unlicensed customer relationship management in securities company the case of bao viet securities company (nghiên cứu về quản trị quan hệ khách hàng trong công ty chứng khoán trường hợp công ty chứng khoán bảo việt) luận vă

VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS Nguyen Duc Hai PRIVATE EQUITY INVESTMENT: FRAMEWORK AND PROSPECT FOR VIETNAM Major: Business Administration Code: 60 34 05 MASTER OF BUSINESS ADMINISTRATION THESIS SUPERVISORS: Hanoi – 2008 DR NGUYEN VAN DINH HA NGUYEN, MBA ACKNOWLEDGEMENTS During my study, I have received many helps from my supervisors, my family, my colleagues and my classmate Firstly, I would like to express my sincerely thanks to Mr Nguyen Hai Ha, Mekong Capital’ ex-investment manager, and my boss now, for his suggestions and supports I also would like to thank to other colleagues at Vietnam Equity Holding fund for their advices and contributions to my thesis To my supervisors, I would like to give my deeply thanks to Mr Ha Nguyen for his time to instruct me and give me valuable suggestions I also would like to offer my special thanks to Dr Nguyen Van Dinh for his encouragement to complete the thesis I also would like to thank Ms Nguyen Hong Ha, Ms Nguyen Thu Trang and others HSB faculty members for their helps and supports Finally, I would like to send my heartfelt thanks to my family members, my classmates for their supports and encouragements ABSTRACT PRIVATE EQUITY FUND: FRAMEWORK AND PROSPECT FOR VIETNAM Nguyen Duc Hai MBA Candidate, 2005 – 2007 School of Business Vietnam National University, Hanoi Supervisor: Nguyen Van Dinh, Assoc.Prof.,PhD Ha Nguyen, MBA My thesis aims to answer the question: how Private Equity Fund invests and to provide some frameworks & guidelines for who are interesting in this investment vehicle First, the author illustrates the Private Equity industry, its structure, its researched framework and its activities in emerging countries Second, the thesis will study and research the fact of Private Equity industry in Vietnam The author also chooses Mekong Capital as a snapshot to know what a typical private equity fund in Vietnam does and then withdraw some operational experiences from its experts Third, the thesis will provide some lessons which could be applied for investing to Private Equity in Vietnam for investment managers, who are managing fund and considering to allocate a part of fund assets to Private Equity, investors who are considering to invest to private equity fund TÓM TẮT QUỸ ĐẦU TƯ TƯ NHẤN: CẤU TRÚC KHUNG VÀ TRIỂN VỌNG CHO THỊ TRƯỜNG VIỆT NAM Nguyễn Đức Hải Khoa Quản trị kinh doanh – Đại học Quốc gia Hà nội Người hướng dẫn: PGS.TS Nguyễn Văn Định ThS Hà Nguyên Tháng 10 năm 2008, 70 trang Luận văn nhằm giải đáp cho câu hỏi: quỹ đầu tư tư nhân đầu tư cung cấp vài khung số dẫn cho quan tâm tới loại hình đầu tư Đầu tiên, tác giả mô tả minh họa ngành đầu tư tư nhân, cấu trúc, nghiên cứu khung hoạt động thị trường Sau đó, viết tiến hành nghiên cứu thực tế ngành quản lý đầu tư tư nhân Việt nam Người viết chọn Mekong capital làm tranh cụ thể để nghiên cứu rút thêm học kinh nghiệm quản lý quỹ đầu tư tư nhân Việt nam Cuối cùng, viết liệt kê số học ứng dụng cho loại hình đầu tư tư nhân Việt nam cho nhà quản lý đầu tư, người quản lý quỹ đầu tư có ý định đầu tư vào loại hình đầu tư tư nhân nhà đầu tư, người muốn đầu tư vào quỹ đầu tư tư nhân TABLE OF CONTENTS ACKNOWLEDGEMENTS i ABSTRACT ii TÓM TẮT iii LIST OF ABBREVIATIONS vi LIST OF TABLES vii LIST OF FIGURES viii INTRODUCTION 1 The problems Objectives and Aims Research questions Scope of work Data sources Methods Significance Limitation Expected results 10 Outline CHAPTER – LITERATURE REVIEW 10.1 The concept of private equity 10.2 Type of Private Equity 10.2.1 Venture Capital 10.2.2 Buyout 10.3 Investing Structure 10.4 Size ranking 11 10.5 Private Equity Performance 12 10.5.1 J-curve 12 10.5.2 Expected return 12 10.5.3 Real IRR of Private Equity 13 10.6 Private Equity in emerging market 15 10.6.1 Private equity in investment pools 15 10.6.2 Emerging market 17 CHAPTER –PRIVATE EQUITY IN VIETNAM 23 2.1 Vietnam Investment Context 23 2.1.1 Robust growth rate 23 2.1.2 Bright prospective 24 2.1.3 Young and grow labor force 25 2.2 Private Equity in Vietnam 26 2.2.1 Investment fund industry 26 2.2.2 Private equity market snapshot 30 2.2.3 Mekong Capital 33 CHAPTER –LESSONS FOR PRIVATE EQUITY INVESTMENT IN VIETNAM 47 3.1 Lessons from natural characteristic of private equity investment 47 3.2 Lessons for investors who are considering allocate his assets to private equity funds 48 3.3 Lesson for fund managers who are considering allocate his fund capital to private equity 51 BIBLIOGRAPHY 56 APPENDIX 58 LIST OF ABBREVIATIONS PEI Private Equity Investment EVCA EVCA - European Private Equity and Venture Capital Association was established in 1983 and is based in Brussels EVCA represents the European private equity sector and promotes the asset class both within Europe and throughout the world EMPEA EMPEA - Emerging Markets Private Equity Association EMPEA is a broad-based membership organization founded in 2004 to focus on the emerging private equity markets of Africa, Asia, Central and Eastern Europe, Russia, Latin America, the Middle East, and Russia EMPEA is comprised primarily of private equity fund managers, but also includes institutional investors, service providers and others with an interest in the asset class EM Emerging market CEE Central and Eastern Europe IRR Internal rate of return LIST OF TABLES Table 1-1 Beta, Standard deviation and Expected return 12 Table 1-2 Growth in Fund Raised 2005 - 2007 17 Table 1-3 Distribution of Fund sizes for Funds with final closes in 2007 18 Table 2-1 Mekong's typical investee companies 39 Table 4-1 Investment Fund results 61 LIST OF FIGURES Figure 1.1 Venture Investment Stages Figure 1.2 An Overview of alternative investment Figure 1.3 Principal means of investing in Private Equity Figure 1.4 The J-curve 12 Figure 1.5 Private Equity performance 14 Figure 1.6 Performance of upper and lower quartile 15 Figure 1.7 Total investable Capital market- December, 2006 16 Figure 1.8 Emerging markets Private Equity Fundraising Totals, 2003-2007 17 Figure 1.9 Stage of funds with final closes in 2007 19 Figure 1.10 Sector focus among funds with closes in 2007 20 Figure 1.11 Distribution of EM PE Fundraising by Region, 2003 - 2007 ($US mn) 21 Figure 1.12 Emerging markets private equity fundraising totals by region, 2003 2007 ($US mn) 21 Figure 1.13 Fundraising by country 22 Figure 2.1 The real GDP growth in 2006 23 Figure 2.2 Growth rate compare 24 Figure 2.3 GDP & inflation rate 25 Figure 2.4 Population growth 25 Figure 2.5 Vietnam's Demographic structure (% total population) 26 Figure 2.6 Fundraising in Vietnam 28 Figure 2.7 Fund type & strategy 28 Figure 2.8 Private equity fundraising in Vietnam 31 Figure 2.9 Mekong Fundraising, 2002 - 2007 33 Figure 2.10 Mekong enterprise fund performance, 2002 - 1H2008 36 Figure 2.11 Mekong Enterprise Fund, % capital allocation stage 37 CHAPTER – LESSONS FOR PRIVATE EQUITY INVESTMENT IN VIETNAM As long as there is an international agreement about the private sector’s essential role in the development process, alternative financing techniques such as private equity must remain on center stage Globalization, with its emphasis on open markets, lower barriers to trade and investment, and crossborder competition, will strengthen this trend by fostering intense struggle among both countries and firms for scarce financial resources Some governments already are responding by passing legislation to better protect the rights of minority shareholders and by liberalizing burdensome tax regulations that discourage foreign investors This new environment also favors so-called new economy companies, with managers who are less resistant to third-party investors and more accepting of international standards of corporate governance Thus, despite some early setbacks, there are encouraging signs that a private equity rebound in emerging markets is not only desirable but credible However, the key players must make innovative adjustments that reflect the realities surrounding this type of investing With a different approach, the promise of private equity will begin to be realized 3.1 Lessons from natural characteristic of private equity investment PEI is illiquidity - Invest to PEI directly usually require a long term holding with term of 5-10 or more years under the limited partnership form There are no markets for these partnership interests and they cannot be liquidated or easily transferred The illiquid nature of Private Equity is reflected in the fact that the average IRR increases with fund year, whereas its standard deviation decreases This means that long maturity investments mean-variance dominate short term investments Investment in Private Equity is thus not compatible with investors who have a short term horizon, like stock analysts or public investors Results Dependent on Management – The ultimate level of returns received by investors is highly dependent on the skill of the fund-of-funds manager and their access to good investment partnerships and the competence of partnership management is the core energy to acquire profit for PEI Information Access - the access information is crucial component of PEI But this issue is imbalance in the private equity investment The information is limited and many transparency issues such as the accuracy, timeliness, and transparency of financial and operating information provided to investors, and the willingness of managers to subject themselves to some degree of accountability to outsiders are usually constrained Volatility is Understated – Because most assets are valued at cost until a measurable event occurs, private capital investments appear to be more stable in price than they actually are In addition, management fees and some losses are recognized early This gives rise to the “J curve effect.” 3.2 Lessons for investors who are considering allocate his assets to private equity funds The ways of investing in private equity The investor can invest to private equity through: Private equity fund: such focus private equity funds as Mekong capital, Bank invest (PENM), IDG…etc are specialized in investing to private equity Becoming shareholders of these funds, the investors will receive quarterly reports and monitor what entrepreneurs funds invest in period? Size of investment? The business activities report? Performance of these investments…etc Fund of funds: In other emerging markets, the government allows to set up fund of fund (FOF) type which is permitted to invest to other fund like private equity fund The investor can buy share of FOF, the FOF then buy share of PE fund which specialize in investing to private equity Investment mix funds: Some funds with investment mix strategy will invest a portion of its capital to private equity If investor are interested in these vehicles they can invest to these funds Directly invest to private company: for those who are capable competence in managing their investment by their own Expectation return The expected return is the relevant assumption from the point of view of a long term investor It is the return that the asset will experience over the longterm The investment in Private Equity is not done at once like for a classic stock The investor has generally a negative cashflow during the first years of the investment and then starts to get his return This is illustrated in beside figure Challenges: liquidity and flow of information The development of the secondary markets for private equity partnership interests has also made investors in PE fund painfully aware that such investments are more difficult to sell than direct partnership interests In addition, the valuations of such PE fund interests usually include a full markdown of the future management fees payable to the PE fund managers While the sale of such interests on the secondary market may not have been foremost on investors’ minds when they made the commitments, the difficulties experienced by investors who have tried to so has certainly contributed to the somewhat heightened skepticism that investors display towards PE fund today The use of freedom of information legislation, to demand increased public disclosure by limited partners (LPs) of the details of their private equity investments, has caused a growing number of GPs to require investors to enter into non-disclosure agreements that limit the ability of their LPs to distribute information In the PE fund industry this trend has caused a decline in the comprehensiveness and detail of reporting information and thus reduced the benefit of information sharing and market insights that investors might otherwise have received as a result of their PE fund relationships 3.3 Lesson for fund managers who are considering allocate his fund capital to private equity The key success of fund managers to private equity investment is the synergy of fund capital, active consultant with entrepreneurs’ spirit and expertise Trend and source of fundraising: the trend of fundraising determine action plan of investment fund managers, with the significant growth of fundraising in Vietnam since 2006 and the focusing of capitalist on emerging market, Vietnam investment manager are now facing with huge opportunity to raise their fund size In 2006, the fundraising of private fund are times as its initial year in 2002 In 2007, new capital raising grew 53% as previous year We haven’t seen the dramatic growth like this in the past many years Fuel of this growth was the booming in FDI flow, investment activities and stock market Most of private equity funds focus on generalist strategy They chose high return margin with sustainable sale growth entrepreneurs They also limit their investment to take them with high care and effort They are really active in contributing more and more precious advisory to entrepreneurs From recommendations of professionals in this newly industry, the investment managers need make sure these principles presented in their investments: Add value The management role of the private equity investor in emerging markets is even more important than in developed countries, given the unusual challenges of creating a feasible exit opportunity Fund managers must re-think the professional expertise required for these tasks, recognizing that the analytical and negotiating skills required to make an investment are not similar as those required to improve corporate value during the postinvestment phase Initially, the industry relied too heavily on ex- investment bankers educated to “do deals,” collect their fee, and move on to the next transaction They badly underestimated the amount of practical time required to monitor portfolio company performance Attending periodic board meetings, reading financial reports, and observing performance from afar is not sufficient Instead, professionals must take on the difficult and timeconsuming tasks of strengthening corporate governance practices, restructuring management, and positioning the company for a profitable exit More discerning deal selection Funds are becoming more proactive in deal selection, rather than waiting for business proposals to land on their desks or for investment bankers to make a pitch on behalf of a client “The best deals are ones we create In our most successful transaction, we proactively approached the company once we had decided that we wanted to be in the sector We looked for an attractive company where we would not be in a bidding auction.” – as an expert said Good deals must fit the skill set and industry knowledge of the fund manager, and offer identifiable opportunities for enhancing value Creative exit strategies “Every time we look at a new investment opportunity we rigorously assess our exit strategy before deciding whether to make the investment,” according to one Mekong investment manager In spite of the expected uncertainties about an event that will not occur for at least three to five years thus, there is increasing rigor applied to the exercise of mapping out a viable exit at the outset, whether by an IPO, a management buyout, or a strategic investor, and then ensuring that company management understands and commits to the strategy Are the owners willing and able to execute a management buyout after a prescribed time period? Or if a strategic investor is the preferred alternative, who are the likely candidates, and what must be achieved by management during the intervening years to attract these buyers? Promoting & protecting shareholder rights Few reforms are more important to strengthening investor confidence, current weak regulations may affect minority shareholders, such as voting rights and timely and reliable enforcement of shareholder and creditor disputes Therefore, investment fund managers should actively campaign and pursue entrepreneurs to reform their corporate regulator and business charter to better protect minority shareholders Promoting sound corporate governance standard An international consensus also is emerging on acceptable standards of corporate governance, another increasingly important benchmark for investors Corporate will be at a distinct advantage with private equity investors if they effectively establish standardized public disclosure and management accountability, including internationally accepted accounting practices, independent audits, and defined responsibilities of boards of directors CONCLUSION Private equity is suitable to consider as a long term investment with high risk and return characteristics, which provides diversification benefits to a traditional stock and bonds portfolio Private market investments are usually in the form of limited partnerships, with terms of 10 or more years There are no markets for these partnership interests and they cannot be liquidated or easily transferred Private capital investments appear to be more stable in price than they actually are because most assets are valued at cost until a measurable event occurs Its ultimate level of returns received by investors is highly dependent on the skill of the fund-of-funds manager and their access to good investment partnerships Private equity investment is increasing substantially in this decade Globalization, with its emphasis on open markets, lower barriers to trade and investment, and cross-border competition are creating attractive and supported environment for private equity growing in emerging markets Such country like Vietnam is in front of large opportunities to assort the capital from the ventures For investors who are interested in allocating a part of his asset to private equity investment, they should prepare knowledge and focus much on very natural characteristic of private equity investment such as: Illiquidity: commitment holding period of 5-10 or more years; Results dependent on management – its ultimate level of returns is highly dependent on the corporate management; Information Access: the information is limited; Volatility –private capital investments appear to be more stable in price than they actually are They should also learn and study deeper the success story & merits of fund managers who are allocating major part of their asset to private equity and conduct fund as an investment vehicle for investors Some active contribution and rationale statement of them should be carefully analysis and refer: Add value to investee company: actively add value to investee companies is the most direct way to enhance their management and operation and also reduce risk of highly dependence on management performance More discerning deal selection: more proactive in deal selection, rather than waiting for business proposals to land on their desks Good deals must fit the skill set and industry knowledge of the fund manager, and offer identifiable opportunities for enhancing value Creative exit strategies: rigorously assess exit strategy before deciding whether to make the investment Promoting & protecting shareholder rights: actively campaign and pursue entrepreneurs to reform their corporate regulator and business charter to better protect minority shareholders Promoting sound corporate governance standard: encourage management establish standardized public disclosure and management accountability, including internationally accepted accounting practices, independent audits, and defined responsibilities of boards of directors Finally, due to lack of time and source of information access, the thesis hope to contribute some of its result to investors, fund managers who are considering to allocate their asset to private equity investment When conducting this study, a number of different issues have come up, which researcher feel would be interesting to further investigation For this reason, I will now present a list of suggestions for future research, which I think are suitable topics for a future studies - Private equity fund organization & management - Private equity fund raising & investment vehicle BIBLIOGRAPHY Deutsche Bank, Investment Report 26 July 2007 - 'Understanding Vietnam, page 3- 15 EMPE, 2007 - Emerging market Private Equity 2007 Fundraising Review, Emerging market Private Equity Association, Page - 12 Ennisknupp, updated January 2008 - ENNISKNUPP capital markets modeling assumption, page 1-10 Ennisknupp, updated July 2005 - ENNISKNUPP capital markets modeling assumption, page 1-10 EVCA- Annual report 2006-2007, Global Economics Paper No 165 - Vietnam: The Next Asian Tiger In the Making, page – 12 LCF Rothschild, March 2008 - Country Funds Research, page Ludovic Phalippou and Maurizio Zollo, 2005 - The Performance of Private Equity Funds, Saša Djokić Marc Kilbert, January 2006 - Private Equity Investment 10 Standard & Poor’s 2007 - S&P LISTED PRIVATE EQUITY INDEX 11 Interviewers: Mr Nguyen Hai Ha, ex Investment Manager of Mekong Capital, CFO of Hanoi Fund Management Mr Nguyen Duc Hung, Investment manager of Mekong Capital Mrs Tran Kim Cuong, portfolio manager of Manulife APPENDIX Investment funds - Sample research: Funds Start year Initial Fund type Strategy Capital ($'mn) Bank Invest’s Private Equity New Markets 2006 80 PE investment generalist 2002 31 PE investment generalist 2006 50 PE investment generalist Ban Viet Pharmacy Focus Fund 2008 30 PE investment pharmacy IDG Venture's IDG Vietnam Ventures 2004 100 Technology technology (PENM) Mekong Capital's Mekong Enterprise Fund, Ltd Mekong Capital's Mekong Enterprise Fund II, Ltd venture Fund VinaCapital's DFJ-VinaCapital LP 2007 25 Technology technology venture Anpha Capital’s Vietnam Property 2007 50 real-estate property 2007 250 real-estate property 2007 300 real-estate property 2007 340 real-estate property VinaCapital's VinaLand 2006 790 real-estate property Anpha Capital’s Vietnam Equity Holding 2007 80 equity mix generalist 2006 30 equity mix generalist 2006 200 equity mix generalist 2006 100 equity mix generalist Holding (VPH) Dragon Capital’s Vietnam Resource Investments Indochina Capital's Indochina Land Holdings VinaCapital’s Vietnam Infrastructure Limited (VNI) (VEH) Bao Viet Fund Management Co.’s Bao Viet Investment Fund Blackhorse Asset Management's Blackhorse Enhanced Vietnam Inc BIDV-Vietnam Partners' Vietnam Investment Fund Deutsche Bank's DWS Vietnam Fund 2007 486 equity mix generalist Dragon Capital Management's Vietnam 1995 525 equity mix generalist 2004 330 equity mix generalist 2005 200 equity mix generalist 2007 50 equity mix generalist Hanoi Fund Management’s Hanoi Fund 2006 120 equity mix generalist Indochina Capital's Indochina Capital 1999 785 equity mix generalist 2007 13 equity mix generalist Mekong Capital's Vietnam Azalea Fund 2007 100 equity mix generalist Prudential Vietnam Fund Management 2007 30 equity mix generalist 2007 50 equity mix generalist 2007 50 equity mix generalist 2007 50 equity mix generalist 2007 50 equity mix generalist 2005 30 equity mix generalist Vina Capital - Vietnam Opportunity Fund 2003 662 equity mix generalist Viet Capital Fund Management’s Viet 2007 30 equity mix generalist 2004 61 equity mix generalist Enterprise Investments Ltd (VEIL) Dragon Capital Management's Vietnam Growth Fund Limited Dragon Capital Management's Vietnam Dragon Fund Golden Bridge Financial Group's Vina Blue Ocean Fund Vietnam Holdings Manulife Vietnam Fund Management Co Ltd’s Manulife Progressive Fund (MAPF1) Co.’s Prudential Balanced Fund Prudential Vietnam Securities - Vietnam Segregated Portfolio Fund PXP Vietnam Asset Management's Vietnam Lotus Fund PXP Vietnam Asset Management's PXP Vietnam Fund Ltd PXP Vietnam Asset Management's Vietnam Emerging Equity Fund Thanh Viet Corporation’s Saigon Securities Investment Fund A1 (SFA1) Capital Fund (VCF) VietFund Management’s Viet Fund (VF1) VietFund Management’s Viet Fund 2008 48 equity mix generalist 2006 120 equity mix generalist 2006 45 equity mix generalist (VF2) Vietcombank Fund Management (VCBF)'s Vietcombank Partners Fund (VPF1) Vietnam Asset Management (VAM)'s Vietnam Emerging Market Fund (VEMF) Investing to Private Equity Fund: Framework and Prospect for Vietnam Table 4-1 Investment Fund Performance Results 61 ... Overview of alternative investment 1.3 Investing Structure There are three ways of investing in Private Equity as shown in Figure 1.3 Principal means of investing in Private Equity An investor... an investor, the trade-off is between investing in a fund of funds and doing his own Private Equity allocation Here, the key variable for the decision is the size of the investment The direct investment... Directly invest in private companies Invest in a Private Equity fund who will then choose in which companies to invest in and how much Invest in a fund of funds who will then invest in Private Equity