Indonesia’s sovereign wealth fund is poised to boost spending this year as the country’s prominent role in the green energy transition and investors’ eagerness to diversify away from China thrust it into the spotlight as an investment destination.
Ridha Wirakusumah, chief executive of the Indonesian Investment Agency (INA), said the two-year-old fund, together with its partners, will deploy $3 billion by the end of this year. As of April this year, the fund had deployed just over $2 billion.
China has long been the top destination for foreign capital in Asia, but higher growth rates elsewhere have caught investors’ attention amid heightened geopolitical tensions with the United States, trade disputes and the lowest growth targets in decades.
“In terms of stability, risk and return, Indonesia has suddenly become a potential investment destination . . . from a national perspective, it’s hard to ignore now,” said Wirakusumah, a former Indonesian private sector banker.
Jakarta launched the INA in February 2021 with US$5 billion in cash and other assets. Its total assets under management are now $8 billion.
Unlike most sovereign wealth funds, which typically manage a country’s surplus reserves and invest overseas, INA raises capital from international investors to co-invest in infrastructure, digital and other opportunities within Indonesia.
Since its inception, INA has signed agreements worth approximately US$28 billion with investors including Singapore’s GIC, Abu Dhabi Investment Authority, Kuwait Investment Authority, China’s Silk Road Fund, and Netherlands-based APG. Not all of these commitments are binding, and some co-invest in projects rather than directly in INA.
The launch of the INA, part of a reform package spearheaded by President Joko Widodo to boost foreign investment, is seen as a way for major global institutions to reap potentially higher returns offered by Southeast Asia’s largest economy.
Its creation coincides with an investment boom in Indonesia, whose economy grew 5.3 percent last year. A growing number of global investors are looking to the country as a diversification option, from its vast reserves of nickel and cobalt, key materials for batteries, to an infrastructure spending spree and a period of continued political stability.
Villakusuma, who traveled to Australia this month to meet with local pension funds, said investors in its southern neighbor had previously overlooked Indonesia and south-east Asia. “Indonesia is not on the radar screen . . . now we are (going) there at their invitation, we have concrete deals to talk about. They want to look at infrastructure, digital and energy transition.”
The Jakarta-based fund has signed deals with BlackRock, Allianz and private equity groups, in addition to other sovereign investors. “Pension funds, sovereign funds, insurance companies — they’ve all given us a lot of interest. We’re also in talks with private equity firms and other strategic groups,” Wirakusumah said.
Wirakusumah, who previously worked at Citigroup and was head of Indonesia’s Bank Permata, acknowledged that investors remain wary of “emerging markets like Indonesia”, which many still see as riskier bets in emerging economies. INA recorded a net profit of Rp 2.62 trillion (US$176 million) in 2022. The fund holds cash and bonds, as well as stakes in state-owned banks, and investments so far include toll roads and local companies.
Caisse de dépôt et placement du Québec (CDPQ), Canada’s second largest public pension fund, agrees to invest up to $3.75 billion in toll roads with INA, the Netherlands’ largest pension fund, APG Asset Management, and an Abu Dhabi company to become a subsidiary of the Investment Authority in 2021 .
“We’re very active in Indonesia . . . we’ve looked at a range of (including) opportunities in data, transport and energy,” said Cyril Cabanes, managing director of infrastructure for Asia Pacific at CDPQ.
According to the Caproasia Institute, Jakarta funds will rank 42nd globally and 18th in the Asia-Pacific region in 2022 in terms of assets under management and total commitments.