Indonesia green foundation Kehati may ditch more external managers

Indonesia green foundation Kehati may ditch more external managers

The Indonesian biodiversity foundation, Kehati, may fire two of its three remaining global external asset managers as it shifts back to index investing for its US$21.75m endowment after abandoning actively managed alternative funds.

“Research and history have shown that few fund managers can beat the index,” Kehati’s director of finance and administration, Gustaaf A. Lumiu, told Investment & Pensions Asia.

“We will divest all hedge funds by the end of this year.”

Kehati started out with five global managers and now works with three -- JP Morgan, Morgan Stanley and The Investment Fund for Foundations – as well as two local Indonesian firms.

Mr Lumiu said that in the foreseeable future, there might only be one global manager.

The foundation started to hire external managers in 2003, after its passively managed portfolio reportedly lost $5.2m. US university and college endowments inspired the new strategy of trying to smooth returns by diversifying holdings.

Kehati started buying uncorrelated assets though arbitrage and event-driven hedge funds and real estate investment trusts (REITs); it also bought preference shares.

Mr Lumiu said that the experienced had been disappointing.

“Short-term investments can make high returns but in the long term, the returns disappear. We prefer to take a long-term view.”

As a result, Kehati would return to the original passive strategy it pursued for nearly a decade after it was founded in 1994.

“Our preference is to invest via index funds, as we don’t have a large full-time team to watch the markets daily. Perhaps if we had the infrastructure, we might invest differently.”

In recent years, assets have been primarily reallocated back to global and Indonesian equities, fixed income and balanced funds. The portfolio was 68% equities and 32% fixed income in 2008.

Aside from the three global asset managers, Kehati currently works with an investment adviser based in Canada and two Indonesian fund management firms, Mega Capital and Bahana.

Kehati invests in a Mega Capital’s green fund based on the SRI-Kehati Index, which the foundation launched in 2009 with the Jakarta Stock Exchange.

Kehati gives grants to help Indonesia preserve its biodiversity. It started life through a US$16.5m donation by the US Agency for International Aid (USAID).

The endowment’s market value in 2008, the latest annual report available, was US$21.75m.

Author: Bee Ong