APAC Report: Indonesia Among Countries with the Highest Investment Friction Levels

JAKARTA, Jakartaweekly.com—The latest report titled Vistra Friction Index: Turning Friction into Capital Flow (APAC PE/VC Edition 2026) shows that Indonesia is among the countries with the highest levels of investment friction in Southeast Asia.

David Anderson, Executive Vice President APAC at Vistra Fund Solutions, said Indonesia is viewed as a market that requires greater caution due to higher operational and execution challenges.

“The private capital story in APAC is no longer just about where growth exists. What matters more is where investment managers can actually convert growth into returns,” he said during a virtual event on Wednesday, June 24, 2026.

He noted that the report highlights how growth prospects alone are no longer sufficient to attract investment, even though Asia-Pacific remains a magnet for private capital.

Factors such as regulatory frameworks, governance standards, exit opportunities, foreign exchange risks, and local execution capabilities are now playing an increasingly decisive role in capital allocation.

A high friction score indicates that investors face challenges related to governance, regulatory uncertainty, investment exit pathways, and macroeconomic volatility. Nevertheless, Indonesia is still considered an attractive investment destination.

The report also classifies Indonesia as a precision-entry market. Markets in this category require more careful sector selection, strong local execution capabilities, and exit strategies that are planned from the outset.

The report further shows that Indonesia is not alone. Other countries with high friction scores include Cambodia, Vietnam, and the Philippines. Meanwhile, the countries categorized as precision-entry markets—besides Indonesia—are Thailand, the Philippines, and Cambodia.

Fundraising Becoming More Difficult

Anderson said the friction index also indicates that private capital managers are taking longer to raise new funds. Only 19.3 percent of respondents reported completing fundraising for their latest fund in less than 12 months.

This finding suggests that major institutional investors such as pension funds, sovereign wealth funds, and family offices have become more cautious in deploying capital.

In addition, these investors, commonly known as limited partners (LPs), are becoming increasingly selective about reinvesting with the same fund managers.

The report found that 40 percent of respondents had previous LP reinvestment rates of below 40 percent in their latest funds, while nearly a quarter reported reinvestment rates of only 20 percent or less.

At the same event, Andi Haswidi, Head of Research at DealStreetAsia, said that APAC remains a key region for private equity (PE) and venture capital (VC) allocations, but the next investment cycle will be defined by execution discipline.

“Geopolitical risks, macroeconomic volatility, and tighter exit conditions are forcing investment managers to be more precise in determining where to invest, how to create value, and how to execute capital return strategies,” he said.

He added that the report also shows that most investment managers prefer to adapt rather than scale back their activities despite the challenges they face.

According to him, the Friction Index identifies three key strategies employed by fund managers operating in high-friction markets.

First, they adapt their operating models by strengthening local presence, outsourcing regulatory compliance functions, or establishing local partnerships rather than replicating infrastructure from their home markets.

Second, they integrate governance considerations earlier in the investment process. Increasingly, managers are treating regulatory and execution risks as core variables in investment assessments rather than issues that emerge after a deal has been completed.

Third, they rationalize investment exposure. When operational burdens are no longer proportional to potential returns, managers choose to exit, pause, or restructure underperforming activities.

According to the report, these developments demonstrate that operational readiness is now just as important as investment selection capabilities. Managers that can effectively navigate regulations, reporting requirements, cross-border structures, and exit planning are expected to be in a stronger position during the next investment cycle.