Exclusive: SSI Asset Management eyes pension fund ops in Vietnam

Nguyen Phan Dung, deputy CEO of SSI Asset Management.

The capital market in Vietnam has seen a snowballing expansion throughout the last few years. In the years 2011-2015 as Vietnam kicked off its plan to catapult the capital market, the stock market jumped nearly three times in terms of capitalisation and attracted 50 per cent more investors. In 2016, the market capitalisation rose 26.6 per cent year-on-year to reach $72 billion.

Vietnam is now also building a pipeline to grow more instruments such as pension funds and derivatives by 2020. This has spurred the interest of local players such as Vietfund Management and SSI Asset Management (SSIAM) in diversifying their portfolio.

SSIAM, a fund manager primarily investing in listed equities, recently told DEALSTREETASIA that the firm plans to launch a pension fund.

SSIAM is the wholly-owned subsidiary of Saigon Securities Inc, Vietnam’s biggest brokerage house. The company has established two private equity funds in collaboration with Japan’s Daiwa Securities Group with its latest investment being in retailer Concung.

DEALSTREETASIA sat down with Nguyen Phan Dung, deputy CEO of SSIAM, to talk about the fund’s operations.

Edited excerpts:

Which types of assets is SSIAM investing in?

SSIAM operates funds with nearly $400 million assets under management. About 90 per cent of our portfolio are listed equities. The remaining 10 per cent are private equity and fixed income assets.

We are going to launch a new fund dedicated to bonds, possibly in July. In addition, our future target also includes launching a pension fund.

Our private equity investments have been made mainly by funds co-managed with Daiwa Securities. The proportion of PE investment of our funds might increase in the future, riding on market growth.

The current corpus of the second fund in partnership with Daiwa Securities is $40 million. If there are really big PE opportunities, we may syndicate with our capital or Daiwa Securities Group’s capital. However, the right fund size for the market at the moment, I think, is at $40-50 million.

What is the pipeline for the pension fund?

That depends on how the legal framework supports. There have been only draft documents on the regulations. Vietnam currently has only mandatory retirement funds, while a legal platform for optional pension funds is not yet available.

America’s 401(k) retirement plan solutions are what Vietnam can adopt. But the country will need an incentivised tax system to operate. Investment philosophy of pension funds is rather long-term, so they typically invest in fixed income assets. The listed equities allocation should be managed by established funds with a long-term mandate. We have a strong track record in Vietnam in that sense, so we are comfortable with operating pension funds in the future.

You had a fund to invest in real estate in the US in the past. Can you share something about it?

The fund was set up to capitalise on the opportunities to invest in the US real estate market at that moment. Currently we do not have any target to make direct investment in the real estate sector, as well as foreign assets.

Which industries in private equity investment do you target? Do you expect to close more deals this year?

We focus on the manufacturing and consumer markets, those that benefit from the country’s growth story in terms of population, income and urbanisation. So companies in the fields of manufacturing, retail, healthcare and services are attractive to us.

Our second private equity fund has invested in four businesses, three of which we can disclose at the moment. These include PAN Farm, an agriculture platform, Concung, a retail company, and paper maker Dong Hai Ben Tre. We are in talks with a number of other companies, and the process to close a deal often takes 6-18 months.

We target to close two more deals this year. While setting up, our fund targeted to complete disbursement in three years, and we expect our fund might be done investing by the end of next year.

What is your market observation on the private equity space?

Some quarterly figures might show economic slowdown, but overall, the local economy has been expanding above 6 per cent annually for quite a few years. I think that average will be maintained in coming years, and that’s a very attractive environment for investing. The government is also targeting to promote the private sector, which is a good source for private equity investment.

At the same time, with more investors looking at the market and existing funds raising more money, it may drive the valuation inappropriately. While there is a small number of big ticket deals that global private equity firms and multinational groups are sealing through M&A in Vietnam, I think the current size of our fund is more reasonable.

In terms of exits, I think the environment is getting better as the listing market is improving. The Vietnamese market might reach the emerging status in the next few years. So there will probably be a great influx of capital to create exits through IPO and listing, where the market has seen a stagnation over the last few years.

How about venture capital investment? What’s your view on local startups?

We do help run the SSI’s venture capital fund to invest in startups and did funding for Hellomam.

We are actively looking at this sector. A business, in the end, aims to understand a market need to provide solutions. A lot of Vietnamese startups are still weak in this sense. But the ecosystem is very active, and it is important for the early stage. As there are failures, there will be more success stories.

Do you target to raise a new fund for private equity investing?

We do have a plan to set up new funds, but at the moment we are focusing on making investments with the current fund and executing our fixed income asset pipeline. In the near term, we are working to launch a new fixed income fund and will continue to study the pension market.

For private equity investment, we will consider establishing another vehicle if the current fund is fully disbursed.

Also read: Saigon Securities unit closes $40m fund to invest in listed, private firms