Southeast Asian markets are poised for significant growth in the coming decades; however, navigating their complex and dynamic environments has often kept foreign investors, such as pension funds, on the sidelines.

Speaking at the ASFA Investment Summit on Thursday, a panel of professionals highlighted how strategic partnerships with local investment partners can play a significant role in bridging this gap, helping funds unlock untapped opportunities and reduce risks.

Dr Ridha Wirakusumah, chief executive of Indonesia’s sovereign wealth fund Indonesia Investment Authority (INA), encouraged institutional investors, who remain cautious, to approach the area “one deal at a time, one deal at a time”.

Describing INA as "the Indonesian version of the Future Fund", he said the fund was actively "in the trenches" looking for deals in markets outside of Asian hotspots like Singapore, such as Indonesia, Vietnam and the Philippines.

“Sometimes what you might need to do is keep an open mind and an open ear. Who knows, maybe the next growth opportunity could be in your neighborhood,” Weerakusumah said.

The fund partners with a number of its global peers, such as Canada's Ontario Teachers' Pension Plan, Singapore's sovereign wealth fund GIC, Abu Dhabi's sovereign wealth fund ADQ and APG, a Dutch pension investment company.

“For many foreign investors, looking into emerging markets from the beginning seems quite intimidating. But when you go in, you can decipher it step by step,” Wirakusumah said.

Tarang Khimasia, head of funded distribution at the Asian Development Bank, also acknowledged the funds' "understandable" wariness of these markets, especially when they don't have "boots on the ground."

"I can understand the caution, if you don't have boots on the ground, it can be very difficult to consider analyzing these opportunities and I think the key is trusted reliable partnerships," he said.

"It's really important to develop those trusted partnerships — so you invest time in building knowledge, in understanding the partners you may and may not want to work with, the asset classes you may want to invest in."

He warned that the process of laying the groundwork could take time, but added that these "baby steps" were necessary to ensure that the funds did not miss the huge potential these markets held.

Southeast Asia's population is expected to reach 1.1 billion by 2040, he said, and including India, that figure rises to 2.5 billion.

"That's probably a third of the world's population or a quarter by 2040. You cannot ignore these two blocks,” he said.

"They are very important, especially from a diversification perspective. There are investments available to suit every type of capital, in terms of risk appetite and return, you just have to peel the onion. It takes time to understand and appreciate the options available.”

India's success story is a prime example, he said, explaining that it has witnessed significant growth in the last five years through policy development and huge investments in the digital economy.

“This has paid real dividends. So investors who did the work maybe 10 years ago ... they're really reaping dividends now,” he said.

Emily Woodland, head of sustainability and transition solutions, APAC at BlackRock, also highlighted the benefits of cultivating partnerships.

"I would say don't try to do it alone, because if you really want capital to be recycled as effectively and efficiently as possible, it actually takes coming together across the ecosystem, using the respective strengths and balances of everyone who can the table came,” she said.

Corruption risk management

The panel of professionals also highlighted how smart partnerships can help tackle key issues in emerging markets, such as corruption.

As for Indonesia, the country has made significant strides, but corruption can still be a problem, Wirakusumah warned.

"The 'don't do it alone' point, do it with partners, is key," he said.

While the fund confirmed its "incredibly rigorous" due diligence, it acknowledged that corruption should still be a consideration.

For Khimasia, while corruption may still exist in these markets, ongoing regulatory reform and government policy in Southeast Asian economies are promising.

"If you look at the World Bank's ease of doing business rankings, you'll see that most countries in Southeast and South Asia have jumped in the last 10 years, so the trend is clear," he said.

"You must not use [corruption] as a reason not to look at these markets – it's just finding the right opportunities, working with the right partners, doing your due diligence and you'll be able to avoid the pitfalls of corruption.”