Indonesia pension fund keen to raise PE allocations

Indonesia’s social security fund, BPJS Ketenagakerjaan, is keen to add to its direct investments, a senior executive told AsianInvestor.

“The fund is allowed to invest up to 5% of its assets in direct investments, such as private equity, private credit, property, etc. That is where we believe the growth is. So far, the deployed capital is less than 0.3%, so there is room for us to allocate to direct investments,” said Edwin Ridwan, director of investment development.

“It will likely be private equity,” he said.

The $44 billion BPJS Ketenagakerjaan consists of five social security programs -- Work Accident Insurance (JKK), Death Insurance (JKM), Old Age Benefits (JHT), Pension Benefits (JP) and Job Loss Benefits (JKP).

Ridwan is one of AsianInvestor's Top 20 pension executives in Asia published in June.

EYEING OVERSEAS MARKETS

Ridwan said the fund is also lobbying the government to allow it to make overseas investments. Currently, the pension fund is not allowed to invest overseas.

If the government permits the fund to invest overseas, the fund is open to investing in both public and private markets.

“We are trying to get approval to be able to invest overseas, because the size of the domestic market cannot catch up with our fund size. We need another outlet for deploying capital,” said Ridwan.

Deploying capital is becoming an increasing challenge for the fund as it is seeing a steady increase in inflows.

“Every month we receive about 7-8 trillion Indonesian rupiah (about $470 million),” Ridwan said, adding that the fund is growing by 13%-15% every year -- a combination of premia paid and investment returns.

“The challenge is to be able to deploy capital quickly enough because of the limited liquidity and growth in the local market,” he said, noting the social security fund could hit the IDR1,000 trillion-mark ($67 billion) in about three years.

Assets under management are mostly allocated to government and corporate bonds, said Ridwan.

Indonesian regulations require the social security fund to invest a minimum of 50% of assets under management (AUM) in bonds. “For now, bond investments account for 73% of AUM,” said Ridwan.

Another 11% is allocated to stocks. About 5-6% is invested in mutual funds, mostly equity-focused, with the rest in deposits and property investments.

CALIBRATING THE PORTFOLIO

Ridwan said that when he joined the fund in 2021, a decision was made to cut back on the allocation to public equities.

“It used to be 15% of AUM, now it’s about 10-11%. We didn’t sell our public equities as such; we are just maintaining it but as a percentage it went down as we increased allocation to other assets like bonds. We also didn’t have a strong view that public equities will perform well so that also played a part.”

Instead, the pension fund opted to increase its direct equity and private equity investments. “We have been looking at the private investments space for sure,” he added.

He noted that environment, social and governance (ESG) topics have also become hot issues for discussion in Indonesia.

“A lot of focus has been on the G and S, but not so much on the E. However, the focus on E (environment) is increasing,” said Ridwan.

While environmental factors are not yet formalised in the investment process, governance is very much assessed and there are strict policies around that, he added.

“As a social security fund, the ‘S’ or social is a big theme for us. The focus on this is increasing overall in Indonesia.”

The headline on this story has been changed and new updates have been added in para 3, 6 and 7.