Media Coverage / 17 March 2017

Indonesia to ease investment rules for pensions

Indonesia’s financial regulator will allow institutions including pension and insurance funds to invest in some riskier assets, it was reported, as part of plans to support the local capital market. Speaking to Reuters, capital market supervisor of the Financial Services Authority (OJK), Nurhaida, said that one such measure would be to allow institutions to invest in mortgage-backed securities issued by state-backed finance company Sarana Multigriya Finansial. She said that the Indonesian regulator is also pushing for issuance of more municipal bonds amid a lack of liquidity in the domestic market. “Our market is not liquid enough because there are not enough products and not enough investors. Pension or insurance funds could only invest in bonds with a certain rating, but many with lower ratings are actually quite safe. We will try to ease the investment [rules].” Ezra Nazula, head of fixed income at PT Manulife Aset Manajemen Indonesia in Jakarta, told Asia Asset Management that appetite for higher yielding bonds was increasing among institutional investors, although sufficient risk management controls would be key. “With government bond yields rapidly falling, demand for higher yielding assets will rise from institutions. The key is to ensure that appropriate reviews of such assets are properly done, and investors receive adequate yield spreads for the higher risk of the investments made,” he said. The move to make it easier for institutions to invest in lower-rated bonds and debt securities comes as the government of President Joko Widodo seeks to spend as much as 5,500 trillion rupiah (US$436 billion) on new infrastructure spending over the next five years, according to reports. Data on Indonesia’s pension fund industry showed that its total assets were around 186.54 trillion rupiah across 267 pension fund institutions, according to a March report in the Jakarta Post, citing an official from the OJK.