Landmark Islamic funds set for launch in Indonesia

Four international managers are readying Indonesia's first Islamic mutual funds investing 100% in offshore instruments, in a sign that the country is starting to open to international investing.

Aberdeen Asset Management, BNP Paribas Investment Partners, Schroders and Manulife Asset Management – all of which have onshore operations – have received approval to launch their funds in the next few months, sources told AsianInvestor.

This comes after the November move by Indonesia’s Financial Services Authority, Otoritas Jasa Keuangan (OJK), to relax restrictions whereby mutual funds could only invest up to 15% of their assets overseas.

Does this mean OJK is also set to relax restrictions on regular mutual funds so that they can invest 100% offshore? Sigit Wiryadi, Indonesia CEO at Aberdeen, said this was being discussed by regulators but might take some time to come to fruition.

Indonesia lags Malaysia, Thailand and Philippines in terms of permitting offshore investment. Malaysia and Thailand have allowed local investors to invest in offshore funds through a feeder structure for several years, while the Philippines started allowing feeder funds in late 2014.

Indonesia's move to allow 100% offshore investment initially through sharia investment has been welcomed as it allows diversification. It also provides a platform to convert US dollar savers into US dollar mutual fund investors, said Wiryadi.

Aberdeen will launch a dollar-denominated Islamic mutual fund investing in Asia-Pacific equities (including Japan) in April. Having received approval from OJK, the firm is working out marketing and other issues internally and with its distributors. Aberdeen AM has distribution partnerships with OCBC and Bank Permata, each with around 500 bank branches in Indonesia.

Wiryadi said Aberdeen would target the mass-affluent segment, as OJK had imposed a minimum investment of $10,000 per investor. “This would be considered mass retail in other markets, but not in Indonesia,” he noted.

Meanwhile, BNP Paribas will launch a dollar-denominated sharia-compliant fund investing in global equities.

“We will launch the fund as soon as the selling agents have obtained regulatory approval to distribute the fund,” said Vivian Secakusuma, president director of BNP Paribas AM in Jakarta. The firm works with 20 banks and securities companies for fund distribution.

AsianInvestor asked Manulife AM and Schroders about their plans in respect of Islamic offshore mutual funds, but they did not respond as of press time.

An Indonesian report citing OJK data said mutual funds in Indonesia had reached around Rp265.15 trillion ($19 billion) in AUM as of November 2015, with 85 sharia-based funds accounting for Rp11 trillion (4%) of the total.