Budi Frensidy: Wise and Careful Managing Institutional Funds
Nino Eka Putra ~ Humas FEB UI
DEPOK – Based on the release of the article published in the Kontan newspaper (2/12) Wake-Up Call column, Budi Frensidy as a FEB UI Teaching Staff wrote that four years ago we were surprised to read that Pertamina’s pension fund (dapen) holds SUGI shares up to Rp700 billion. With an investment of this size, the pension fund which managed around Rp9 trillion in funds at the time, as much as 30% in shares, had representatives on the board of directors and the board of commissioners of the issuer.
We are not excited because this pension holder controls up to 8.1 percent of these energy issuers, but rather because the daily transaction of these shares is only Rp15.3 billion and SUGI is also not included in the group of 45 liquidated shares. The rule of thumb of stock investors in the stock exchange is to have liquid shares a maximum of five times the value of daily transactions.
Until this year, the large pension cases with SUGI’s main shares above continue to be used as gossip and newspaper coverage. Understandably, this share has been suspended several times and the price has plunged freely from the Rp400 at the end of 2015 to only Rp50 since August 2017 until today. Then we hear the criminal verdict for the president director and the majority shareholders of the above listed companies.
“A large life insurance company has also involved Rp1 trillion more in two shares than a group whose prices continue to fall. With ownership of more than 2 billion shares of a million people last decade at the price of Rp400, please calculate your own losses suffered when the share price was at Rp65 last Friday. Aside from owning these shares, this well-known insurance company still has one billion other shares in the same group whose prices also plummeted,” said Budi Frensidy.
The loss of hundreds of billions of two big investors above was nothing compared to what happened to PT Asuransi Jiwasraya. This BUMN’s equity is negative IDR23.9 trillion and still has to impairment of IDR6.2 trillion assets and fund deposits to meet the minimum RBC (risk-based capital) requirement of 120% of IDR2.9 trillion. The total is needed IDR 32.9 trillion and if added to the need for solvency, the figure is even more fantastic, namely IDR 49 trillion.
“Similar to the management of the problematic areas above, Jiwasraya also does not apply the precautionary principle for its investment. Of the total financial assets, 22.4% or Rp5.7 trillion contained shares and 59.1% or Rp14.9 trillion in mutual funds. At this point there is nothing suspicious,” he said.
But if we examine the contents of each asset class, the irregularities will be revealed. In the stock portfolio, it turns out that only five percent of LQ-45 shares. Meanwhile, only 2% of mutual funds are managed by top tier investment managers out of 13 partner investment managers. In fact, non-top-tier management does not matter as long as there are clear governance and risk management guidelines for portfolio preparation, stock selection strategies, and trading policies.
What happened, it seems like there is no guide. A number of mutual funds are made specifically to accommodate / take on the negotiating market (at a price above the acquisition price) of overpriced shares that Jiwasraya has bought. These mutual funds are then bought again by Jiwasraya. This action is nothing but transferring a loss stock from a stock portfolio to a mutual fund portfolio to dress up the performance of the stock portfolio but to save the ulcer in the mutual fund portfolio. Judging from the total portfolio, this is not an act of salvation but only a transaction to dig a manhole cover.
To prevent this kind of financial engineering from reoccurring, OJK as of September 6, 2019 issued a circular prohibiting investment managers from issuing mutual funds aimed at buying securities from prospective or participating unit holders. As a result of this case, OJK also increased supervision of 689 mutual funds with a single investor, with a total value of Rp190.82 trillion, both of which portfolios contained one effect or more than one effect. The corporate acrobatics above were exacerbated by the offering of the JS Savings Plan product which guarantees a return of 9% -13% p.a. by this company through bancassurance during 2013-2018. This return is far above the deposit interest rate of 5% -7% and is still greater than the bond yield of a single A rating of 9.5% so that funds must be placed in shares. The banks selling these products were affected. Its reputation is tainted when this product fails to pay claims that are due.
If the annual market return or JCI is above 13%, products with certain high returns will probably not erode equity. However, equity will be depressed until finally negative when our CSPI grows by an average of only 5.36% in the range of -11.86% to + 26.36% per year over the six-year period. Only three years of positive market returns, namely 11.69% (2016), 22.02% (2017), and 26.36% (2014). The other three years, JCI returns were negative at -1% (2013), -8.96% (2018), and -11.86% (2015).
“In conclusion, institutional investors should focus on good company shares that are liquid, large capitalized, and consistently performing well. It is unfortunate if many institutional funds are involved in one or two stocks with very limited liquidity. Insurance companies and investment managers should never offer products with guaranteed return but are equity-based or hold one share more than 10% of the total portfolio,” he explained.
He continued, the consequence was his company went bankrupt (negative equity), huge losses, suspension of mutual fund sales, until mutual funds were dissolved by the OJK like a number of mutual funds recently. Sami mawon with dapen and insurance companies above, many illiquid shares are held in a large percentage of problem funds, such as FORZ, TGRA, DFAM, SKYB, BOSS, KJEN, ZINC, DUCK, MINA, KPAL, and MTPS. (Des)
Source: Koran Kontan. Edition: Monday, December 2, 2019. Wake-Up Call column. Page 4