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New Jamsostek Venture to Start With $106m Fund
Dion Bisara | October 07, 2009

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State-owned social security provider PT Jamsostek plans to establish a joint-venture investment company with a subsidiary of the Saudi Arabia-based Islamic Development Bank with Rp 1 trillion ($106 million) in start-up capital, the company’s top executive said on Wednesday.

“We hope the joint venture will be up and running by the first quarter of next year,” Jamsostek president director Hotbonar Sinaga said. He said the new company would increase Jamsostek funds under management.

Hotbonar said Jamsostek would take a majority stake in the venture with the Islamic Corporation for Development of the Private Sector (ICD). It operates according to Shariah principles. The joint venture will be called the Jamsostek Investment Corp.

Hotbonar said he hoped the new investment company would be able to attract funds from the Middle East in addition to managing Jamsostek’s existing funds.

“We hope that given ICD’s name, the venture will lure more funds from the Middle East, which to date have mostly been going to Malaysia,” he said. He said Jamsostek had about Rp 75 trillion in funds under management and expected this figure to rise to Rp 80 trillion by the end of the year. The funds are mostly collected as premiums from insured workers.

Jamsostek invests 50 percent of its funds in bonds, 30 percent in bank deposits, about 15 percent in equities and the remainder in mutual funds and direct investments.

Hotbonar said that under the current rules, Jamsostek could only place a maximum of 5 percent of its funds in direct investments.

“There is a lot of potential for Jamsostek to support government policy, for example, by investing in infrastructure,” he said. “The long-term nature of such investments is in line with Jamsostek’s status as a pension fund.”

However, Purbaya Yudhi Sadewa, chief economist at the state-run Danareksa Research Institute, said direct investments posed risks for the social security provider.

“For starters, I think that Jamsostek doesn’t have enough expertise in the direct investment area, because up until now it has usually put its money in shares, bonds or bank deposits,” he said.

“It needs to employ more people with the required expertise. Through this joint venture, it should be able to obtain the expertise it needs.”

Fauzi Ichsan, an economist at Standard Chartered Bank, also warned of the perils of direct investment by Jamsostek.

“The value of investments in shares and bonds can be quantified. But the value of a company or a project is extremely difficult to assess. Moreover, projects are often at risk of becoming politicized. The joint venture partner will have to be truly professional,” Fauzi said.

Hotbonar said Jamsostek expected to post a net profit of Rp 1.32 trillion this year, compared with Rp 1.09 trillion last year.

In the first eight months, Hotbonar said, the company recorded a net profit of Rp 800 billion.