This week in asset owner history: Indonesia SWF governance sparks concerns

The Indonesia Investment Authority was established in 2021 to attract foreign capital to aid the country’s development. When the fund launched, its proposed system of governance raised concerns among financial experts.
This week in asset owner history: Indonesia SWF governance sparks concerns

In January 2021, industry experts warned that the proposed governance of Indonesia’s soon to launch sovereign wealth fund—Indonesia Investment Authority (INA)—could hinder the fund’s ability to attract international assets.

In October 2020, Indonesia’s parliament approved a law to establish a new SWF to attract foreign infrastructure investments in Southeast Asia’s largest economy. 

INA, which launched in February 2021, 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.

According to experts at the time, INA’s ability to secure international assets would likely depend on its ability to convince investors it would be free of political priorities in its investing processes, and its ability to provide solid governance processes to prevent corruption.

Michael Maduell,

Prior to the launch of the SWF, Michael Maduell, president of the Sovereign Wealth Fund Institute (SWFI) told AsianInvestor that INA should embody three main characteristics to minimise any risk of corruption: independence from the presidency; good corporate governance “including a strong board of directors that declare any conflicts of interest”; and audited financials made available to the public “from a qualified auditor".

In 2021, investors approaching the SWF cautiously would have been completely understandable as Indonesia ranked 85 out of 198 in Transparency International’s 2019 corruption perception index. 

It also stood last in the Asian Corporate Governance Association (ACGA)'s 2020 survey of corporate governance quality in 12 Asia Pacific markets.

Corruption scandals were also far from unknown to Indonesian institutions. In January 2020 two separate state-owned insurance companies, Asuransi Sosial Angkatan Bersenjata Republik Indonesia (Asabri) and Asuransi Jiwasraya, faced charges of investment mismanagement and corruption.


Despite the concerns of experts, by the end of 2022, Indonesia's sovereign wealth fund had raised more than $20 billion of co-investments from other foreign parties since it launched, according to Reuters.

This builds upon the initial investment of $5 billion from the Indonesian government.

Sovereign investor capital represents $12 billion of that commitment with GIC representing 21% of the total, followed by the Abu Dhabi Investment Authority (ADIA) (19%), Canada’s CDPQ (16%), the Netherlands’ APG (12%), and Singapore’s Temasek (11%), according to Global SWF estimates.

INA has been instrumental in driving investments, particularly in infrastructure and the green energtransition, and managed to attract about $3.9 billion in investments from state-owned investors in 2022 alone, according to the latest Global SWF annual report.

That trend is expected to continue in 2023 according to Diego Lopez, managing director of Global SWF and co-author of the annual report.

Clearly, the concerns that investors may have had around the fund's launch have been allayed.


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Ridha Wirakusumah,

While INA’s board members still consist of only Indonesian nationals, Ridha Wirakusumah, chief executive of INA said that the SWF was leveraging its relationships with foreign investors to build its own competencies.

“We’ve had meetings with the Ontario Teachers’ and they are big in airports. With CDPQ, they have a lot of investments where we will be developing a platform to serve as our own portfolio. So it’s not only about bringing in capital, but also bringing in competencies,” he said at the 2022 Milken Institute Asia Summit in Singapore on September 29, 2022.

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