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In brief

On 5 October 2020, the Parliament approved the job creation law (RUU Cipta Kerja, commonly known as the “Omnibus Law“). As an effort to foster more investment opportunities from offshore investors into Indonesia, especially from other sovereign and private funds, the central government will establish an Indonesian sovereign wealth fund (“SWF“) under the Omnibus Law.

Indonesia’s SWF will be officially named “Lembaga Pengelola Investasi” (“LPI“) but has been widely introduced as the “Indonesia Investment Authority”. This institution should not to be confused with the existing Indonesia Investment Coordinating Board (BKPM), which is a regulator overseeing domestic and foreign capital investment in Indonesia.

Key Features


LPI is established to optimize the central government’s investment in a long term and sustainable fashion for the benefit of the Republic of Indonesia. LPI’s profits from its investment activities may be distributed to the central government or reinvested.

Status, authority and capital

Similar to other jurisdictions that have already established sovereign wealth funds, LPI will be established as a 100% government-owned legal entity. LPI will be responsible directly to the President.

In carrying out its function to undertake the central government’s investment, LPI may:

  • place funds in the form of financial instruments
  • manage assets
  • cooperate with other parties including with trust funds
  • determine prospective investment partners
  • grant or receive loans
  • administer the assets that it owns

The source of LPI’s capital will derive from the government or state-owned enterprises’ assets, whether in the form of cash or in-kind. It should be noted that even though the type of assets that can be injected into LPI are quite broad (and such assets after being transferred will belong to LPI (instead of the government)), there are limitations as to the types of assets that are transferrable to LPI. The Omnibus Law has determined that state assets that are vital for the people’s lives or related to natural resources cannot be transferred to LPI.

The Omnibus Law itself stipulates that the initial capital of LPI will be at least IDR 15 trillion, which will be in the form of cash. According to media reports, the Minister of Finance will inject more than what the Omnibus Law requires. Once LPI has that capital, LPI can start its activities and cooperate with third parties in strategic investments.

Co-investing and cooperating with LPI

In selecting its investment partners, LPI will directly appoint its partners mainly based on merit. It will look at things such as good reputation, financial capability to support its commitment to the investment, and expertise in the field of investment to be undertaken. Considering LPI may cooperate with international institutions, there are some provisions under the Omnibus Law that require LPI to be managed based on international best practices and sound business principles (e.g., creation of internal policies, use of internationally recognized accounting principles/standards).

LPI can choose to invest directly with another party (by forming a joint venture), or engage an investment manager to manage its assets. In conducting direct investments, LPI may form investment vehicles (in Indonesia or abroad) that will establish joint ventures with prospective investment partners. Investors will only be able to co-invest with LPI as opposed to injecting their funds into LPI.

However, the Omnibus Law mandates that in its cooperation with third parties, LPI will need to maintain its position as the key business decision-maker. It remains to be seen how this provision will be implemented in practice, i.e., whether LPI must obtain a majority stake in investments or if joint control would be sufficient. Counterparties should consider several governance aspects when establishing a joint venture with LPI, such as nomination of board members, capitalization, and sufficient reserved matters that satisfy both LPI’s requirements and the investor’s investment appetite.


LPI will have a supervisory board that oversees the operational activities, and a board of directors that will run the day-to-day management. All supervisory board and board of directors members must be Indonesian nationals and fulfill certain requirements stipulated in the Omnibus Law.

The supervisory board will have five members, with two ex-officio members, namely the Minister of Finance (as the chair of the supervisory board) and the Minister of State-Owned Enterprises, and three professional members. All of these members will be appointed and dismissed by the President. The professional members will need to undergo a selection process with a selection committee to be formed for this purpose. The selection process will also involve consultancy between the President and the Parliament.

The board of directors will comprise five professionals that will manage, among other things, the investments made by LPI. These persons will be appointed and dismissed by the supervisory board. If deemed necessary, LPI can also form a board of advisors to provide suggestions and guidance to LPI in its investments. These board of advisors members will be appointed and dismissed by the supervisory board.

Most of the governance provisions applicable to LPI and its investment vehicles will be governed under more specific regulations, either the implementing government regulation or LPI’s internal regulations. This is an essential aspect, as SWFs will need to establish a clear governance framework to ensure an effective and clear division of roles and responsibilities to facilitate accountability and operational independence in managing the fund to pursue its objectives.

Things to Consider

Intending to create more opportunities and draw more investment to support economic growth, the establishment of LPI is a big step by the Indonesian government. Nevertheless, with the implementing government regulation still being formulated by the central government, investors and prospective partners will need to consider and keep on the lookout for the following items:

  • How to cooperate with LPI; will all projects or investments be available to domestic and foreign parties? Will LPI have to be the majority stakeholder in the partnership?
  • Would investing jointly with LPI provide additional incentives for counterparties (e.g., tax facilities)?
  • Will LPI focus on any specific sectors (at least in the earlier stage), e.g., infrastructure?

It also remains to be seen how LPI will follow or adhere to the international guidelines that have been provided in the Santiago Principles.


Iqbal is the Head of the Capital Markets Practice Group. Iqbal has been involved in various capital market transactions, representing both issuers and banks/underwriters, in both equity and debt capital market. His work encompasses various sectors, including IT, plantations, healthcare, mining and transportation sectors. When representing issuers, Iqbal's work often also involves pre-IPO work. This includes assisting the issuer in putting in place the appropriate corporate and shareholding structures (which may include selling out or injecting new assets). Other than capital raising, over the years Iqbal has also been involved and led teams in doing most of the delisting and going private transactions in Indonesia. Iqbal has also been involved in debt issuance transactions, both USD and IDR denominations. Iqbal also regularly advises clients on various capital market issues such as disclosures, good corporate governance, related party and material transactions, and takeover issues.


Armand Harahap is an Associate in Baker McKenzie Jakarta office.