Pension funds should shift from deposits

Pension funds should shift from deposits

The Jakarta Post, Jakarta

In the chase for higher returns, pension funds have shifted their
investments from bank deposits to riskier portfolios, such as
bonds and equities, according to the Indonesian Association of
Pension Funds (APDI).

An expert advisor to APDI, Satino, said on Tuesday that
pension funds, traditionally considered conservative investors
with a total portfolio of Rp 47 trillion (US$4.87 billion), had
started shifting their investments in 2002.

"Interest rates on bank deposits have become too small and
pension funds are therefore forced to switch to other instruments
to attain their investment goals," said Satino, who served as the
association's chairman until last month.

Data collected by APDI showed that the proportion of funds
invested in bank deposits decreased from 56.5 percent in 2003 to
31 percent in 2004 and was projected to decrease even further to
20 percent this year.

Most pension funds have moved their portfolios into corporate-
and government-issued bonds, which increased from 26.5 percent of
the investments in 2003 to 48 percent in 2004 and is projected to
increase further to 59 percent this year.

Equity and mutual fund investments increased by 90 percent
from Rp 3.3 trillion in 2003 to Rp 6.3 trillion in 2004, and is
expected to reach Rp 8.9 trillion this year.

Satino said ideally pension funds should allocate only 10
percent of their portfolio in bank deposits, 70 percent in
corporate and government bonds and the remaining 20 percent in
more volatile investment instruments, such as equities, mutual
funds and property.

Eko Pratomo, president director of Fortis Investments, which
manages Rp 3 trillion in assets, said that pension funds should
diversify their portfolios even further, especially into
equities.

He said the stock market was now less volatile compared to
previous years, making risks more manageable and equity
investment safer.

"In 1999, volatility reached 47 percent, now it is down to 23
percent," he said.

Stock volatility is a measure of fluctuations in a share's
price within a certain period of time. A more volatile stock has
rapid up-and-down movements in its price, while a less volatile
equity has more price stability.

"Although the situation has changed, the majority of pension
funds are still utilizing short-term instruments such as time
deposits as they still considered the stock market has tremendous
risks," Eko said.

"The stock market has become liquid and stable enough for
pension funds to invest in. It's a way for pension funds to
diversify themselves by taking calculated risks," Satino said.

He said that about 75 percent of pension funds managed their
own stock portfolios, which were heavily invested in blue-chip
shares in the banking, telecommunications and consumer goods
sectors, while the remaining 25 percent put their money in mutual
funds controlled by outside investment managers. (002)