Foreign Investment Funds Eye Private Companies

Fund raising has been difficult since 2008 due to a general destruction of wealth and withdrawal of liquidity globally. In the past, many investors in private equity funds are looking for a track record of successfully exited investments in Vietnam, as many of those investors are concerned about the lack of maturity of the private equity industry in Vietnam. Some investors were also concerned about the low IRR track record of funds in Vietnam. Nonetheless, the situation is improving and this concern has been disappearing due to few successful exits of investments in Vietnam recently.

Potential investors pay close attention to track record, and they currently have high expectations on track records before they commit to investing in a new fund. For that reason, I believe the fund managers in Vietnam with the strongest track records in terms of IRR and exits, will be the ones to raise new funds for Vietnam in 2011.

 

Vietnam’s economics are attractive based on secular factors such as demographics (large population of young age, well-educated, etc) and a rather Northern Asian work mentality and strong entrepreneurial spirit. Also, investors appreciate political stability which the current structure and political system provides in Vietnam. These are some factors that support the long-term Vietnamese investment thesis.

 

We focus on the consumer markets, which we consider to have a sustained growth trajectory ahead of itself, driven by the continuous rise of disposable incomes of a very large and young population. Sectoral trends are fairly similar to what has happened in neighboring economies in the past, in particular China.  

Opportunities are vast in Vietnam – taking advantage can be challenging. Challenges remain the lack of clarity and enforceability of the legal environment, the nation’s rather weak infrastructure (power, roads, etc), corruption, and a relatively small pool of strong managers. Latter is of most concern to investors like Mekong Capital, whose thesis is built on identifying and empowering excellent management teams that can execute successfully on the opportunity that is Vietnam.

 

The most important thing we consider when evaluating a potential investment is the quality of the management team. We only consider to invest in companies which have senior management who are very committed to the success of the business, who are pro-active about making continuous improvements to the business processes and who are very committed to develop the capabilities of the management team as well as to create value for the shareholders. We believe that the quality of the management team is the most important factor for determining the success of any company.

 In addition, we have strict corporate governance and transparency requirements as we intend for most of our investee companies to eventually be listed on Vietnam’s stock market.

 

Since transforming our own culture and implementing Vision Driven Investing, Mekong Capital has become very effective at working together closely with our investee companies to ensure that they achieve rapid net profit growth in a sustainable way. Our plan is to continue to focus on ensuring rapid net profit growth at our companies, as we believe this is one of the most important success drivers in private equity.

 In 2011, we will continue to focus on consumer driven sectors. But most importantly we will focus on identifying the companies in those sectors that have the strongest management teams. One thing that our most successful investments all have in common is that they have stronger management teams than their competitors. It doesn’t really matter so much what specific sector they are in as long as it is a proven business model, the sector has attractive growth rates and the management team is the best in its sector.