Use sovereign wealth fund wisely

your say September 14, 2011 00:00

Re: "Minister, take a lesson from SEC's Thirachai", Editorial, September 12.

The purpose of setting up a sovereign wealth fund (SWF) is to maintain stability in the value of reserves and earn better income. Diversification with the discipline of a surplus-to-requirement fund is the name of the game.

The revelation of Minister Thirachai Phuvanatnaranubala's contention on a SWF is thought provoking.

However, in risk management, a SWF should not invest in volatility assets like oil or assets that are already heavily imbedded in Thailand's economy like rice or agricultural related industry, because of too many eggs in one basket. The best example is an employees' pension fund heavily invested in the employer's stocks, as in the case of Enron. When Enron went bankrupt, the employees were not only without jobs but also without savings.

Minister Thirachai puts weight on politics rather than economics in deciding on having a SWF or not. I beg to differ that even without a SWF, under the present scenario, the dollar and euro reserves are facing paper losses, with the dollar and euro weakening and the baht strengthening.

With the right discipline, a SWF is likely to be profitable in the long run against any threat of political slight if we invest presently when the value of all things is so disheartening.

Saying that there are not many assets to invest in is not real. Just go and ask seasoned investors; they will tell you there are so many cheap assets available but caution you that they could go cheaper. The loss of a SWF for the period of 2007 to 2009 of 20 per cent value as quoted in the editorial was only a paper loss, and in 2011, even with the current tumbles, the loss is recovered with profits.

Anybody with surplus cash now is king in the Western world.

Songdej Praditsmanont