Attractive Choices Abound

[Sunbelt Asia]

Today's Bangkok Post

http://www.bangkokpost.com/Yourmoney/24Apr2006_money07.php

Attractive choices abound

Private funds not just for the super-rich

NINA SUEBSUKCHAROEN

Investors don't have work very hard or take big risks to get decent returns this year because they are obtainable by just depositing money in the bank, says Theeranat Rujimethapass, head of the private fund unit at Tisco Asset Management Co.

Doing so through a private fund, which at Tisco means a minimum investment of 20 million baht by private parties and 100 million by institutions, is even better since high-end clients get special rates.

"Bank deposits are turning into a good choice but next year interest rates might start going down," he said.

Mr Theeranat advises investors to choose fixed deposits because interest rates for three- and six-month terms can be as high as 4-4.5% a year while for one year they are 5-5.5%. He would opt for one-year term because the yield for two-year deposits is lower, with banks having worked in an anticipated rate downturn.

"But the point that clients often forget is fixed deposits' low liquidity. If they withdraw before the term is up they immediately face a penalty and only get the savings rate. It's true they can withdraw any day but they really have to think hard before breaking it."

This differs from investing in risk-free tradeable government bonds and treasury bills, which can yield capital gains if traded at the right moment, says Mr Theeranat.

Private fund clients who want high returns should consider two- to three-year debentures from stable companies with credit ratings of A- or upward. These pay around 6%.

"Those who want to stay liquid, who are keen on investing but may sell some at a later date, might consider two-year government bonds."

These bonds are paying 5% to 5.25% for a one-year term and 5.4% to 5.5% for two years.

"It's a lot because the yield reflects future interest rate trends. If you can get yields of 5.7% to 6% for three to five years, then lock it in _ that is, if you come across this again, I am not sure you will."

But private funds are not the exclusive territory of the very wealthy, he explains, since a family or a group of friends can pool their money. The only catch is that only one person can make decisions, so group members must all trust each other.

Last year the assets handled by private funds grew by 6%, less than for mutual funds but still an indicator of increased popularity. However, Mr Theeranat said that Tisco's private funds outperformed the industry by posting 12% growth.

"The reason private funds are not so popular could be because it's something new and only known by word of mouth. I gather that there are many clients who do not understand the product. On the other hand, mutual funds have regular marketing activities."

Another reason is that there are no tax breaks for investing via a private fund as it is considered a product for high net-worth clients.

"Actually private fund investors can ignore the tax breaks because this service means giving advice to clients to match the circumstances ... so they agree to pay tax but get advice and sometimes this is better than investing on their own."

Generally, retail clients cannot invest in government bonds and treasury bills directly and have to go through mutual funds. And as it happens, mutual fund managers are mostly introducing short-term bond funds to match current market sentiment.

"They cannot focus on strategy as we do," Mr Theeranat says by way of comparing mass-market mutual funds with private funds. "Our discussions are specific, we have to convince clients because right now everyone is caught up with rising interest rates so they don't want to lock in their money.

"They (mutual fund managers) go with the flow, anything they think will sell they will introduce it, so it's different."

Turning to the stock market, Mr Theeranat notes that it has already risen considerably _ up 8.4% since the start of the year _ and this means those who previously bought stocks would today be in a good position but fresh investments might not yield a worthwhile upside.

Tisco Research expects the SET index to reach 800 points this year, just 3.5% higher than its close last week.

"In my opinion, one might get a better yield by investing in fixed-income instruments this year," says Mr Theeranat. "We don't really know about the uncertainties, such as how the government will fare, what the national policies will be like. Right now there are unknown factors so I think previous stock investments should be okay. but consider the risk premium if you are making new investments."

Such sentiment is not bearish, he says, but merely an analysis of upside gains relative to other alternatives.

He does believe, though, that foreign investors will continue to be interested in allocating funds to this region because they expect the United States to head for a soft landing and investing there might not generate substantial returns.

"Asia might be an interesting choice because Japan, which has the second largest GDP, has started to recover," he says. "A lot of people talk about the Chinese bubble but I don't believe this, I think China can continue to grow. But what is definite is Japan _ no one is surprised that it is starting to recover."

As these two Asian giants expand, the whole region will benefit. After all, he notes, about 60% of Thailand's trade is with Asia, against 30% with the US.

On the real-estate front, the trend is less clear but Mr Theeranat believes the sector will bounce back next year when interest rates are expected to ease. It is the middle market that should do well because most well-heeled buyers at the top end have already made their purchases.

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