Nothing Unusual in Fund Exits

8:18:26 PM | 10/10/2011

According to Grant Thornton Vietnam, there is a perception by many in the market that Vietnam's private equity focused investment funds have difficulties achieving exits from their investments. In the tightening of capital markets following the global financial crisis, it is through exits that fund managers have been able to continue to make new investments without raising additional capital. Vietnam Business Forum interviewed Mr Chris Freund, Founder and Managing Partner of Mekong Capital, about fund exits in Vietnam. Huong Ly reports.
There have been a certain number of divestments from fund managers recently in Vietnam, including Mekong Capital. What are the main reasons for the exits becoming a trend in Vietnam?
On a combined basis, funds in Vietnam are holding 75 or more investments that could be considered “private equity” investments. For example, we are holding 19 private equity investments. Normally private equity investors aim to hold private equity investments for around 5 years on average, and in most cases between 3 and 7 years. So it is predictable that private equity funds would be selling around 15 companies in 2011. This is nothing unusual and should be happening every year.
Can you disclose some details of the returns that Mekong Capital has gained from the exits?
So far we have fully sold 8 private equity investments. 4 of them achieved a sale price of 2x or higher. We only lost money on 1 of our 8 exits. The companies for which we expect the greatest returns are still held in our portfolio.
What is your plan in the time to come? Any coming exits or new investment you can share with the readers right now?
Yes, we are working on several exits. We are still holding 5 investments in our first fund, and we intend to sell those when we can achieve fair valuations for them. We are also selling 1-2 investments in our second fund.
How is your fund raising progress?
Although we have had a plan to launch a new fund for a while, we haven’t yet started the official process of marketing a new fund. Instead we have prioritized building up our track record. Over the last 3 years our track record has improved dramatically and we are getting close to a point where we can officially launch the marketing and subscription period for the next fund.
What are the challenges and opportunities for your funds investing in Vietnam?
For Mekong Capital, the key issue is building strong management teams in our investee companies. The challenge is that it is difficult to build a strong team, and the opportunity is that the company with the strongest team will achieve the most sustainable growth in its sector.
Do you have any comment on the private equity environment in Vietnam for the time to come?
Currently the biggest problem for private equity investors is the 25 percent capital gains tax. Another problem is the lack of clarity into what retail sectors are subject to the Economic Needs Test (ENT), and the general difficulty of getting investments properly registered with local Departments of Planning and Investment (DPI). It would be best for private equity if these problems were fixed.
How do the difficulties in the economy generally, and financial markets particularly, affect the operations of Mekong Capital in 2011?
 Among our investments, most are doing extremely well in 2011, especially the retail and consumer companies. This is driven mainly by their proactiveness in developing strong management teams. The worst sector has been real estate, which was impacted by the tight credit and high interest rate environment. But this is necessary to reduce inflation.