Indonesia’s BPJS constrained by domestic mandate, short-term focus

Strong member inflows to the social security fund are held in time deposits for a lack of alternatives. The investment team is building a case for a much wider mandate.
Indonesia’s BPJS constrained by domestic mandate, short-term focus

Indonesia’s largest institutional investor, the $45 billion social security BPJS Ketenagakerjaan, is struggling to invest its rapidly growing fund pool.

With 40 million members and a young population, the BPJS has accumulated $45 billion since it was restructured in 2014 as a state fund. Member contributions are growing 13-15% annually, which equates to $6-7 billion of new money every year.

The limitations of the fund’s investment mandate, to only invest domestically, make it impossible to deploy its available funds, said Edwin Ridwan, investment director of BPJS.

“The Indonesian equity and bond market is just too small, and liquidity is poor,” he told AsianInvestor.  

BPJS recently hired professional services firm PwC to carry out a study and build a case for an overseas investment mandate to be presented to the government. “It needs to be done, for us to be able to deploy capital faster,” said Ridwan.

Edwin Ridwan, BPJS

Currently 12% of the fund is sitting in bank deposits, or almost $5 billion.

“Because all our liabilities are long term, there’s a mismatch. The only reason we are in time deposits is that we cannot invest or deploy capital fast enough, because of the lack of liquidity in the local market.”

Despite the glut of cash coming into the system, some of the programs run under the BPJS banner, including a defined benefit pension plan, are substantially underfunded.

“We cannot remedy that by making higher investment returns. It’s the design of the program itself. It has to be 6% contribution from the members, but the actual payment is only 3%,” said Ridwan.


Ridwan joined BPJS in 2021 from state pension firm PT Taspen and set out immediately to reassure his superiors that, post-pandemic, the fund’s risk exposures were under control.

“During the pandemic, the market collapsed and we suffered substantial unrealised losses. Most of our stakeholders were not ready to stomach that volatility. Our equity exposure at that time was only 15% at most, compared to other pension funds around the world where it is often more than 50%. Nonetheless it made headlines.”

This was not a situation the investment team nor their paymasters took lightly. Indonesian state investment chiefs often face serious consequences, even jail in extreme cases, simply by losing money on paper.

“We were summoned by the parliament and asked all these questions, I told them OK, we will cut back on our equity exposures," said Ridwan.

An investment manager at one of Indonesia’s local fund management firms told AsianInvestor he believes Ridwan is in a difficult position. “In that role, the priority is to not lose money and the focus becomes very short term. If the structure of the fund is investing to match long term liabilities, you are going to run into problems.”

The BPJS asset mix is mandated to invest at least 50% in government bonds. That allocation is actually at 70% currently. Though the equity allocation is only 9%, down from 15%, nominally there hasn’t been much change in the equity exposure because the fund size is growing so fast.

Ridwan said the BPJS would also look to invest in private markets assets that match their long-term objectives. Indonesia’s greatest challenges are all infrastructural, according to Ridwan. Roads, water supply and waste management are all chronically undeveloped.

The creation of new regional capital cities, one of President Joko Widodo’s aspirations for Indonesia, is also seen as essential if the country is to achieve its potential, he said.

“Indonesia needs to grow more than 5-6% annually in the next 20 to 30 years, otherwise, we’ll be left behind. Jakarta represents about 20% of GDP and we need more Jakartas to grow 8-9% annually for the next 20 to 30 years.

“By that time, we will be about 350 million people (currently 275 million). If we want to feed all those people and achieve $25,000 per capita (current GDP per capita is still less than $5,000), we will need a $7 trillion economy. Currently our economy is only 1.2 trillion, so we cannot rely on the current economic structure.”

President Jokowi is intent on ensuring his economic development policies are continued, even as term limits mean he cannot stand for the top office again. Elections are due to be held in February 2024.

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