Indonesia Investment Authority (INA), the country’s newly-established sovereign wealth fund, is prioritising a good governance framework at the core of its investment strategy, a top executive said.
INA’s chief risk officer Marita Alisjahbana told DealStreetAsia, in an interview, “everything needs to go through a real process. There are many [targets], of course, to get deals done but we need to do it in such a way that we have good governance [framework] and risk-adjusted returns”.
Launched in February this year, INA has made one investment so far and is currently processing as many as 50 deals.
INA announced its participation in telecom firm Mitratel’s initial public offering that raised $1.3 billion in November, the second-biggest IPO in the country this year. While INA did not disclose the sum it invested in the IPO, it was reported to be in the region of $500-$800 million.
Nearing its first anniversary, INA has drawn flak for the slow pace of deployment that could hamper President Joko Widodo’s plan to bring in investments to help the government narrow its budget deficit. Alisjahbana, however, is satisfied with the fund’s progress as it puts prudential practices first.
While Southeast Asia’s latest sovereign wealth fund was formed with a mandate to bring in investments into the country to finance much-needed infrastructure projects, INA is open to investing in a wider array of sectors from transportation to healthcare to technology. “I don’t think we’re restricting ourselves to infrastructure,” Alisjahbana said.
Beyond infrastructure, INA may also be eyeing the country’s growing tech startup ecosystem to make investment bets. Alisjahbana said the SWF is “open to backing unicorns” but declined to elaborate further.
Indonesia is home to 13 unicorns of which six have earned the tag this year including fintech startup Kredivo, payment gateway Xendit and wealth-tech startup Ajaib. The country is expecting several more to hit the $1-billion valuation mark including over-the-top platform Vidio, beauty startup Social Bella, and coffee chain Janji Jiwa, among others.
Edited excerpts of the interview:-
Indonesian President Joko Widodo has set the target for the SWF at $20 billion. How much has INA raised and could you take us through the deployment so far?
So far this year, capital infusion into INA has reached Rp30 trillion ($2 billion) of which Rp15 trillion was received at the beginning of the year followed by another Rp15 trillion. The portion of contribution from state-owned enterprises at Rp30 trillion is currently in process.
In terms of investments, the money we have deployed this year was basically for Mitratel. There are about 50 deals that are in process. Due diligence, valuation and negotiations take time as this is an equity purchase. In addition to legal, physical and engineering due diligence, we also have to factor in ESG and financial due diligence.
Apart from Mitratel, we have signed a $3.75-billion toll road deal with three investors – Abu Dhabi Investment Authority, Canada’s CDPQ and APG Asset Management – but the process is still ongoing, so the deployment hasn’t happened yet. [Note: INA agreed to establish Indonesia’s first infrastructure-focused investment platform, which was INA’s first investment vehicle].
With DP World, we have signed a strategic partnership but it is still ongoing. We have also signed a commitment with Abu Dhabi Growth Fund for various investments. There are agreements with Pertamina, AP II, and BPJS. [Note: These are separate agreements between INA and state-owned companies].
So, [a lot of deals are] in different stages and they all need [to adhere to principles of] good governance. We need to keep to the Santiago Principles. [Note: These principles and practices are endorsed by the International Forum of Sovereign Wealth Funds (IFSWF) to promote transparency, good governance, accountability, and prudent investment practices. IFSWF, a global network of SWFs, welcomed INA as an associate member in May 2021].
Has the pandemic made the process of deployment and capital raising harder?
We were founded at the beginning of the year, in the middle of the pandemic. I don’t really think the pandemic has had much of an impact on us as people have been working really hard to get deals done.
Of course, there are some areas where we do see an impact. For example, in the toll road project, at this point, as the traffic is down, the [revenue] projection is affected. So, we need to accordingly rework the estimates and projections.
One of our mandates is to also attract foreign direct investment. We are at the beginning of that phase.
Per INA’s financial statement, the funds have been kept in time deposits. Is that going to be INA’s cash management strategy?
Yes, that’s right, we will be keeping the money in safe investments such as deposits or government bonds. We will never invest in high-risk instruments because that is not our core business. Our core business is looking for long-term assets that will give good returns to the buyer and the seller and will be good for the economic development of Indonesia.
That’s really our strategy and our long-term goal. So, for our short-term investments now, while we haven’t had the chance to deploy the fund because we’re still in the process, we will keep it to safe instruments.
We’ve already given out two concrete offers but capital has not been deployed yet. It’s still in the negotiation stage. By next year, we will start deploying more and more. We’ve already given out two offers. If those go forward, we’ll start to deploy on those but, if not, we’re still moving forward with all the other deals.
What kind of sectors will INA be looking to invest in? Would infrastructure remain the primary focus of the fund?
I don’t think we’re restricting ourselves to infrastructure. Infrastructure is one of the things we will focus on because it’s very important for Indonesia and there’s a lot of deals in the pipeline.
We will be looking at toll roads, seaports, airports, industrial estates, healthcare, hospitals, pharmacies, and energy. We’re looking at different types of energy and also financial services, waste management. We are looking at different types of deals across sectors.
INA has a small team of 31 people. Do you have plans to scale up the team going forward?
INA is at the beginning of its life and cannot be compared to other SWFs such as GIC, Temasek, or Norway’s Norges, for example. Most of these funds invest abroad as they seek to diversify their risk.
INA, meanwhile, is different and can perhaps be compared to the Indian infrastructure fund NIIF. Unlike other SWFs, we are really looking to attract foreign investment into the country.
At this point in time, we want to build an organisation that is very efficient. Probably next year we’ll add a few more but I don’t think we’re going to add a lot, we’re not going to double. We might add 40%, depending on how things go. We’re not going to become a very big organisation with hundreds of people.
Would INA look at investing in local unicorns or big tech startups that are looking to list?
INA is open to investing in a unicorn if any opportunity comes by that we think will give us a good return and will be good for the economy and development.
We are looking to deploy our capital as soon as possible but with an eye on good governance. So we are very open [to investing in unicorns], actually.
Will there be an overlap with Merah Putih Fund, a new state-backed fund set to be launched on Dec. 17?
I don’t think there will an issue if there is an overlap or not. At INA, we will look at an individual deal from our point of view and if it makes investment sense to us.
What are INA’s targets for next year?
Our target is to get deals done in such a way that we follow a good governance framework, and have good risk-adjusted returns that are acceptable for everyone. So, good deals done with good governance are on top of our minds and not just any deal.
Are there any practices that you are looking to emulate from other sovereign wealth funds?
As an SWF, what we really want to focus on is good governance and gaining the trust of our investors. At this point in time, what we need to do is just keep our eye on the ball, keep doing our work, follow processes on negotiations, due diligence and get more and more deals done.