Investment Funds Change Tack
By Nguyen Quan
The economic turmoil gripping the world in general and Vietnam in particular has offered insights into the more resilient sectors of the economy. Distressed investment funds have started to pour money into these stable and promising sectors.
Investment funds often identify, from the very beginning, the sectors in which they will invest and rarely change their strategies. However, such sectors as realty, insurance, wood processing and seafood exports, which often lure enormous investments, are in tatters amidst the global turbulence. The credit crunch has prompted several investment funds to restructure their portfolios and pay more attention to other sectors such as health care, education and commerce.
Ken Atkinson, general director of Grant Thornton Vietnam, says that the industries which are more sheltered from adverse economic shocks will attract more investment. The company’s latest survey, with 200 investors and investment consultants in Vietnam as respondents, was undertaken from late October to early November and attested to this trend. The survey found that nearly 80% of the respondents identified health care and pharmaceuticals as the most promising sectors in Vietnam in the future, followed by retail, financial services, realty, agriculture and hospitality.
The managing director of an investment fund with total capital of about US$100 million says that his fund has lost about 25% of its financial resources due to the global financial storm. It is currently restructuring its portfolio, withdrawing capital from less lucrative projects and pouring money into those with stable growth and low risks, instead of opting for dispersed investments.
This managing director did not clearly state whether his fund had changed its investment strategy, but he said that some funds have focused their attention on producers of consumer goods which exert a firm grip on the domestic market and do not rely excessively on exports, in addition to those in health care and commerce. These sectors were relatively cushioned from the economic slump and are bouncing back more rapidly in the post-crisis period. Meanwhile, industries which were once perceived as appealing such as banking, finance, insurance and realty have tumbled during the crisis and are attracting less interest from investment funds.
In mid-October this year, VinaCapital and DWS Vietnam Fund (under Deutsche Bank Group) signed an agreement under which they would invest US$20 million in Hoan My Healthcare Group. The move was deemed as a change in the investment tactics of these investment funds, which had not previously channeled much capital into health care.
At the press briefing, Andy Ho, managing director of VinaCapital, said that, as part of its medium- and long-term strategies, the fund sold its stake in the A&B high-rise building project in District 1, HCM City, and the five-star Hilton Hotel in Hanoi to have more funds for investment in other projects, including Hoan My.
VinaCapital currently manages assets worth nearly US$2 billion. It is looking for opportunities to invest in promising sectors like health care, education and eco-friendly technology.
Shift in strategy
The Nielsen Company’s survey shows that as of the third quarter of 2009, Vietnam ranked fifth in the world in terms of consumer sentiment, scoring 109, up 29% year-on-year. Retail sales have climbed by 18-20% annually.
Vietnam’s retail market abounds in business opportunities, with more retailers planning to enter the country in the next two to three years. Investment funds are bent on seizing this chance.
Ho Van Tuyen, deputy managing director of Saigon Mekong Investment Co., says that the Saigon Mekong Investment Fund is still focusing on realty, its strength, but it is also eyeing the retail sector.
Saigon Mekong is setting up a new fund to invest money in retail projects. Tuyen adds that the fund has mobilized about VND300 billion of domestic capital and received promises from some individual investors in the U.S. retail market. The fund is expected to complete registration procedures in January 2010 and officially commence operation in February or March of 2010.
The managing director of another investment fund says that it used to direct long-term investment into companies in sectors with immense potential such as wood processing, seafood and realty, or even play a role in managing them. However, due to shrinking human resources and the difficulty in raising capital at present, this fund will focus instead on investments in sectors which do not require much managerial expertise and which bring fairly steady profits.
Investment decisions often hinge on GDP growth and the performance of each sector. The spotlight, therefore, will fall on producers of consumer necessities and retailers in Vietnam. For instance, the fund director said that Vietnam’s GDP is expected to grow by 6.5% in 2010 and its retail sector by 19.5%.
Currently, the investment fund is mobilizing capital and is planning to launch a new fund, with about US$250-300 million worth of capital, in mid-2010. The managing director says that Vietnam’s retail market has bright prospects and owning a 30% stake in an enterprise with chartered capital of about US$2-5 million is fairly affordable. The upcoming fund expects to invest in several businesses.
Meanwhile, AIM Capital Management Ltd. has total capital of US$18 million and is about to look for more financial resources from foreign investors. Previously, AIM Capital tended to join forces with small and medium enterprises in Vietnam and Cambodia by contributing capital to restaurants, hotels and human resource providers in Vietnam. O’Connor, the managing director of AIM Capital, says that the fund is currently actively channeling money into companies with impressive growth in such sectors as commerce, education, financial services, consumer goods, construction, tourism, hospitality, distribution and e-commerce.