Jan 24, 2017 08:55:37

Indonesia Civil Servant Cap Pushes Pension Fund to Embrace Risk

(Bloomberg) -- Indonesia’s second biggest pension fund is facing a problem it’s never had in its 54-year history. PT Taspen, which manages 160 trillion rupiah ($12 billion) of the compulsory savings of state workers, will see contributions dry up after a government plan to limit the size of the bureaucracy to 4.5 million for five years took effect. For President Director Iqbal Latanro, the solution to maintaining the 10.4 percent return the fund achieved last year is to buy more shares and property, he said. “The number of civil servants won’t increase but the number that retire will keep rising,” he said in an interview in his office in Jakarta on Monday. To maintain returns, Taspen will double its proportion of stock holdings to 15 percent and lift the amount in direct investments in companies and real estate to around 5 percent from less than 1 percent, he said. Taspen’s fund, which has a 60 percent allocation in bonds, will pare its holdings in bank deposits, said Latanro. Bank Indonesia’s aggressive rate-cutting cycle has also influenced his decision as deposit rates have plummeted, he said. The fund plans to spend 7 trillion rupiah this year on direct investments in private companies that are planning to list, real estate and power plants, said Latanro. It will also purchase a 13 percent stake in PT Waskita Toll Road, a unit of PT Waskita Karya that may be floated this year. Latanro said he was favoring bank, property and consumer stocks and that he’s confident that Standard and Poor’s will upgrade its assessment of Indonesian sovereign debt to investment grade this year. U.S. President Donald Trump’s policies and the Brexit negotiations are the biggest risks for the Indonesian economy this year, he said.