The Government Investment Unit of Indonesia, the country's de facto sovereign wealth fund, launched a new private equity fund in February this year called the Indonesia Clean Technology Fund. The investment manager appointed is Singapore-based CTF Partners, which is headed by ex-Goldman Sachs executive Ataru Onuma.
The Indonesian government has agreed to act as anchor investor to the new fund with the Government Investment Unit promising a sum equal to 10% of its assets at closing. The first closing is scheduled for June 2009 and the target size is $50 million, with a final closing expected at the end of this year with a target size of $250 million.
The remaining 90% will be raised from private money, including funds of private equity funds, family offices and institutional investors.
The strategy of the fund is to invest in projects of a size less than $80 million. The fund will participate as a mezzanine investor, via convertibles or preferreds. Its contribution will not be more than 25% of aggregate funding.
Around 60% of the fund will be invested in alternative energy, 30% in water distribution and treatment, and 10% in agricultural technology. Target returns are 15% to 25% depending on which specific sector the investment is allocated. There will be a management fee of 2% and a performance fee of 20% after a hurdle rate of 7%. The life of the fund is seven years with a two-year extension.
"Indonesian banks have been reluctant to lend to alternative energy projects only because they've never done it before," says Edward Gustely, senior advisor in Jakarta to the Ministry of Finance and its Government Investment Unit. He has been helping to build expertise in the area of private and public partnerships in Indonesia .
"This fund aims to offer private equity returns in a new sector in Indonesia, different to the route of extractive mining and mineral resource plays usually selected by international private equity investing here," he adds.
The intention is to be able to provide some of the energy to Indonesia's massive archipelago by stand-alone alternative energy schemes such as geothermal, hydro, biomass, and solar power -- all of which Indonesia can provide the basic material for in great quantity thanks to Mother Nature.
If this fund succeeds, on the drawing board are possible similar schemes from the Government Investment Unit for future development of ports, healthcare facilities and in the tourism and transport field.