Private Equity Space Increasingly Attractive

Capital has been scarce in Vietnam in the recent past. Debt markets have been largely inaccessible or unaffordable, and an illiquid stock market has rendered public equity markets an unreliable source of funding to Vietnamese corporations. This has resulted in stronger deal flow on the alternatives side, including private equity. We are not only seeing more companies open to partnering with us, but valuation expectations have adjusted downwards as well, all of which create an overall attractive investment environment from the investor’s perspective.

 

  Where are the new sources of investment capital in private equity sector coming from?

Fund raising has been more challenging recently, regardless the asset class, although to a differing degree. Private equity funds focused on providing growth finance tend to receive their own capital from a fairly clearly defined universe of clients. Family offices, developmental institutional investors (DFIs), to some extent foundations and endowments, have been funding the local funds for some time and continue to commit their capital to Vietnam. Private equity funds have been coming to Vietnam for years, studying the local private equity and fund manager landscape; some have made first commitments, and I expect more capital will be deployed as their comfort with the local environment grows, and other markets such as China and India are becoming more crowded.

 

 Funds less focused on private equity (or another distinct strategy) have a more diverse client base, including networks of high net worth individuals (typically represented by a private bank or other intermediary), hedge funds, and generalist investors. Such capital is extremely volatile and funds flows are more closely correlated with liquidity cycles globally. I do not expect much fresh capital raised for such funds in the near-term future.

 

 Geographically speaking, we are seeing great interest from the Asian region; most recently, there seems to be heightened interest from Japan. 

 

 What types of managers are up and coming in Vietnam’s private equity industry?

At this point, you have a fairly mixed landscape of managers, some pursuing purist strategies focused on a single investment approach (such as growth capital private equity), others combining multiple investment styles and asset classes into their portfolios.

 

 In terms of the most recent dynamics, I would consider managers focused on a single strategy to grow more rapidly in number than the generalist/mixed strategy managers. Local corporate investors (of which we had a few during “boom” years) seem to have broadly withdrawn and returned to their core activities.

 

 Another observation in the past two or so years is an increased investment interest by regional or in some cases, global firms. Those are, however, looking for larger deals and not typically in direct competition with local firms.

 

 Would you please tell us about the latest opportunities in the private equity space?

Investment opportunities for private equity investors remain abundant across all sectors in Vietnam, and increasingly attractive from a valuations perspective, as mentioned previously. This is partly driven by the current lack of capital in the system, but is also a function of an increasingly educated corporate/managerial universe. Companies today are more familiar with the benefits a quality private equity firm brings to their own development, and as a result pull proactively for value-added partners that can empower them for the long-term. This is also a function of the growing number of success stories of local companies partnering with investors like Mekong Capital, BankInvest, VIG, VinaCapital and so on. As a group, our track record of generating significant growth with our companies and eventually wealth for all stakeholders is strengthening, and causes positive traction with local enterprises looking to become the next winners.