Comments by Andy Ho, CIO of VinaCapital
Over the years, we have seen our share of mistakes and successes. We’ve come to the conclusion that the most important facet of the process is the ability to handpick the private deals. This means really understanding management and what motivates them, and aligning our objectives with theirs to create win-win scenarios. And the most important part of choosing the deals is knowing who your partners are.
Our strategy now dictates that we spend the majority of our time sourcing and investigating investment opportunities prior to going public, which we define as having more than 100 shareholders or being listed on the HOSE.
Our entries come with PE terms ranging from performance commitment to drag/tag rights, to board and management participation. They also come with due diligence rights that mean we may have to be very active in some circumstances while remaining quite passive in others.
Of course, we always need to secure an exit that takes place 3-5 years out. Exits can take several forms, such as trade sales (i.e. Halico, Prime, Pho24, ISL, Cofico, TMS, Hoan My Hospital, NIVL) and listings (i.e. KDC, KDH). The exits and realized returns allow us to return money to our investors, usually in the form of a share buy back, which is tax efficient. We have returned almost $200 million to our investors.
VinaCapital has averaged 1 major trade/sale per quarter from 2011 to the end of 2013. In 2014, we’ve enjoyed taking companies public. Strict discipline helps us achieve success. We are tenacious about the exit, for this is the goal. Understanding what motivates stakeholders is another key to success, and while we want to be flexible in order to accommodate them, it’s imperative that we remain firm in how we do business.
Our failures have worked to teach us as much as our successes and they help to define our actions. In the end, our failures have indeed been the lessons we learned from best and we have institutionalized those lessons into our 23 rules of investments.
We’ll continue to focus on private opportunities in sectors like education, healthcare, agriculture, financial services, property, infrastructure, and branded consumer goods. And we’ll work with proven entrepreneurs to grow their businesses and take them to the next level.
Over the last year or so, the focus of investors, particularly foreign investors, have been on listed equities simply because valuations were inexpensive and the state of the economy proved to be more and more stable. As of late, valuations, in terms of PE, P/S and EV/Ebitda have climbed solidly but still behind that of other regional markets such as the Philippines and Indonesia and Malaysia. The increase in valuations have started to turn investors focus towards private investment opportunities, where the thought is that one can access these companies at a lower valuation due to having to accept various risks such as liquidity.
At the moment, we are seeing quite a lot of opportunities in the private equity space. These opportunities not only have come about because of the dynamics discussed above, but also due to the fact that credit is actually still difficult to access. The Vietnam banking system, although flush with liquidity, is still going through a deleveraging phase as they work through their NPL’s and as such, credit growth has been limited.
Interesting sectors tend to be those that contribute to the growth of the domestic economy…such as healthcare, education, food and beverage, financials and agriculture.
Views expressed are personal views of the author and do not constitute any investment recommendation