Indonesia’s sovereign wealth fund, Indonesia Investment Authority (INA), looks for effective collaborations and partnerships that can create investment value as it seeks to develop the country’s long-term potential, a top executive told AsianInvestor.
"We are looking for partners who not only have the capital to invest but also capabilities to create value to our investments – through specific expertise, technical knowledge, or industry network. We also look for investors who believe in the long-term potentials of Indonesia,” said Arief Budiman, deputy chief executive officer of INA.
"Our co-investment partners to date have come from multiple backgrounds and regions – from sovereign wealth funds, pension funds, asset managers, as well as strategic partners from across the globe,” he told AsianInvestor.
“We embrace and continue to broaden collaborations with wide variety institutions or organisations who believe in the long-term potentials of Indonesia and can contribute to Indonesia’s sustainable economic development.”
The sovereign wealth fund has been highly successful in attracting investments to the country since its was established in early 2021.
INA is part of a new breed of “catalytic funds”, established with the aim of attracting foreign capital into the country, rather than investing national capital overseas.
Indonesia attracted about $3.9 billion in investments from state-owned investors such as sovereign wealth fun.ds (SWFs) and public pension funds in 2022, according to an estimate by research consultancy Global SWF, much of it driven by INA.
Investors included Singapore’s Temasek, Abu Dhabi Investment Authority, Malaysia’s Khazanah and China’s CIC among others.
That trend has continued in 2023.
The sovereign wealth in late May teamed up with ESR group and MC Urban Development Indonesia, a wholly owned real estate subsidiary of Mitsubishi Corporation, to develop modern warehousing facilities in the country.
Budiman explained the rationale for the partnership: “ESR is APAC’s largest real asset manager with around $156 billion of asset under management and proven track record in developing and creating value in multiple Asian countries.
"MCUDI, a 100% subsidiary of Mitsubishi Corporation, brings extensive experience from their warehouse development business in Japan, the US, and other regions. The collaboration intends to leverage MCUDI’s extensive network and expertise to develop the modern warehouse market in Indonesia.”
The initiative hopes to create over $1 billion of modern logistics warehouses in the archipelago over the next five years.
Budiman did not provide details of how much each partner will invest in this project, but the initial joint investment is about $100 million.
"We are starting with three high-quality modern warehouse assets and a total leasable area of around 200,000 square metres to form a network that we would expand over the next five years,” he said.
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The warehousing deal is part of the plan to develop Indonesia’s long-term potential.
With robust growth of sectors such as e-commerce, third-party logistics, automotive, and a few others, there is rising demand for not only storage and distribution provisions but also for high-quality warehouse services.
“To date, most warehouses in Indonesia remains to be traditional and are not suitable to cater to the needs of the modern logistical value chain,” said Budiman.
Of the roughly 30 million square meters of warehouse supply, modern warehouses in Indonesia only accounts for about 8%, significantly lower than other countries such as China, Japan and Thailand, he said.
“This has led to a healthy occupancy rate of more than 90% in the last few years despite rapid growth in supplies. This healthy supply demand relationship gives us confidence that the sector remains to be attractive from a risk-return perspective,” said Budiman.
And while many regional asset owners have shied away from property investments over the past one year or so, Budiman believes Indonesia’s long-term growth prospects continue to provide some sub-sectors a compelling reason for investing.
Real estate is a broad sector ranging from industrial, commercial, to residential and even hospitalities. Some of the sub-sectors understandably have been facing challenges due to the recent pandemic and broad increase in interest rates,” he said.
Given that Indonesia will be one of the fastest-growing economies in the world after the pandemic, the sector has a “solid medium-to-long term outlook,” he said.