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Vietnam funds seeking cash despite emerging markets slump
Indochina Capital Corp. and VinaCapital Group are trying to raise money, testing investor confidence, as Vietnam’s export-driven economic growth is slowing and emerging markets are slumping.
VinaCapital, Vietnam’s biggest investment firm with US$1.9 billion in assets, is in talks with investors to start real-estate and private-equity funds, chief executive officer Don Lam said in Ho Chi Minh City.
Indochina Capital, which manages about $750 million in assets, plans to close its biggest property portfolio this year, said Rick Mayo-Smith, co-chairman of the firm.
Vietnam’s stock market was Asia’s worst performer last year as the economy grew at its slowest pace since 1999, hurt by slumping demand for the country’s exports. Emerging-market equity investors withdrew a record $48.3 billion from their funds in 2008, said Cambridge, Massachusetts-based EPFR Global, which provides global investment data flow.
“In the past, when Vietnam’s market was hot, some investors were starting to look at emerging markets,” said Kelvin Chan, a senior vice-president at Partners Group, which invests in private-equity and hedge funds. “Markets are now very difficult, investors are getting more cautious.”
Averse investors
The Ho Chi Minh Stock Exchange’s VN-Index tumbled 69 percent in dollar terms last year, and HSBC Holdings Plc is predicting a 5 percent decline for 2009. More than a quarter of the companies trading on the exchange may be moved to a smaller bourse in Hanoi because they fail to meet minimum capital requirements, the State Securities Commission said on January 6.
Investors are averse to “more risky, younger markets” such as Vietnam, preferring more developed markets in Asia where companies’ valuations have also fallen, said Singapore-based Chan, who has not invested in any Vietnam funds that have approached him in the last two years.
The MSCI Emerging Markets Index, which tracks 746 companies in developing nations worldwide, dropped 54 percent in 2008, the worst annual performance since the measure was created in 1987.
The pace of fundraising by private-equity funds focusing on emerging markets would slow further this year, as they face a “much more challenging” environment, Sarah Alexander, president of Washington –based Emerging Markets Private Equity Association, said last month. The funds raised 7 percent more money last year, compared with a year-on-year increase of 78 percent in 2007.
Mekong Capital, which manages $185 million, is cutting the target for its third private-equity fund to $250 million from $300 million, said Nguyen Tran To Uyen, a director at the firm in HCMC. The firm plans to raise the money from April until early December, she said.
VinaCapital is starting “a selective roadshow” to raise funds, Lam said. “Our placement agent has requested that we keep it low key till the cornerstone investors sign up,” he said.
Optimism
Vietnam’s fund industry recorded its worst average return in 2008. Funds that invest in stocks and other assets lost 53 percent, according to LCF Rothschild Emerging Market Funds Research in London. The 17 funds, many of them listed in London or Dublin, gained 25 percent in 2007 and more than doubled the year before.
“Vietnam’s fundamentals are worsening a little bit,” Andrej Hrovat, who manages the RH&P Global Value Fund in Basel, said. “For the next 12 months, it will really be challenging.”
The fund sold some shares in London-listed VinaCapital Vietnam Opportunity Fund Ltd. last year, according to data compiled by Bloomberg. Hrovat declined to confirm the sale.
The PXP Vietnam Fund, an equity-only fund managed by HCMC-based PXP Vietnam Asset Management, lost 71 percent last year, the biggest decline, according to LCF Rothschild. It was the best-performing Vietnam equities portfolio in 2007.
Kevin Snowball, co-founder and manager of $225 million at PXP, said he’s starting the Vietnam Value Fund, which will raise as much as $200 million.
Dragon Capital Group Ltd. may start new funds, expanding Vietnam’s oldest investment firm’s offerings beyond equities, debt, real estate and resources, said John Shrimpton, who co-founded Dragon 14 years ago. The HCMC-based firm’s Vietnam Growth Fund Ltd., which invests in equities, lost 61 percent, said LCF Rothschild, whereas it had gained 37 percent in 2007.
“Are we deterred by things being tough? No,” Shrimpton said. “I remain the absolute vanguard of the optimists for this country; there’s a huge amount going for it.”
Bloomberg
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