Constant Amid Change

SAM 1st December, 2009

Vietnam Economic Times 

What have been SAM’s major achievements in the two years since its establishment?

SAM was very fortunate to be one of the last fund management companies to raise capital in Vietnam since the global financial crisis. Being a young fund management company, we had many challenges with growing pains, facing tough competition in a fierce emerging market and a downturn in the market in 2008.

We are pleased to have completed the following milestones. We have raised $125 million for our funds – Vietnam Equity Holding (VEH) and Vietnam Property Holding (VPH) – and completed IPOs for both funds on Germany’s Frankfurt Stock Exchange, the first Vietnam-focused funds to do so. Significantly, we successfully separated from Anpha Capital as our local advisor, replaced by Military Bank Capital (a.k.a. Hanoi Fund Management Company). In addition, we have implemented and enforced a Code of Ethics to ensure transparency and corporate governance within SAM.

Over the past two years we have deployed over $100 million of capital into Vietnamese companies and real estate projects. VEH was ranked as the top equity fund in Vietnam based on net-asset-value (NAV) performance by LCF Rothschild in 2008, while our VPH was ranked as the top property fund in Vietnam based on NAV performance by LCF Rothschild for three consecutive quarters in 2009. The latest development was in late November, when we signed a strategic agreement with REE Corporation to jointly launch new investment funds with industry captains as investors.

2009 was a difficult year for fund managers in Vietnam. What about SAM?

It depends on who you ask and the true meaning of “difficult”, as most funds enjoyed a 2 percent management fee (of total NAV) and 20 percent performance bonus, so any year is a relatively good year if you manage large amounts of capital and the management fee is guaranteed even if the portfolio falls drastically. That would be fine if we were a billion-dollar fund. In order for a little guy like us to survive, we did a lot of cost cutting, kept our employees happy, and stayed focused on performance. Actually, we feel 2008 may have been the tougher year due to the effects of the global financial crisis.

In 2009 so far, we remain among the top performing Vietnam funds and profitability and stability appear on the horizon as economic recovery has happened faster in Vietnam than in the rest of the world. It is fortunate that we invested in Vietnam instead of elsewhere, due to the far better economic data, environment, and recovery.

What were the difficulties SAM experienced over the past two years and what are the challenges in 2010?

This is the first time fund management companies in Vietnam have faced a market downturn and the result speaks for itself, with many, including ourselves, being caught off guard. Our investment team and board members worked together well to prevent a further slide in the portfolio during the steep fall of the VN-lndex in 2008. This helped our ranking with LCF Rothschild. We were lucky to have weathered the storm and are now looking forward to working together with REE on the new funds as well as ensuring our current funds continue to outperform. Another challenging issue for us was deal sourcing. We did not want to simply invest in “me too” companies that most other funds have within their portfolio (i.e. the blue-chips), as these serve as a stable platform but rarely move during market rallies.

Additionally, a fund management company does not need to be on the ground to pick these securities, and this is why global investors now prefer index exchange-traded funds (ETFs). In order to differentiate and create value, our investment team did an excellent job in finding many companies with hidden assets and great growth potential. This also contributes to their knowledge and trust within the local business community.

It seems to be a tough time for fundraising now, given that world economies are still recovering. What is happening with SAM’s plans to set up a third fund?

It is still an extremely difficult environment for fundraising. Foreign funds in Vietnam are facing discount to NAV of their funds’ share prices as well as approaching the end of the fund’s life. Fund raising is a must for some, bur for us, as a fairly young fund, we still have ample cash and do not have an immediate need to go out there begging for dollars. However, it is our intention to have new, differentiated products for our investors. We recently signed a contract with REE Corporation to launch new, smart money funds, with investors being industry leaders and experts in their field. We are delighted to be working with Mrs. Mai Thanh, Chairman and CEO of REE. She is the right person co-lead this effort as she is one of the most respected and successful members of the Vietnamese business community. If the global conditions are right, we expect co be on a road show early next year.

The foreign fund SAM plans to launch will be a limited partnership. The larger fund size is approximately $100 million. The investors we seek will be institutions and strategic investors, likely those who are industry leaders and domain experts as there will likely be a similar structure with REE’s local fund. This “smart money” concept creates an environment where the value creation process is greatly increased not only through the fund manager but the investors as well. I worked at a similar venture capital fund in the US that adopted this concept successfully, which was driven from the Japanese “keiretsu” phenomenon in post World War 2. As far as investment focus, we prefer liquidity and clear exit strategies and will likely stay broadly within listed securities, private pre-IPO companies, and real estate projects. The fund will also concentrate on the core strengths of Vietnam’s industries, including construction and materials, consumer goods, financial services, energy, telecom, food and beverages, and media and entertainment. We like companies with great growth potential, market share, and an experienced management team who believe in strong corporate governance. For real estate, we are attracted to clear land where compensation has been completed, metropolitan or growing areas are preferred and, of course, a decent valuation. Our core competency will be working with projects that desire foreign branding and know-how as we draw this strength from our pool of domain expert investors in our fund. The foreign fund plans to invest in the local fund as well as share co­investment rights. Our agreement and collaboration is set within the legal limits of the law.

Vietnam’s equity market and real estate sector experienced a bumpy ride in 2009. How has this affected VPH and VEH?

In every downturn there are opportunities chat may be only seen by local people. This is why all members of our investment team speak fluent Vietnamese and are very much entrenched in the local markets. We were able to complete distressed and undervalued asset deals that our board and investors could not believe. I’m extremely pleased with our team’s performance so far, as these are the best deal guys I’ve ever met. For the sake of proprietary information, we can only share the deals and structuring with our own investors. Having said that, all that matters at the end of the day is the fund’s performance at year-end, so I would encourage your readers to compare and contrast.

What are your forecasts for the asset management industry’s development in 2010 and onwards? What will be the significant changes in your view?

Asset management is a sophisticated business that requires special skills and experience. The challenging issue for Vietnam is that many financial firms want to be an asset management company yet the resources are not quite there. It costs significant amounts of money to hire an experienced global asset manager to build the platform and credibility. Local firms appear to avoid this and do it themselves, so only time will tell about their success rate. Foreigners also plan similar efforts but lack local knowledge, plus they find little support from the brand name global firms as they are still recovering from the global crises. So until experienced resources are found and are on the ground in Vietnam, the business may move slowly.

What do you think SAM will look like in 2012, after five years of establishment? 

We believe prosperity comes when you bring prosperity to others. In 2012, we hope to have continued to grow our business into other services within asset management and cross-border mergers and acquisitions (M&A). The major plans now are to focus on the NAV performance of our VEH and VPH funds, as well as successfully launch our new funds with REE   Corporation. These are musts. Beyond that, we hope the global economic situation recovers fully and we firmly believe that Vietnam will continue to be a rising star within emerging markets.