government to manage the nation’s assets. The key features of SWFs are state ownership and financing by sources such as international reserves, revenue from oil exports (in the case of oil-producing countries), fiscal surpluses (with a portion allocated for the fund), or returns from state investments.
An SWF can invest in various asset classes such as equities, bonds, real estate and foreign funds.
The returns from SWFs can be used to cushion against future economic crises and serve as a mechanism to save natural resource revenues (such as Norway’s oil income) for future generations. Many countries operate SWFs, including Norway, the United Arab Emirates, China and Singapore.
What is the difference between international reserves and an SWF?
An SWF focuses on investing in assets that generate high returns while addressing the country’s long-term goals. These funds typically invest for the long term (often more than 20 years), can accept higher investment risks and can tolerate short-term losses. SWFs tend to invest in less liquid assets such as common stocks and private sector debt instruments in order to maximise returns.
In contrast, international reserves are focused on short-term investments, generally with an average maturity of less than five years. They have limited risk tolerance, prioritise minimising short-term losses and invest mainly in highly liquid assets such as foreign currencies and gold. Their purpose is to ensure exchange rate stability and provide immediate liquidity in the event of a currency crisis.
Does an SWF pose risks to a country’s international reserves?
Somjai Phagaphasvivat, an international economics analyst, said managing an SWF is not easy. If poorly managed, he said such a fund can affect international reserves.
SWFs have existed for a long time, and while some countries have suffered losses from mismanagement, others have generated profits, with Singapore a notable example, attributed to highly skilled personnel capable of managing such a large fund.
Mr Somjai recommended a clear bottom line: “If we invest in something risky, it must not jeopardise the majority of our reserves.”
Supporters of establishing a Thailand SWF argue concerns over the potential impact on reserves are an excuse to oppose its creation. However, he said an SWF does not use all of a country’s reserves — it only manages the surplus portion of reserves exceeding a necessary level in order to maximise returns.
International reserves play a vital role in maintaining macroeconomic stability, particularly as a buffer against economic crises, stabilising the value of the baht and in meeting external debt obligations during emergencies.
Typically funding for an SWF comes from reserves exceeding the internationally recognised adequacy level (as determined by the Bank of Thailand), or from fiscal surpluses.
Through careful consideration and guidance by clear criteria, Mr Somjai said an SWF can channel surplus funds into generating long-term returns, without affecting the core functions or stability of the country’s international reserves.
He said the most critical challenge is Thailand’s inexperience in independently managing funds for diversified global investments. However, the country does have some foundational elements that can be built upon.
Thailand has a few institutions with experience in managing large funds, as the Bank of Thailand manages international reserves, while the Social Security Office and Government Pension Fund have expertise in both domestic and international investments.
Mr Somjai said what matters most is not only past experience, but establishing sound governance from the outset, consisting of three prongs:
Independence: Management of an SWF must be completely separate from politics to prevent interference and misuse of funds for inefficient populist projects.
Transparency: Clear laws and mechanisms must be in place to ensure public disclosure of investment activities and returns.
Expertise: The fund must have a professional board and management team with global investment expertise, guided by well-defined investment policies.
What are some examples of successful SWFs?
Singapore and Norway are both examples of successful SWFs, though their structures and factors for success differ according to each country’s context.
Norway’s fund is called the Government Pension Fund Global (GPFG), but is widely known as the Oil Fund. It was established with a long-term goal: to transform revenues from oil and natural gas sales into wealth for future generations, ensuring the income from finite resources does not benefit only the current generation.
Separation from politics is the most critical factor. Norway has a strong governance system, where parliament and the Finance Ministry set broad investment policy guidelines. However, the day-to-day fund management — such as asset selection and stock trading — is delegated to Norges Bank Investment Management, an independent unit of Norway’s central bank, ensuring professional investment decisions free from political interference.
There is also transparency and accountability, as every investment of GPFG can be closely scrutinised. Investment data and returns are regularly disclosed to the public on a quarterly and annual basis, allowing citizens and parliament to monitor operations at all times.
The GPFG also has strict guidelines prohibiting investments in companies involved in human rights violations, arms manufacturing, tobacco or environmental destruction. This enhances the fund’s credibility and legitimacy on a global scale.
Meanwhile, Singapore’s SWF structure consists of two main funds with similar roles: Government of Singapore Investment Corporation (GIC) and Temasek.
Both are independent private entities managed by professional teams. They are not considered direct government agencies, even though the Finance Ministry is a shareholder.
GIC acts as the manager of Singapore’s foreign reserves, focusing on globally diversified investments to generate long-term returns, while Temasek Holdings is a holding company that makes strategic investments in domestic and international companies, aiming to create added value and improve the management of those companies.
Despite their high degree of independence, both funds are supervised by the president of Singapore, who has the authority to review board and senior management appointments. This ensures reserve funds are not misused and investment decisions do not adversely affect the country’s capital.
Operating as private companies allows GIC and Temasek to make investment decisions quickly and flexibly in global markets, investing efficiently in emerging industries, unlike funds strictly regulated by the state.
Although the structures differ, both Singapore and Norway have achieved success based on similar principles: separating fund management from political influence, having clear long-term goals and ensuring professional governance.