Indonesia woos US private equity, including Blackstone and Carlyle, for new sovereign wealth fund

Indonesia has approached US private equity firms including Blackstone and Carlyle to take part in a new sovereign wealth fund, marking a test of investor interest after the country passed sweeping reforms last month.

The fund, which is seeking to raise up to $15bn, will also be the first serious gauge of international appetite for such vehicles in the region after the multibillion-dollar 1MDB corruption scandal in neighbouring Malaysia.

The charm offensive by Luhut Pandjaitan, Indonesia’s minister of maritime affairs and investment, comes as Jakarta tries to boost foreign investment and counter the impact of coronavirus, which has pummelled south-east Asia’s largest economy.

Other firms approached by Mr Luhut for the fund on a trip to the US last week included BlackRock, EIG Partners, Global Infrastructure Partners, Stonepeak, I Squared Capital and JPMorgan, according to Indonesia’s ministry for maritime affairs and investment, which is helping to set up the vehicle. 

While some were interested, they remain reluctant to invest in emerging market SWFs after the fiasco at 1MDB, people directly familiar with the discussions said, referring to the Malaysian state investment vehicle mired in a multibillion-dollar embezzlement scandal. Some are also waiting for more details on the SWF to be finalised.

Adam Boehler, chief executive of the US International Development Finance Corporation (DFC), signed a letter of interest that could result in the DFC investing $2bn in the SWF, according to Indonesia’s ministry for maritime affairs and investment. The DFC did not respond to a request for comment.

People at BlackRock, Blackstone, Carlyle and JPMorgan held preliminary talks with Indonesian officials, according to people with direct knowledge of the matter.

I Squared confirmed it met virtually with Indonesian officials to discuss the SWF as well as infrastructure investment opportunities in the country. JPMorgan, Blackstone, Carlyle, BlackRock and a spokesperson for EIG Partners declined to comment. Global Infrastructure Partners and Stonepeak did not respond to requests for comment. 

Some of the US fund managers involved in the conversations said they were preliminary and there was no guarantee they would invest. 

The Indonesia Investment Authority, as the SWF is known, will target infrastructure such as toll roads and electricity networks. Indonesia will seed the SWF with $5bn.

The fund is part of an economic reform package that includes the sweeping omnibus law passed in October that will overhaul several dozen tax and labour laws.

But some investors said the 1MDB scandal remained fresh in their memory. The US Department of Justice alleged $4.5bn was misappropriated from that fund to buy luxury real estate, jewellery and precious art.

Indonesia ranks 85th out of 198 in Transparency International’s 2019 corruption perception index.

“The reputational damage could be huge” if any investments into the SWF turned sour or attracted controversy, one fund manager cautioned.

But Wellian Wiranto, an economist at OCBC, said the fund could be “a positive move” because it would have broader oversight over a “plethora” of infrastructure projects previously delegated to many state-owned enterprises. 

Pooling these funds into a single vehicle could help Indonesia attract “core investors of larger calibre”, said Mr Wiranto, adding that risk would also be shared. “If I were to invest in one specific project [which] doesn’t take off, then all my money is stuck there. If I were to co-invest in this fund, maybe I can get better deal terms.”

However, he added that its success was dependent on Indonesia rolling out the right governing laws for the fund, which it has not yet done.

Jakarta is also in talks with the Japan Bank for International Cooperation. The credit export agency is thinking of partnering with the DFC and the Abu Dhabi Investment Authority to invest in the new fund, said Indonesia’s ministry for maritime affairs and investment

A delegation including Mr Luhut will visit Tokyo and Abu Dhabi in early December, it added. 

JBIC and ADIA declined to comment.

Source: Financial Times