Indonesia funds body warns of need for change

An Indonesian funds body has stepped up lobbying of its financial services regulator to prise the nation open to offshore investment, warning it has started to fall behind neighbouring nations.

The Indonesian Association of Mutual Fund Managers, representing 65 fund houses and custodians, has created a working group to raise the limit on mutual funds offering domestic investors exposure to international markets.

Denny Thaher, the body’s chairman, told AsianInvestor its members wanted to lift the 15% cap to anything between 50% global exposure to 100%. That would enable global fund houses already present onshore to introduce a more diversified product range.

Thaher noted the association was currently working to find consensus on an appropriate level for the cap before sending its recommendation to the Financial Services Authority. This he expected to happen by the middle of this year.

Concurrently the association is lobbying the regulator to scrap a 25% corporate tax rate imposed on mutual funds with any offshore component. The tax is levied regardless of whether investors achieve capital gains or not.

Thaher suggested the regulator appeared open to its lobbying efforts, but said such changes were essential if the nation was to open itself up to cross-border investment. “We need to benchmark ourselves to regional markets,” he said.

The association’s moves are in line with the push to build a united Asean Economic Community this year, the blueprint for which was agreed by regional leaders at the Asean summit in 2007.

The fear now is that Indonesia is falling behind its neighbours. Both Malaysia and Thailand allow domestic investors to access overseas markets through feeder funds.

Both markets along with Singapore also launched the Asean Collective Investment Scheme last year, enabling funds in any of the three jurisdictions to be distributed cross-border.

Further, fund subscriptions and redemptions are still managed manually in Indonesia, as opposed to electronically.

“We need to upgrade our capability and improve regulatory constraints,” said Thaher. “For me, we are not on a par with markets in the region. We need to lift our standards.”

While Indonesia has a population of 250 million, it boasts just 250,000 mutual fund investors – or 0.1% of the nation. In terms of assets under management they collectively account for just Rp266 trillion ($21 billion).

International asset managers to have set up an onshore presence in Indonesia include Schroder Investment Management, Aberdeen, Manulife, First State Investments, BNP Paribas Investment Partners, CIMB-Principal and Ashmore.

Thaher revealed other large global fund houses had been in contact with the association to learn more about the market, although none of them had set up onshore yet.