Vietnam's largest private fund folds amid stock slump

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An investor sits watching share prices at a securities trading floor in Hanoi. The benchmark VN-Index has fallen more than 20 percent from its peak this year on May 8. 

The plug has been pulled on Vietnam's largest private investment fund SSIVF.

Five years after it was set up, the fund, formally known as SSI Vision Fund, closed on November 14 after investors chose not to exercise the option of extending it for another two years.

SSIVF, the biggest private fund in the country with a chartered capital of VND1.7 trillion (US$81.75 million), made its debut when the Vietnamese stock market was at its peak.

Its demise had been expected since the market hit a downturn early this year, with stocks falling sharply and various fund managers continuously winding down their portfolios.

Sacom Investment and Development Corporation, the second largest investor in the fund after Saigon Securities Inc., said it had been demanding the return of its investment of VND280 billion in the fund for many months. So far it has received VND240 billion.

As the fund parcels out its assets, other investors are expected to collect 90 percent of their original investment. The 10 percent loss rate is believed to be tolerable in the current market conditions.

According to a statement on Saigon Securities Inc.'s website, SSIVF had 13 domestic and overseas institutional investors. The fund invested in listed and unlisted equities as well as in listed and unlisted debt and derivative instruments.

Other fund mangers are also preparing for an exit.

Viet Long Securities Investment Fund Management Corporation is in the process of closing down a VND300-billion fund while Vinafund also plans to close its Vietnam Securities Investment Fund early 2014.

Do Van Trac, CEO of Sacom Investment and Development Corporation, said after pulling out of SSIVF, his company will not invest in another equity fund.

After five years, the fund did not prove to be an effective investment option, not to mention the high annual fee investors had to pay, Trac said.

He also pointed out that it was difficult for the fund to sell assets when needed. For instance, SSIVF has been trying to sell 1.2 million shares of Long An Food Processing Export JSC since the beginning of the year, but it still holds 0.7 million shares.

Analysts say the lack of enthusiasm for equity funds is a result of the weak stock market. The benchmark VN-Index has fallen more than 20 percent from its peak this year on May 8 amid a slowing economy and the financial system's instability.

Economist Le Dat Chi said equity funds themselves have not operated effectively and professionally.

He expected more divestment to come as the stock market shows no sign of picking up.

Pessimism

New survey results released last week by accounting and advisory firm Grant Thornton said positive sentiment among private equity investors in Vietnam has fallen to its lowest level in four years with the economy still plagued by many uncertainties.

Investors are a lot more cautious than six months ago, with more than half the survey respondents having a pessimistic outlook and just 16 percent staying positive, according to the twice-yearly survey.

Grant Thonton said it is noticeable that the sentiment expressed by the investors in the latest survey is almost the same as this time last year, which was the most negative outlook in the last eight surveys.

"At the beginning of 2012, the year was expected to be a critical year for the economy to be strategically restructured and stimulated. Current economic difficulties with non performing loans, structural problems in the banking sector, weak performance of state-owned companies and SMEs have reduced the confidence of investors in Vietnam's economy," said Ken Atkinson, managing partner at Grant Thornton Vietnam.

He said the three most attractive industries for private equity investment in Vietnam are healthcare and pharmaceutical, retail and education.

Real estate continues to be ranked the least attractive industry as a consequence of the rate of uptake in an oversupplied market and price reductions, Atkinson said.

Despite the negative outlook, the survey found that 41 percent of all respondents still planned to increase investments in Vietnam, while 44 percent of investment fund respondents predicted "no change" to their portfolios in the next year.

More than half the equity investors expect to stay in Vietnam for the coming three to five years, the survey found.

"We believe that private equity investment will continue to provide the means for successful private businesses to access capital to grow domestically and internationally. This will, in turn, provide long-term benefits to the country," Atkinson said.

"However the constraints and concerns highlighted in this survey need be addressed; (if they are,) the benefits to Vietnam will be that much greater and may come sooner," he added.

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