After Indonesia’s political year of 2014 ended, financial institutions expect to experience better times in 2015. Last year, economic growth of Indonesia slowed to a five-year low of 5.02 percent (y/y) due to weak exports, the high domestic interest rate environment, and political uncertainties caused by Indonesia’s legislative and presidential elections. This year, however, economic growth is expected to accelerate - albeit slightly - implying stronger purchasing power. One of the businesses that will profit is mutual fund management.
Indonesian investment fund managers are confident that risk appetite of the Indonesian people (for capital market products) will improve in 2015 despite plenty of challenges lingering on: sluggish global economic growth, looming higher US interest rates (expected to cause capital outflows from emerging economies), a still relatively high interest rate environment, and a depreciating rupiah (which erodes returns of foreign investors).
However, Indonesia’s capital markets are still remarkably shallow. Currently, only around 250,000 Indonesians (which is 0.1 percent of the country's total population) invest in mutual funds, indicating that this industry is still in an infancy state and thus contains enormous upside potential. This is partly the result of people’s lack of awareness of financial instruments such as mutual funds and therefore they prefer to stash savings at bank accounts or invest in property. However, as traumas from the Asian Financial Crisis are slowly fading and Indonesia has been experiencing a period of structural financial stability (evidenced by the country’s smooth path through the global recession in the late 2000s), confidence in Indonesia’s capital markets has increased causing rising demand from individual and institutional investors.
In Indonesia a total of about 80 fund managers are active and competing for people’s funds. Most of these investment fund managers are Indonesian. However, the few foreign ones that are active in Indonesia command a dominant market share. Schroder Investment Management Indonesia, subsidiary of the British multinational asset management firm, is the largest among these funds managers handling IDR 46.23 trillion (USD $3.6 billion) worth of funds (at end-May 2015), almost double the size of the second-largest fund manager, France-based BNP Paribas Investment Partners.
Largest Investment Managers in Indonesia:
| Fund Manager
|| Funds Value
|1. Schroder Investment Management Indonesia||IDR 46.2 trillion|
|2. BNP Paribas Investment Partners||IDR 26.7 trillion|
|3. Mandiri Manajemen Investasi||IDR 21.9 trillion|
|4. Bahana TCW Investment Management||IDR 18.4 trillion|
|5. Batavia Prosperindo Aset Manajemen||IDR 14.2 trillion|
|6. Manulife Aset Manajemen Indonesia||IDR 13.2 trillion|
|7. Panin Asset Management||IDR 12.6 trillion|
|8. Danareksa Investment Management||IDR 8.8 trillion|
|9. BNI Asset Management||IDR 8.2 trillion|
|10. Trimegah Asset Management||IDR 6.3 trillion|
Why has the mutual fund industry of Indonesia ample room for growth?
• Robust economic growth (rising disposable incomes)
• Low public debt
• Large and young population
• Industry comes from a low base
• People's growing awareness that inflation eats up their savings at banks