Southeast Asian markets are poised for significant growth in the coming decades; however, navigating their complex and dynamic environments has often led foreign investors, such as pension funds, to stay away.
Speaking at the ASFA Investment Summit on Thursday, a panel of professionals highlighted how strategic partnerships with investment partners on the ground can play an important role in closing this gap, helping funds to unlock untapped opportunities and mitigate risks.
Dr. Ridha Wirakusumah, CEO of Indonesian sovereign wealth fund Indonesia Investment Authority (INA), encouraged institutional investors who remain cautious to approach this area “one deal at a time, one deal at a time.”
Describing INA as “Indonesia’s version of the Future Fund”, he said the fund was actively “in the trenches”, looking for deals in markets beyond Asian hotspots like Singapore, like Indonesia , Vietnam and the Philippines.
“Sometimes you have to have an open mind and a listening ear. Who knows, maybe the next growth opportunity could be in your neighborhood,” Wirakusumah said.
The fund has partnered with a number of its global peers, such as the Ontario Teachers’ Pension Plan of Canada, Singapore sovereign wealth fund GIC, Abu Dhabi sovereign wealth fund ADQ and the ‘APG, a Dutch pension investment company.
“For many foreign investors, taking an early interest in emerging markets seems rather scary. But once inside, you can decipher it step by step,” Wirakusumah said.
Tarang Khimasia, head of fund distribution at the Asian Development Bank, also acknowledged funds’ “understandable” caution toward these markets, especially when they don’t have “boots on the ground.”
“I can understand the distrust if you don’t have people on the ground, it can be very difficult to consider analyzing these opportunities and I think the key is reliable and credible partnerships,” he said. he declared.
“It’s really important to develop these trusted partnerships – so you have to invest time in gaining knowledge, understanding which partners you may or may not want to work with, and the asset classes in which you may want to deploy.
He warned that the process of laying the groundwork could take time, but added that these “small steps” are necessary to ensure that funds do not miss out on the enormous potential held by these markets.
Southeast Asia’s population is expected to reach 1.1 billion by 2040, he noted, and including India, that figure could reach 2.5 billion.
“That’s probably a third of the world’s population, or a quarter, by 2040. You can’t ignore those two blocs,” he said.
“They are very important, especially from a diversification point of view. There are investments available for all types of capital; in terms of risk appetite and return, you just have to peel the onion. It takes time to understand and appreciate the opportunities available.
India’s success story is a prime example, he said, explaining that the country has seen significant growth over the past five years thanks to policy development and huge investments in digital economy.
“It has paid real dividends. So the investors who did the work maybe 10 years ago…they’re really reaping the dividends now,” he said.
Emily Woodland, Head of Sustainable and Transition Solutions, APAC at BlackRock, also highlighted the benefits of cultivating partnerships.
“I would say don’t try to do it alone, because if you really want capital to recycle in the most effective and efficient way possible, you actually have to bring the whole ecosystem together, pulling based on the respective strengths and assessments of all those who can come. the table,” she said.
Managing the risk of corruption
The panel of professionals also highlighted how smart partnerships can help address key concerns in emerging markets, such as corruption.
As for Indonesia, the country has made significant progress, but corruption can still be a problem, Wirakusumah warned.
“It is essential not to do it alone, but to do it with partners,” he said.
Although the fund maintained its “incredibly strict” due diligence, it acknowledged that corruption should always be considered.
For Khimasia, although corruption still exists in these markets, ongoing regulatory reform and government policy in Southeast Asian economies is promising.
“If you look at the World Bank rankings on ease of doing business, you will see that most countries in Southeast Asia and South Asia have jumped over the last ten years, so the trend is clear “, he said.
“You should not use [corruption] as a reason not to examine these markets – just find the right opportunities, work with the right partners, do your due diligence, and you will be able to avoid the pitfalls of corruption.
