Foreign Investment Fund

It’s no secret that many ‘well-to-do’ Thais have bank accounts offshore. However, it’s a taboo subject because, as part of the Bank of Thailand’s exchange control regime, cash remittances for overseas investment are prohibited. Even to send money abroad for other matters such as your child’s education, you need a lot of supporting documents. So, how do people buy houses, condos, stocks or other assets offshore?

A number of wealthy Thais have found ways to get around the ban. Surely, it is not perfectly legal. Once there, the money can be taken care of by private bankers. It is thus a common apparition to find these nice-looking executives discussing investment alternatives with their high-net-worth clients over lunches and dinners at leading hotels in Bangkok, particularly after the de facto devaluation of the Baht in 1997.

So, what do the ‘normal’ Thais, who don’t have access to these foreign private bankers, do with their investments? Unfortunately, they have to stick to those offered locally – plain-vanilla bank deposits, bonds, stocks and mutual funds.

Things will change soon. For the first time, ordinary local investors will have a chance to legally take the money out to invest in foreign capital markets. This is through the Foreign Investment Fund (FIF), a local mutual fund whose investment policy is to invest all of its assets overseas.

Initially, the Bank of Thailand and the Securities and Exchange Commission (SEC) approved five asset management companies to set up and manage five FIFs. Each has a quota of US$ 40 million to remit by the end of 2002.

The five investment programs

The asset management companies will launch funds with different underlying assets in May 2002 as follows:

Asset Mgmt. Company	Ayudhya JF Asset Mgmt.	ING Mutual Funds	MFC Asset Mgmt. PCL	One Asset Mgmt.	K-Asset Mgmt.
Investment assets	Global convertible bonds	Asian bonds	Global equities	Global Balanced	Global Balanced
Structure	Feeder fund	Direct investment	Direct investment	Fund of funds	Feeder fund
Foreign partner/advisor	JPMorgan Fleming Asset Management	ING Group	Wellington Management	Frank Russell Investment, Deutsche Asset Management and Morgan Stanley	Merrill Lynch Investment Managers
Minimum investment	Bt. 100,000	Bt. 2,000	Bt. 10,000	Bt. 50,000	Bt. 100,000
Subscription dates	8-9 May	7-14 May	8-24 May	2-9 May	15-17 May
Redemptions	Semi-annually on 1st business day of Jan. & Jul., starting Jul. 03	Semi-annually on last business day of Jan. & Jul., starting Jan. 03	Every 3 years, starting 2nd quarter of the 4th year after the IPO	Monthly, starting 1 year from the Fund’s registration date	Annually, on last business day of Jun., starting Jun. 2007
Dividend policy	No dividend	No dividend	At least once a year at the rate no less than 30% of profit	No dividend	No dividend

Source: Five asset management companies

Terminology

Convertible bonds	Bonds that give the holder the right to convert or exchange the par amount of the bond for stocks of the issuer at some fixed ratio during a particular period.
Asian bonds	Bonds whose issuers are governments or companies in Asia
Global balanced	A portfolio of both equities and bonds
Feeder fund	A fund that invests in another fund
Direct investment	Investment into underlying stocks or bonds directly
Fund of funds	A fund that invests in other funds; i.e. equity fund(s) and bond fund(s)

After the funds are offered to the investors during the initial subscription period (IPO), all the five fund units will be listed on the Stock Exchange of Thailand. So, investors who need to sell the units can do so via their brokers.

Who should invest in these funds?

You should also seek and understand the details of how each fund will provide you with returns. For example, you should look at how much the fund is charged by the local asset management company, its foreign partner(s), the overseas custodians, the trustees and the administrators. These will affect the underlying performance of the fund.

Conclusion

Upon acceptance of all the fine details given in the respective prospectuses, you should understand that these new products will allow you to diversify your risks and at the same time enhance your profit potential. But, like other local products, there are risks involved, and you must understand them before committing any money in them. In any case, only a portion of your savings should be invested in these funds.

If you would like to have exposure in foreign capital markets like the wealthy ones, the FIFs will be your chance to do it legally.