Indonesia’s sovereign wealth fund is set to ramp up spending next year

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Indonesia’s sovereign wealth fund is set to ramp up spending this year as the country’s leading role in the green energy transition and investor eagerness to diversify away from China propel it into the spotlight as an investment destination.

Ridha Wirakusumah, chief executive of the Indonesian Investment Authority (INA), said the two-year-old fund would employ $3 billion by the end of this year together with its partners. As of April of this year, the fund had distributed just over $2 billion.

China has long been a top destination for foreign capital in Asia, but, amid rising geopolitical tensions with the US, trade disputes and its lowest growth target in decades, higher growth rates elsewhere have attracted the attention of investors.

“Indonesia is suddenly becoming a potential investment destination in terms of stability, risk and return. . . from a country’s point of view it’s hard to ignore now,” said Wirakusumah, a former private sector banker in Indonesia.

Jakarta launched INA in February 2021 with $5 billion seeding cash and other assets. Its total assets under management are now $8 billion.

Unlike most sovereign wealth fundswho typically manage a country’s surplus reserves and invest overseas, INA has raised funds from international investors to co-invest in infrastructure, digital and other opportunities within Indonesia.

Since its creation, INA has signed deals worth approximately $28 billion with investors including Singapore’s GIC, Abu Dhabi Investment Authority, Kuwait Investment Authority, China’s Silk Road Fund and Dutch APG. Not all of these commitments are binding and some have co-invested in projects rather than directly in the INA.

The launch of INA, part of a reform package spearheaded by President Joko Widodo to stimulate foreign investment, it was seen as a way for major global institutions to access the potentially higher returns offered by Southeast Asia’s largest economy.

Its creation coincided with a investment boom in Indonesia, whose economy grew by 5.3 percent last year. From its huge reserves of nickel and cobalt – crucial materials for electric batteries – to sprawling infrastructure spending and a period of sustained political stability, more global investors see the country as an option for diversification.

Wirakusumah, who traveled to Australia this month to meet with local pension funds, said investors in his southern neighbor had previously ignored Indonesia and Southeast Asia. “Indonesia was not on the radar screen. . . and now we [go] there at their invitation and we have specific agreements that we want to talk about. They want to look at infrastructure, digital and the energy transition.”

In addition to other sovereign investors, the Jakarta-based fund has signed deals with BlackRock, Allianz and private equity groups. “Pension funds, sovereign wealth funds, insurance companies – all of them are attracting a lot of interest to us. We are also talking to private equity firms and other strategic groups,” Wirakusumah said.

Wirakusumah, who previously worked at Citigroup and headed Indonesia’s Bank Permata, admitted that investors are still wary of a “new market like Indonesia,” which is still seen by many as a riskier bet among emerging economies. INA reported a net profit of Rs 2.62 trillion ($176 million) in 2022. The fund holds cash and bonds as well as stakes in state-owned banks, and its investments to date include toll roads and local companies.

Caisse de dépôt et placement du Québec (CDPQ), Canada’s second largest public pension fund, has agreed to co-invest up to $3.75 billion in toll roads with INA alongside APG Asset Management, the largest pension fund of the Netherlands, and an Abu Dhabi Branch of the Investment Authority in 2021.

“We have been very active in Indonesia. . . we looked at a number of things [including] opportunities in data, transportation and energy,” said Cyril Cabanes, managing director of infrastructure for Asia-Pacific at CDPQ.

In terms of assets under management and total commitments, the Jakarta fund ranked 42nd globally and 18th in Asia-Pacific for 2022, according to the Caproasia Institute.