Southeast Asian markets are poised for significant growth in coming decades; however, navigating their complex and dynamic environments has often led foreign investors, like superannuation funds, to steer clear.
Speaking at the ASFA Investment Summit on Thursday, a panel of professionals highlighted how strategic partnerships with on-the-ground investment partners can play a significant role in bridging this gap, helping funds to unlock untapped opportunities and mitigate risks.
Dr Ridha Wirakusumah, CEO of Indonesia’s sovereign wealth fund Indonesia Investment Authority (INA), encouraged institutional investors who remain wary to approach the area “one transaction at a time, one deal at a time”.
Describing the INA as “the Indonesian version of the Future Fund”, he said the fund is actively “in the trenches”, looking for deals in markets beyond Asian hotspots like Singapore, such as Indonesia, Vietnam, and the Philippines.
“Sometimes, what you may need to do is to have an open mind and an open ear. Who knows, maybe the next opportunity of growth could be in your neighbourhood,” Wirakusumah said.
The fund has partnered with a number of its global peers such as Canada’s Ontario Teachers’ Pension Plan, Singapore’s sovereign wealth fund GIC, Abu Dhabi’s sovereign wealth fund ADQ, and the APG, a Dutch pension investment company.
“For a lot of foreign investors, to look into emerging markets just from the outset, it looks pretty scary. But when you get in, you can decipher it one step at a time,” Wirakusumah said.
Tarang Khimasia, head of funded distribution at the Asian Development Bank, also acknowledged funds’ “understandable” caution regarding these markets, especially when they don’t have “boots on the ground”.
“I can understand the wariness if you don’t have boots on the ground, it can be very difficult to consider analysing these opportunities and I think the key is trusted credible partnerships,” he said.
“It’s really important to develop those trusted partnerships – so investing time in building the knowledge, in understanding the partners you may want to work with and don’t want to work with, the asset classes you may want to deploy into.”
He cautioned that the process to lay the groundwork could take time but added that these “baby steps” are necessary to ensure funds aren’t missing out on the massive potential held by these markets.
Southeast Asia’s population is expected to hit 1.1 billion by 2040, he pointed out, and including India, this figure ticks up to 2.5 billion.
“That’s probably a third of the world’s population, or a quarter, by 2040. You can’t ignore these two blocs,” he said.
“They’re very important, especially from a diversification point of view. There are investments available to suit every type of capital, in terms of risk appetite and return, it just needs the peeling of the onion. It takes time to understand and appreciate the opportunity sets available.”
The success story of India is a prime example, he said, explaining it has witnessed significant growth over the last five years through policy development and huge investments in the digital economy.
“That’s led to 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 actually want capital to recycle itself as efficiently and effectively as possible, it actually takes convening across the entire ecosystem, leveraging the respective strengths and balance sheets of everyone who can come to 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.
Regarding Indonesia, the country has made significant strides, however, corruption can still be an issue, Wirakusumah warned.
“The point of ‘don’t do it alone’, doing it with partners, is key,” he said.
While the fund has upheld its “unbelievably tight” due diligence, he conceded corruption should still be a consideration.
For Khimasia, while corruption may still exist in these markets, ongoing regulatory reform and government policy in Southeast Asian economies are promising.
“If you look at the World Bank’s ease of business rankings, you’ll see that most of the countries in Southeast Asia and south Asia have jumped over the last 10 years, so the trend is clear,” he said.
“You shouldn’t use [corruption] as a reason not to look at these markets – it’s just finding the right opportunities, working with the right partners, doing the due diligence, and you’ll be able to avoid the pitfalls of corruption.”
