Bahana sees rising foreign interest in alternatives

In a country where little more than 1% of individuals own stocks, alternative investments are a hard sell to retail investors.

Even the largest Indonesian institutional investors, a relatively conservative group, have shown little interest in the sector.

Yet Jakarta-based joint-venture Bahana TCW Investment Management – one of the largest onshore asset managers with $1.6 billion in AUM – says it is seeing growing interest in alternatives, particularly from offshore institutions.

The firm launched a quantitative equity fund targeting domestic retail and institutional investors this month and is planning a private equity (PE) offering aimed at foreign institutions next year.

The quant fund targets $30 million in AUM by the end of next year and a balanced return from equity and fixed income of 20%-plus annually.

The PE product will have a 10-year lock-up and a target 20% annualised return. “We are planning to offer a total of $500 million, divided into several industries/sectors,” says Edward Soesanto, Bahana’s head of alternative investments. “The firm is seeing more interest from offshore investors, although that has not yet translated into commitment.”

The quant fund is the fourth product of its type in the country, with the others run by BNP Paribas Investment Partners and Schroder Investment Management. Soesanto expects to start selling the product in January. Bahana has already funded it and offered it to distributing banks.

(Asset managers must gain approval from the capital markets regulator, Bapepam, to issue new retail or institutional products, which Bahana has already done. Bank Indonesia regulates banks and must also give the go-ahead for them to distribute investment products.)

Bahana has been managing alternative investments for several years, having been the first firm to launch a PE fund using a structure under Indonesian regulations about two years ago.

It set up an Indonesian version of a special-purpose vehicle – called a reksa dana penyertaan terbatas (RDPT) or limited-offering mutual fund – for direct investment by institutions. So far, the firm has launched two such products, says Soesanto.

Bahana has managed to invest $50 million out of a commitment of $90 million for both RDPTs, all from onshore institutional investors.

Foreign players are more interested, he says, as they know private equity better than local firms. Moreover, Indonesia is increasingly becoming targeted as an investment destination. “Now we’re trying to market this to offshore investors,” says Soesanto.

Overall, Bahana sources 65% of its AUM from institutions, such as Indonesian insurance firms and locally based multinationals, and 35% from retail investors. That breakdown has changed since 2003, when it was 90% retail and 10% institutional.

“Of course, institutional assets are more stable, but retail assets can be huge,” says Soesanto, citing the particularly huge growth potential of retail investment AUM in the country.

The asset manager is 60%-owned by the state-owned Bahana group and 40%-owned by California-based Trust Company of the West.