I NVESTMENT C OMPANY
Generally, an "investment company" is a company (corporation, business trust, partnership, or Limited Liability Company) that issues securities and is primarily engage in the business of investing securities.
They are financial intermediaries that earn fees to pool and invest investors’ funds, giving the investors right to a proportional share of the pooled fund performance The performance of the investment company will be based on (but it won’t be identical to) the performance of the securities and other assets that the investment company owns.
Diagram 1.1: Relationship between investors and Investment Company
Investment companies are classified two types: managed and unmanaged companies.
Unmanaged investment companies (unit investment trusts in the United
States) hold a fixed portfolio of investments (often tax-exempt) for the life of the company and usually stand ready to redeem the investor’s shares at market value
Unit investment trusts (UITs) are registered investment companies, but they operate under more constraints because they do not have a manager per se (but trustees) UITs are required to be fully invested in all underlying securities forming the index and must hold dividends received on securities in cash until they pays a dividend to shareholders This could result in a slight cash drag on performance.
Managed investment companies are classified according to whether or not they stand ready to redeem investor shares
+ Closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO) The fund is then structured, listed and traded like a stock on a stock exchange, also known as a
"closed-end investment" or "closed-end mutual fund" Despite the name similarities, a closed-end fund has little in common with a conventional mutual fund, which is technically known as an open-end fund
The former raises a prescribed amount of capital only once through anIPO by issuing a fixed number of shares, which are purchased by investors in the closed-end fund as stock Unlike regular stocks, closed-end fund stock represents an interest in a specialized portfolio of securities that is actively managed by an investment advisor and which typically concentrates on a specific industry,geographic market, or sector The stock prices of a closed-end fund fluctuate according to market forces (supply and demand) as well as the changing values of the securities in the fund's holdings.
+ An open-end fund is a type of investment companies (mutual funds) that does not have restrictions on the amount of shares the fund will issue If demand is high enough, the fund will continue to issue shares no matter how many investors there are Open-end funds also buy back shares when investors wish to sell with the price equal to NAV (net asset value)
The majority of mutual funds are open-end By continuously selling and buying back fund shares, these funds provide investors with a very useful and convenient investing vehicle.
It should be noted that when a fund's investment manager(s) determine that a fund's total assets have become too large to effectively execute its stated objective, the fund will be closed to new investors and in extreme cases, be closed to new investment by existing fund investors
Investment companies charge fees, some as one-time charges and some as annual charges By setting an initial selling price above the NAV, the unmanaged company charges a fee for the effort of setting up the fund For managed funds, loads are simply sales commissions charged at purchase (front-end load) as a percentage of the investment A redemption fee (back-end load) is a charge to exit the fund Redemption fees discourage quick trading turnover and are often set up so that the fees decline the longer the shares are held (in this case, the fees are sometimes called contingent deferred sales charges) Loads and redemption fees provide sales incentives but not portfolio management performance incentives.
Annual charges are composed of operating expenses including management fees, administrative expenses, and continuing distribution fees (12b-1 fees in the UnitedStates) The ratio of operating expenses to average assets is often referred to as the fund’s “expense ratio” Distribution fees are fees paid back to the party that arranged the initial sale of the shares and are thus another type of sales incentive fee Only management fees and be considered a portfolio management incentive fee.
Investment companies primarily invest in equity Investment strategies can be characterized as style, sector, index, global, or stable value strategies Style strategies focus on the underlying characteristics common to certain investments. Growth is a different style than value, and large capitalization investing is a different style than small stock investing A growth strategy may focus on high price-to-earnings stocks and a value strategy on low price-to-earnings stocks. Clearly, there are many styles A sector investment fund focuses on particular industry An index fund tracks an index In the simplest implementation, the fund owns the securities in the index in exactly the same proportion as the market value weights of those securities in the index A global fund includes securities from around the world and might keep portfolio weights similar to world market capitalization weights An international fund is one that does not include the home country’s securities, whereas a global fund includes the securities from the home country A stable value fund invests in securities such as short-term fixed income instruments and guaranteed investment contracts which are guaranteed by the issuing insurance company and pay principal and a set rate of interest.
Relationship between investment fund and Investment Company
Corporate model (the U.S model): they are organized pursuant to a corporate model In the United States, the mutual fund is an independent legal entity, owned by shareholders, with a board of directors It has full corporate powers, including the capacity to enter into contracts, to sue, and to be sued The mutual fund raises money by issuing shares and invests the pooled proceeds in securities The shares entitle their owners to a pro rata interest in the pooled assets. Investors in mutual funds are shareholders in the fund, with voting rights.
Contractual fund (the German, Japanese and British models): Investors in these funds contribute money to a pool of funds, in which contribution is governed by a contract between the investors and the manager of the pool The corporate model, funds organized pursuant to this contractual model do not empower a monitor (such as a board of directors) with discretion to oversee the fund and provide little, if any, shareholder voting.
The differences between the corporate model and contractual model:
Fund Versus Adviser as the Focal Point:
The corporate model places the mutual fund at the center of the model In the corporate model, the fund is an independent legal entity with the capacity, for instance, to enter into contracts and to sue and be sued The laws and regulations governing mutual funds focus on the operation and structure of the fund The fund offers shares in itself to the investors It is the proceeds from the issuance of its shares that form the investment pool of the fund The investment pool may not be commingled with the assets of the investment adviser or any other entity, or paid out to any other entity except pursuant to contracts approved by the fund's board. The fund has a board of directors, with ultimate responsibility for coordinating and managing the fund With board approval, the fund contracts with legally independent third party service providers, such as the investment adviser, the distributor, and the administrator.
In contrast, the contractual model places the investment adviser (or its equivalent, the "investment manager") at the center, instead of the fund The fund in the contractual model is a contractual entity which is not independent of its investment manager or sponsor Rather, the design and operation of the fund, and its success or failure, are the responsibility of the manager In this sense, the contractual fund is "more like a proprietary financial product."
In the corporate model, the fund's board of directors is granted considerable discretionary authority and is responsible for making business judgments For instance, the board must approve the contracts with the fund's adviser, distributor, and administrator, and review them annually The board is provided with no guidance or decision rules; rather, these are decisions for the board in its sole discretion.
In contrast, funds following the contractual model rely more on rules than discretion In the contractual model, the typical fund contract is composed of
R OLE OF I NVESTMENT C OMPANY
Mobilize capital and transform saving capital to investment
1.2.1 Mobilize capital and transform saving capital to investment capital in the market
Investment Company help market more liquid, transparency… which create the trust of investors to the market Transparency is a vital topic to all investors - though they may not necessarily realize it In part, this does relate to liquidity, but also to honesty When the market more liquid and transparency, the required rate of return will be lower and investor accept the return which market brings More importantly, good market creates fair opportunity for all investors even the small one Especially in the emerging market, the price, volume of stock are easily manipulated, only the fund can stand against unethical behavior The capital will be used more efficiency, saving money is used for investing, which help country more wealthy.
Improve the management ability of company
The Investment Company has professional employees which can consult to the companies to operation activities The outcome of investee companies directly affects the result of fund and, thus, Investment Company strictly follow operation of company in order to make sure everything goes as plan and immediately help companies when companies have trouble Needless to say, most the staffs ofInvestment Company are talent ones who has a lot of experience in specific field,they could give help in many factor such as human, finance, management In fact,some Investment Company always invests more than 20% interest of each investee companies and participate the board of director or board of management In that period, the owner, employee of investee companies can earn the knowledge,experience from Investment Company and keep moving when Investment Company divestment.
Lead the trend of globalization in capital market
The international investment fund promotes the development of emerging markets by improving the liquidity and support infrastructure to serve the requirement of it.
The organization fund (pension fund, insurance fund…) plays important role in improving the professional fund.
The investment fund is primary tool of financial institution to capital mobilization and invests into emerging market.
Investment Company is the easiest, safest, most convenient… way for the foreign investors pouring capital into market.
Efficient floating capital in the market
The capital is managed by professional Investment Company Smart money will find where to earn the most profit project The market is more effectively and efficiency.
Since their creation, mutual funds have been a popular investment vehicle for investors Their simplicity along with other attributes provides great benefit to investors with limited knowledge, time or money.
Diversification: To achieve a truly diversified portfolio, investors may have to buy stocks with different capitalizations from different industries and bonds with varying maturities from different issuers For the individual investor, this can be quite costly By purchasing mutual funds, investors are provided with the immediate benefit of instant diversification and asset allocation without the large amounts of cash needed to create individual portfolios One caveat, however, is that simply purchasing one mutual fund might not give investors adequate diversification - check to see if the fund is sector or industry specific For example, investing in an oil and energy mutual fund might spread investors’ money over fifty companies, but if energy prices fall, investors’ portfolio will likely suffer.
Economies of Scale: The easiest way to understand economies of scale is by thinking about volume discounts; in many stores, the more of one product investors buy, the cheaper that product becomes For example, when investors buy a dozen donuts, the price per donut is usually cheaper than buying a single one This also occurs in the purchase and sale of securities If investors buy only one security at a time, the transaction fees will be relatively large
Mutual funds are able to take advantage of their buying and selling size and thereby reduce transaction costs for investors When investors buy a mutual fund, investors are able to diversify without the numerous commission charges Imagine if investors had to buy the 10-20 stocks needed for diversification The commission charges alone would eat up a good chunk of investors’ savings Add to this the fact that investors would have to pay more transaction fees every time investors wanted to modify investors’ portfolio - as investors can see the costs begin to add up With mutual funds, investors can make transactions on a much larger scale for less money.
Divisibility: Many investors don't have the exact sums of money to buy round lots of securities One to two hundred dollars is usually not enough to buy a
Benefit to the investors
of dollar-cost averaging So, rather than having to wait until investors have enough money to buy higher-cost investments, you can get in right away with mutual funds. This provides an additional advantage - liquidity
Liquidity: Another advantage of mutual funds is the ability to get in and out with relative ease In general, investors are able to sell your mutual funds in a short period of time without there being much difference between the sale price and the most current market value However, it is important to watch out for any fees associated with selling, including back-end load fees.
Professional Management: When investors buy a mutual fund, investors are also choosing a professional money manager This manager will use the money that investors invest to buy and sell stocks that he or she has carefully researched.Therefore, rather than having to thoroughly research every investment before the investors decide to buy or sell, the investors have a mutual fund's money manager to handle it.
F ACTORS AFFECT ROLE OF I NVESTMENT C OMPANY
External factors
Needless to say the important effect of law to the role of Investment Company, in each country, we have different law; however, generally, Investment Company is banned to spend 100% capital in investing in one project There is some common violence for Investment Company in over the world
+ Misrepresentation: knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities
+ Material nonpublic information: Own inside information and use it to consult or trade.
+ Market manipulation: engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants.
+ Suitability: not make investment recommendations or take investment actions that are consistent with the stated objectives and constraints of the portfolio
+ Preservation of confidentiality: not keep information about current, former, and prospective clients confidential
+ Additional compensation arrangements: accept gifts, benefits, compensation, or consideration that competes with, or might reasonably be expected to create to a conflict among clients
+ Disclosure of conflicts: not make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to their clients, prospective clients.
Investment Company’s operation is significantly influenced by economy environment As mentioned above, the portfolio of investment Company is diversified and, thus, they don’t have to bear the unsystematic risk, in other world, a diversified portfolio will eliminated the specific risk, the profit of one project will offset the loss of others Most of the risk which Investment Company has to bear is systematic risk or market risk When the economy environment is favorable, Investment Company easily makes profit and vice versa The capital mobilization will meet difficult in recession period but afterward, there will be a lot of attractive opportunity
Investors are the primary source of capital for the Investment Company.However, there is not uncommon phenomenon that the market value of InvestmentCompany is lower than NAV There is always gap between investors’ believe andInvestment Company When investors trust Investment Company, and usually,market value of Investment Company is higher than NAV, Investment Company can easily raising fund.
More dramatically, Market value of Investment Company is lower than NAV which could lead to divestment force of investors The Investment Company has to dissolve fund
Investee companies: if we say investors are the inputs of InvestmentCompany, investees companies are the outputs of Investment Company The success or failure of investees companies, also, means the success or failure ofInvestment Company That why Investment Company strictly follows the investee companies and deeply intervenes the operation of them.
Internal factors
Needless to say human resource is the key to success for any enterprises, especially Investment Companies.
Investment Companies require professional employees who have high degree of academic such as Ms, Phd or other certificate such as CPA, ACCA, CFA…Each portfolio manager in Investment Companies manage a big capital, having bonus when doing good job, not having any punishment when making loss and, thus, they must be that competent people who has enough ability to take care of portfolio Usually, one portfolio includes from 5 to 20 sub sectors, the portfolio manager must have wide, deep knowledge in each field Moreover, the analyst must have at least 3-5 years of experience in the investment sector to guarantee their ability
Investment Company’s staff can handle job manually because the complicated algorithms, tons of works They use technology to find mean, variance, efficient frontier, suitable portfolio… if we calculate that parameter, we must spend a week and the result still not 100% true That’s why technology plays important role in Investment Company; it affects the accuracy, speed of work and saving cost.
E XPERIENCE OF I NVESTMENT C OMPANY IN THE WORLD AND LESSON
In the developed market, Investment Company plays important role in stabilizing and improving the capital market, in fact, the number and asset of Investment Company continuously increase
The Investment Company Institute reported $26 trillion worldwide mutual fund assets from 26 reporting countries for the year 2007.
They reported assets for 2002 - 2007 which shows a 5-year average increase in total assets of 18.3% (net new money + performance), and a 2007 asset increase of 23%.
Table 1.2: World Mutual Fund Assets By Fund Type, 2007 (USD Billions)
(Source: Investment Company Institute www.QVMgroup.com)
There are about 66,000 mutual funds in total in the end of 2007
The allocation of assets by fund type differs significantly between US investors and non-US investors US investors make a somewhat larger allocation to equities than the rest of the world.
Diagram 1.3: Worldwide mutual fund asset by region, 2007
There is no doubt that the development of mutual fund over the world is dramatic; however, beside the success, Investment Company also has some limitation The first one is limit of analysis’ ability; to be a professional one employee has to cover a lot of knowledge and experience The second drawback is that the process of making portfolio greatly depends on model which is used by most Investment Company; hence, they have the same portfolio Finally, the manager usually takes high risk in order to get high return and bonus
Vietnam is developing country and ranks the second growth rate in Asian.After becoming the 150 th member of WTO in the end of 2006, Vietnam attracts many foreign investors; there are more and more financial institutions, especially in stock market However, the potential of Investment Company is still not exposed InHOSE floor, there are just 5 funds: Manulife fund, Prudential fund, VFMVF1,VFMVF4, VFMVFA Moreover, the funds don’t really present their role as stabilizing and leading the stock market.
There are many causes of current situation: objective and subjective ones The securities law of Vietnam is not completed which creates risk to the investor and can’t attract foreign ones Besides, the limit capability of human is one of greatest obstacle.
Vietnam should finish the securities law early and prepare the infrastructure to attract capital through investment as well as hone the human.
OVERVIEW OF INVESTMENT COMPANY IN
V IETNAMESE FINANCIAL MARKET
2.1.1 Overview of financial market in Vietnam
In recent times, Vietnam's financial market is formed with a relatively complete structure, expanding the scope of activities, attract more participants. Although not being on par with the development requirements of modern financial markets, the legal system governing the operation of the market has gradually improved, and step by step access to international practice It just works for financial market development, which can meet the requirements of integration with financial commitments.
The management of government for the financial markets has been institutionalized and has closer coordination The other operating rules established markets and to meet basic operational requirements and development Facilities, technology markets are created, go straight towards modernity The subjects in the market increasing in number and diversify the types and forms of business and financial capacity to improve competitiveness, gradually improve organizational structure, business administration and like with the new business environment.
Currently, Vietnamese financial market encounters the three most trouble. The first one, size of financial market is relatively small In 2010, the proportion of the financial sector in GDP in Vietnam is only 40% when it is nearly one in other countries, especially in U.S about 500% Clearly, the contribution of capital market to development of Vietnam is not really significant.
The second one, the competition of financial markets is low Sometimes, the State has to adopt administrative approach to regulate the market; therefore, market activity does not conform to economic rule, which affects the participants.
The last one, financial instrument is a few Although the stock market has developed for ten years, we still don’t have modern instrument such as margin, forward, option That environment gives fewer choices for the participants when they make decision The market is less flexible and attractive.
Money market has attracted many financial institutions, amount of transactions increases Contribution rate of the credit sector to GDP increased from 20% in 1990 to about 68% in 2004 The separation of policy credit from the state commercial banks (SCBs) has facilitated the implementation of business according to market principles, improves the autonomy and self-responsibility of credit institutions (CIs) State Bank (SBV) has effectively use the tools of monetary policy, especially the indirect tools Legal framework (SBV Law amended in 2003, Law on Credit Institutions amended in 2004 ) in recent years has reinforced a basic step, create equal opportunities for access to financial institutions, financial market participants Exchange rate USD / USD Vietnam State Bank remained stable over the years.
However, until now, the money market still has a certain number of shortcomings Recently, in the end of 2009 and 2010, the price of gold and exchange rate fluctuate dramatically, sometime, the price of gold in Vietnam is 2 million higher than that in the world Official exchange rate is always lower than exchange rate in black market SBV only has solution after the even happens, in other words Basic rate, discount rate and refinancing rate is extremely high (~9%) which is about as ten times as in the world
The cause of previous phenomenon:
Modern financial instruments is still limited in Vietnam, size of market is small, financial depth measured by M2/GDP is low Money market is not flexible, lack of trading tools, low liquidity, and weak relationship between the markets. Foreign exchange market has not really developed due to lack true tools to prevent exchange rate.
Operational capacity and management of all market participants cannot not guaranteed, the possibility of internal control also has limited counter In the operation of each bank is an imbalance between deposits and lending, did not meet international standards on safe capital adequacy In the end of each year, the interbank rate is usually high; it is sometime higher than deposits rate which showing the inability of controlling liquidity The growth rate is fast, but credit quality unsustainable.
Law governing the operation of the market is being improved gradually, but still not uniformity Looking deeply, the many aspects have not fully covered State Bank Law has been amended several times, but no precise positioning is the legal status of the SB, functions and powers not yet fully institutionalized Credit Law is considered progress than the past, but the guidance non-bank governing the operation of financial institutions left open and still lag far behind the requirements of integration.
2.1.2.2 Stock market and bond market
Compared to 500 years history of the international stock market, Vietnamese stock market was just 10 years as an infant But the first 10 years of stock market development we have is a miracle, far beyond those originally anticipated by many insiders.
Up to now we have two trading floors (SGD) and a UPCoM market, with nearly 600 listed stocks, 105 securities companies (Securities), over 50 of the 46 investment funds and fund management companies, nearly 1 million trading accounts on all three markets, which is about 25% of foreign investment, with nearly 4,000 transactions took place The safety record on the secondary market that have a positive impact market school issue.
10 years, many public companies, especially listed companies have issued securities to raise capital from tens or hundreds of times 2 Particularly in 2008-2009 was 35,000 billion worth of shares (calculated at par value) is released to the public, contributing to healthy financial enterprises, promoting economic development.
Bond market is not really well-developed The size of bond market is relatively small compared to other market.
Diagram 2.1: Total value of bond market/GDP in 2009
According to the Ministry of Finance, in 2009, we need to mobilize capital in government bonds to the budget at about 200,000 billion; however, the total amount of government bonds issued during the year was only about 20,000 billion, reaching 14% of the plan One easy to notice that last year the release of government bonds guaranteed by the Government and the primary market is quite bleak This report indicate that overall, about 70 in 2009 include the issuance of state treasury bonds, the Development Bank, Bank for Social Policies and city bonds, but only about 5,000 billion is mobilized of a total 71,400 billion tender offer.
On the other hand, in 2009, the corporate bond market is quite vibrant with the successful issues, which are major bonds with floating interest rate Due to fluctuations in risk aversion at high interest rates but also publishers and investors have focused on this type of bond Estimated that around 18,000 billion dong worth of bonds have floating interest rates were sold, accounting for 77% of the total value of bonds raised (over 26,000 billion) In addition, convertible bonds are also channel mobilization is used in many businesses in 2009, especially from third quarter onwards, when the stock market has recovered remarkably.
Diagram 2.2: Structure of bond market in 2009
I NVESTMENT C OMPANY IN V IETNAM
2.2.1 Overview of Investment Company in Vietnam
Till the end of 2009, there are about 20 Investment Company in Vietnam with total equity is 12,757 billion VND Among them, there are 4 public funds and
16 individual funds The domestic fund are prudential fund, Thanh Viet fund,Manulife fund, BVIM fund, Bao Viet fund… Among domestic fund, there are 3 investment funds listed on HOSE trading floor: VFMVF1, PRUBF1, MAFPF1, VFMVF1.
Beside the domestic fund, the foreign ones have, also, dramatically increased Until the end of 2007, Vietnam has over 10 Investment Company with more than 30 investment fund The investment sector is really diversified which is from private investment company fund to real estate fund, venture fund…The improvement of those fund provides stable, wealthy capital for the market
Table 2.1: Foreign Investment Fund in the end of 2009
No Investment Company Investment sector No of fund
8 Korea Investment Trust Management Corporation 2
11 Blackhorse Asset Management Pte Corporation 1
13 Kamm Investment-USA Many sectors 1
14 Jardine Fleming-HongKong-A division of JPMorgan Chase & Co
15 Golden Bridge Financial Group-Korea Securities 1
16 Vietnam Holding Asset management Securities 1
(Source: http://thongtinphapluatdansu.wordpress.com) 2.2.2 Current situation of Investment Companies in Vietnam:
Vietnam Opportunity Fund (VOF) was established in July 11/2003, after a year of operation, the size of the VOF capital has increased to 37 million in late
2004 and now has increased to $ 171 million In 2005, the net asset value (NAV) of the VOF has increased 34% stock price increase 35% VOF is the Asian investment fund listed on the London stock market; investors include Deutsche Bank Securities, Millennium Partners, Sun Wah Group, Pacific Alliance Group and American Fidelity Corporation Investment sectors are OTC stocks and real estate and VOF has other investment sector is to buy back shares of the enterprises are losing to proceed with restructuring and to engage in private enterprise There are 3 factors that VOF consider when investing in shares of enterprises in order of priority: the first is the brand and distribution system, the second is the leadership capacity and the third is the property of business.
In addition, Vina Land will participate in various forms of investment such as 100% foreign investment in a project, purchase of shares in the projects or businesses in Vietnam real estate, joint participation venture or business cooperation contracts in a particular project.
Vina Capital does not hide ambition to set foot on public transport; road and parking lot by a specialized investment fund for infrastructure Moreover, the company also intends to fund the new birth which is a Technology Fund to invest in high technology projects.
In 14-9, VinaCapital make the portfolio investment of 3 funds: Vietnam opportunity fund, VinaLand Limited, Vietnam Infrastructure Limited.
By the end of August 2010, VOF's NAV fell by 3.3% and $ 2.33 per share, compared with $ 2.41 per share in late July 2010
The cause is the decline in August VN Index down 7.9%, dragging the quality of the portfolio securities of the fund down
Stock prices rose slightly, reaching $ 1.49 per share compared to $ 1.46 per share last July
In August, VOF bought blue-chips stocks with good growth potential VOF increase its stake in JSC An Giang Plant Protection, Vietnam's leading companies for distribution in the agricultural sector, adding 9.4 million
Vinamilk (VNM), one of the stocks are held the first by VOF, the first time in the top 200 small and medium enterprises by Forbes VNM is up 30% of Vietnam's market for milk with a net profit increased 4 fold in four years
Top 5 stocks that VOF holds NAV descending order include EIB, CAN, HPG, Halico, QCG
Calculated according to the industry, real estate projects accounted for a leadership position in the list with 22.8% of VOF Investment in oil, gas and mine ranked bottom with 3.5%
Diagram 2.3: VOF portfolio in Aug 2010
By the end of August 2010, VNL shares increased $ 0.8 per share compared to $ 0.78 per share last July 2010.
Quality assets in the hotel industry of VNL are improved because Vietnam's tourism market continues to recover.
2 hotels on the list of the VNL is Movenpick Hanoi and Saigon-Quy Nhon growth exceeded forecasts in July with the profit figures and revenue peaked five years.
Total revenues in the hotel investment fund by the end of August / 2010 increased 20% over the same period last year, in which gross operating profit up 15.6%.
Planning change in the fund's portfolio focuses on projects Ceana villas and boutique-hotel This project is 100% of the VNL is built on an area of 8.6 ha in Hoi
An, including 82 boutique hotel rooms and 31 villas will be offered. Marketing campaign will target buyers of villas before project complete Loan negotiations are underway with two banks to finance the construction of villas and hotels.
VNL is the largest investment projects in Ho Chi Minh City with 62%, while only 13% of Hanoi.
Diagram 2.4: VNL portfolio in Jun 2010
Until 31-08-2010, VNI's NAV decreased 4.5% to $ 0.6 per share, compared with $ 0.63 per share in July due to falling stock markets However, profit is still positive
JSC infrastructure investment TP Ho Chi Minh (MCK: CII), representing 3.3% of NAV of the fund, reported first half profits in 2010 reached 15.1 million, up 156.5% over the same period, revenue increased 363%, with 56% profit margins. Earnings per share within six months of 2010 reached $ 0.21, compared with $ 0.16 last year
Import-Export Joint Stock Company, Tan Binh District, accounting for 1.3% of NAV of the fund, announced net income of the period 10/2009 to 6 months of 2010 reached 2.9 million, up 8.8% over the same period Earnings per share reached $ 0.24 in the nine months, compared with 0.21 last year
VNI major investment in transport sector with 35.4%, the energy sector followed with 16.5%.
Diagram 2.5: VNI portfolio in Aug 2010
The fund management company Mekong Capital is a company specializing leading private companies in Vietnam Mekong Capital is managing the Mekong Enterprise Fund (the Mekong Enterprise Fund), this is an investment fund with U.S.
$ 18.5 million was launched in September 04/2002, based in Cayman and unlisted on the stock market This fund focuses on equity investments of private enterprises such as Vietnam, Laos and Cambodia (Mekong rice) Investment shares include common shares, preferred shares, convertible bonds and other securities.
The Fund aims to achieve the highest profits for their investments, while creating a positive impact on the development of private enterprises in the Mekong region This is reflected by the value of the assets of the Mekong Enterprise Fund based on market value of approximately $ 27 million (in 30/06/2006), average of annual income growth rate of the Company is about 28.4% The Fund aims to achieve their goals by offering significant assistance to companies that have invested funds, especially helping them develop management systems in areas such as governance human resources, customer relationship management, sales - marketing, financial management, information management system based on best international practices The fund management company Mekong Capital has invested nearly all of which 18.5 million of the Mekong Enterprise Fund in equities. And it released a Mekong Capital Fund II in quarter II/2006 with the amount of 50 million registered in Mauritius and also not listed on the stock market was a strategic activities like Mekong Enterprise Fund.
The Fund aims to achieve internal rate of recovery by attracting equity investment in private companies of Vietnam and the Corporation of (former state- owned enterprises), particularly with the goal invest in private companies’ best management in Vietnam The Fund will focus mainly on those companies have specific plans for listing on Vietnam's stock market and the company shows how a strong commitment to continuous improvement The Fund focuses primarily on minority investments, usually equivalent to about 20-30% of the equity in private companies not listed.
The Mekong Enterprise Fund's current investments include the following 10 companies:
The Mekong Enterprise Fund II's current investments include the following:
On 14-03-2006, Bank for Investment and Development of Vietnam (BIDV) officially launched the Vietnam Investment Fund (Fund Investment in Vietnam).VIF is the fund's 20 member closed corporations, companies, enterprises inVietnam with the two founding members which are BIDV contributing 96 billion and Vietnam Partners LLC, contributed 80 billion, with a size maximum of 1,600
T HE ROLE OF I NVESTMENT C OMPANY IN V IETNAM
2.3.1 Mobilize capital and transform saving capital to investment capital
Investment Companies have done a great job for this role in stock market for 10 years In December 2006, there was 8 Investment Companies, but at the moment, that number increases to 20 Both the number of fund and NAV of each Investment Company continuously increase.
A typical example foreign Investment Companies is VinaCapital which established 3 funds: VOF, VNL, and VNI from 2003 to 2007 Their NAV increases significantly year by year VOF is a closed-end fund launched in September 2003; in February 2006, its NAV was $209 million and in March 2010, it increased to
$789 million, the average growth rate of NAV is about 39.39% VNL is a closed- end fund launched in March 2006; in August 2006, its NAV was $199 million and reached $685 million in March 2010, the average growth rate of NAV is about 36.21% VNI is a closed-end fund launched in July 2007; in December 2007, its NAV was $415 million and decreased to $258 million in March 2010.
A representative of domestic Investment Companies is VietFundManagement Company which is a pioneering fund management company inVietnam They manage 5 funds: VF1, VF2, VF3, VF4, VFA
VF1 is Vietnam's first closed-end public fund which attracts various domestic and oversea individual and institutional investors The initial chartered capital of $18.2 million was raised within 10 days in April, 2004.
Table 2.2: NAV of VF1 Fund from 2004 to 2009
VF2 is our second close-ended fund, establishing in December 2006 This fund was raised investment from different 15 financial institutions domestically and overseas with approximately VND 400 billion invested as initial chartered capital and at the moment, it reaches VND 692.4 billion
VF3 is a specialized investment fund with the objective of supporting employees' futures
VF4 - Vietnam Blue-chips Investment Fund is the forth close-ended fund listed on HOSE which was initially raised its chartered capital of VND806.46 billion (USD48.9million) in January 2008 In 2009, its NAV was VND 943.5 billion and in the end of quarter 3, 2010, it decreased to VND 754 billion.
VFA - Vietnam Active Investment Fund is the third close-ended fund and is also the first short term fund at VFM VFA has successfully raised its chartered capital from domestic and international individuals, institutional with the size of VND 240,437,600,000 and closed at the beginning of February 2010.
Through the typical example above, we can see the trend of fund which is attract more and more individual investors as well as institutional investors. Although in recession period and downtrend of stock market, the Investment Companies meet many difficulties to mobilize capital However, if they get over it,
2011 will be one of the most successful years.
2.3.2 Improve the management ability of company
The success or failure of investee companies directly relate to the outcome of Investment Companies To Investment Companies in Viet Nam, most of them realize the important of this issue It is there investment philosophy, Investment Companies deeply intervene the operation of investee companies by join in board of directors or board of management.
The following paragraph is quoted from Investment Philosophy of Mekong Capital “Building management and leadership capacity - We partner with investee companies to develop their management, leadership and corporate culture in ways which are aligned with the fulfillment of their long-term vision and the achievement of the KPIs and milestones which have been set We don’t get involved in management decisions, but rather we empower our investee companies to rapidly develop their own capacity for management and leadership For some companies, this may also involve transforming their corporate cultures in ways which provide a stronger foundation for achieving their vision Normally the most successful companies are the ones whose leaders intentionally choose and develop a strong corporate culture” and quoted from IPA Investments Corporation “Working with the target company’s Board of Directors to enhance the capacity of current management team or install a competent management team that possesses the necessary core expertise to enhance the company’s long-term strategy and improve the operational performance through the implementation of a successful growth plan.”
Clearly, the role of Investment Company in improving the management ability and providing the capital seems to get some good result Maybe, most of us familiar with the name thegioididong, lacviet, kichikichi restaurant… Behind the success of those companies are the Investment Companies They help investee companies from the start-up and then sell their proportion when company is big enough or become listed company It is the win-win situation
2.3.3 Lead the trend of globalization in capital market
Admittedly, the Investment Companies are regarded as the standard measurement for investment activities and contribute to stability of market in which in acts as a financial institution collecting investors to invest in the best and most professional way in the securities market.
However, according to many experts, if compared with the model of market development at present, the contribution of Investment Companies is not commensurate with expectations and inherent potentials Experts, also, worry about the role of “lead” the market of Investment Companies In fact, currently, the total market capitalization is over VND 740,000 billion, accounting for more than 45% of GDP. The total amount of public funds under management accounts for only about 4% of the total market value Through these figures, the role of Investment Companies is too faint and Investment Companies meet a lot of difficulty to impact market.
One the other hand, there are some good signals for the role of Investment Companies For examples, the survey 250 enterprises and multinational corporations on global business strategy in the coming years by the United Nations Forum (UNCTAD) conducted shows that foreign capital flows in the private investment funds and investment funds are more and more important.
2.3.4 Efficient floating capital in the market
Unfortunately, the operation of Investment Companies in Vietnam stock market doesn’t work well It is partly because the portfolio management theory is very difficult to be applied in Vietnam when the market is not really developed, the herb trend is unpredictable Besides, the violation of securities law such as inside trading or price, volume manipulation is the common phenomena which create obstacle for Investment Companies to be fair-play in the market.
The most suitable instance is VF1 – public fund listed on HOSE
Table 2.3: Net profit of VF1 fund from 2007 to 2009
T HE ACHIEVEMENT AND DRAWBACK OF ROLE OF I NVESTMENT
2.4.1 The achievement on the role of Investment Company in Vietnam
Investment Company has got a lot achievement for 10 years of operation in stock market Average growth profit of foreign Investment Companies in Vietnam is about 25-30% and is expected to be higher in the near future The growth of VEIL fund sometime reaches 65%-80% in 3 months The average growth of Vietnam Growth Fund is about 36.5%, Vietnam Dragon Fund is 15%, Vietnam Opportunity Fund is 33%, Phan-Xi-Phang fund is 36% Vina Capital's ROE increases 34%, launched the 3rd investment funds and currently manages more than
$ 500 million of capital in 2006 The total capital of VOF for real estate, listed companies, private enterprise is $ 245 million Profits from the beginning until now increase 110% in value NAV (NAV per Share) Stock price increased 132% and are also listed on the London Stock Exchange.
The total equity of fund managed by Investment Companies in the end of
2009 reaches 12,757 billion VND with the average growth 75.5% annually
2.4.2 Drawback on the role of Investment Company in Vietnam
Generally, the securities Investment Company has great achievement in recent years; however, we still have some limitation
The first one, it is difficult to supervise the operation of Investment
Company and the violation of investment policy easily happens The manager has incentive fee reach 20% of increasing value which could be the motivation for them to invest in high risk project They expect to have high return and get bonus. Besides, they may want to shrink the size of fund to easily manage and find good opportunity One more thing, they don’t get any punishment when the fund have loss.
The second one, they don’t really express their role, leading the market In developed market, the investment companies themselves makes the market efficiently However, in Vietnamese market, most of investors are individual ones.
In the end of 10-2009, number of account in stock market is 766,725 when among them, financial institutions have 3,147 accounts and individual investors have 763,578 accounts.
The third one, most Investment Companies still focus on short-term profit which makes fluctuate dramatically.
Fourthly, the relationship between corporation and Investment Company is not tight enough Vietnamese corporation still meet problem when finding the help from Investment Company such as capital, consultation.
+About Investment Companies, they only buy listed companies or will be transformed into listed companies to attract new investment Investment Companies is limited to invest in start-up companies, one owner holding more than 50% of company (except State) and the enterprise must no conditions: no risk and no family owning Besides, the Investment Companies such as Dragon Capital only invest in company when its market value reaches $7 million or more This is a limitation because in Vietnam were mostly small and medium enterprises for low-capital so it is difficult to access capital from investment funds
+About enterprise, despite the huge capital needs but they are afraid of working with investment funds, between enterprises and investors always have a clear gap which enterprise is not ready to take the concept of public company They don’t have trust give investment funds the right to manage company as well as public enterprises not want all the financial problems Meanwhile, it is the key for the investment funds to selected business decision or not.
Fifthly, we still lack of fund for individual investors
At the moment, most of investment fund is used for financial institutions.
At the IPO, many individuals investors want to participate but they were told that it was out of slot.
2.4.3 Causes on the role of Investment Company in Vietnam
First of all, investment in herd behavior is quite common phenomenon in the market Domestic investors tend to purchase the shares following foreign investors because they believe that foreign investors are the organization of professional investment, they are able to choose correct share In each trading day, foreign investors invest into hundreds of billions VND which makes domestic individual investors eager to participate Foreign investors with strong financial resources are pouring into the market to mainly buy stocks of large companies with high prices accounted for 20% of the market each day
It can be said that any shares of the Company are foreign investors buying more inevitable because it will increase prices during the session, followed by domestic investors scrambling to buy at any price, no matter to the information of the Company.
The second problem, price increases due to privileged information disclosure of listed company The disclosure is not made in accordance with the provisions of the enterprise to the privileges of the Trading Center and the securities firm When required to disclose information, the enterprise usually only send information to the Securities Trading Center and so only the new center has the right to bring such information to the public This is partly the fault of the enterprise that doesn’t understand the law and create special privileges for these agencies. Information leakage problems in the auction of shares through trading centers, there will be some who know the total demand of shares and investors participate in the auction, which will calculate the price reasonable bid for a friend, so will gain advantage over other investors.
2.4.3.2 Reasons from State and regulation institution
The first one is chaos information on market: From listed companies to investors, anybody can enact information to drive the market to their goal No one verified the accuracy of this information about where it is from, how accuracy it is….
The second one is manipulating price, some big investor with huge capital can push the price of share up to some point and sell it The price of share reflects nothing about companies
The third one is that insider trading is quite common in the market The regulation can target who violate the law and strictly punish that behavior.
SOLUTION TO IMPROVE THE ROLE OF
T REND OF V IETNAM STOCK MARKET IN THE FUTURE
With these encouraging results over the past ten years of operation of Vietnam's stock market, Vietnam's stock market strategy keep setting up future growth goals: steady, safety and wealthy
According to the opinions of financial experts, Vietnam's stock market has many positive promises changes in 2011 Indirect capital flows of foreign investment intoVietnam will be very favorable, mostly by investment funds, the financial group with strong long-term investment strategy However, we should aware of massive investments in securities will be affected by regulations prohibiting loans to invest into securities business In fact, recent years, many investors were bankrupt partly because of borrowing money from bank.
The wave of new shares of company will dramatically increase Many private enterprises were realized advantage which easily raise capital when participate in stock market According to experts, the total value of listed stocks in late 2011 will increase about 2 times and the end of 2008 will be increased 3 times now
In present, the price of Vietnamese share is considered as quite cheap The ratio such as P/E, P/B… is relative low which will bring the attractiveness for the domestic and foreign investors in next years When the macro economy has a signal of stable development, the stock market is surely wealthy.
S OLUTION TO IMPROVE THE ROLE OF I NVESTMENT C OMPANY IN
Investment Company play important role in the close relationship between Investment Company and Investment fund It decides the success or failure of organization.
First of all, most companies in Vietnam lack of knowledge and level of
English Besides, ethics is one of the most important factors of employees in securities market In recent time, many companies want to hire the employee graduated from foreign university or had CFA In the process of integration, the partner in business can trust on companies which have high level of knowledge of employees.
Secondly, the capability of portfolio managers is critical to Investment
Company They affect directly to the operation of company Good portfolio managers can run smoothly their portfolio, when the market is in down trend, they could limit the loss and when in up trend, they could earn abnormal return Besides,they never let the transaction fee over the return By having good academic, they always have good portfolio which get maximum return with lowest risk.
Thirdly, asset allocation and making portfolio is one of the primary duties of Investment Company.
An investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance and investment horizon
The three main asset classes - equities, fixed-income, and cash and equivalents - have different levels of risk and return, so each will behave differently over time.
The Investment Company is in charge of this mission and it could lead to the situation the company wants to have higher return by accepting higher risk.
Investment fund VF1 allocates at least 60% of total asset in to shares, the rest of capital will be invested in money market, real estate, reserved money. Securities investment fund A1 allocates no more than 50% of equity in listed shares, no more than 40% of equity in financial instrument and no more than 20% on Government bond Due to the importance of asset allocation, the Investment Company has to do it carefully, flexibly to maximize the profit with that kind of risk.
Fourthly, the content of disclosure information must be reliable, relevance, comparable Basing on that information, the investors will value the units or trust certificate and make decision on keeping investing or withdrawing Besides, the information raises the reputation of company when it works well.
In developed country, the information will be announced on financial news. The financial news updates information daily and ranks the Investment Company which helps the investors make right decision in time.
Due to the important, difficult role of Investment Company, one Investment Company should focus on only one or two investment fund to operate most efficiently and avoid the benefit conflict among funds.
3.2.2 Suggest a proper model of Investment Company for Vietnamese stock market
In the current Vietnamese market, the reform of State corporation and implementation of WTO commitments is the priory goals In fact, to enhance the active development of capital and financial investment sector in addition to banks, financial companies, corporations economy banks also need to have the Investment Company and a series of securities investment funds The Investment Company and securities investment funds have been set the stage for the development of the most powerful economic groups.
_Equity structure and leader in Securities Investment Company: percentage of equity of foreign investor is allowed to 49%, the foreign investor can hold the director and commit to participate in to law training in Vietnam The domestic investor can hold the chairman position The foreign analysts can help train Vietnamese employee about technical analysis, fundamental analysis… at the initial stage of company.
_Board of directors of Securities Investment Company: Board of directors is people who have a lot of experience in managing company The power of directors must be decided at the beginning of making contract Generally, board of directors will establish the investment policy and supervise the operation of Investment Company, they don’t intervene directly in daily activities of Investment Company.
_Board of management: they are the key to the success or failure of investment fund They must be chosen carefully, CEO shouldn’t be discriminated about nationality Dragon Capital has been successful when they believe into domestic talent CEO which helps reduce management fee of fund Notably, the management fee is usually the percentage of total fund and, thus, it is very high.
In fact, many investment funds have faced loss at the initial stage of investment fund due to too high management fee of foreign manager.
Another experience for the investment fund, CFO, also, plays important role in Investment He/she must be a talent one with a lot of experience in this field.CFO has to check the financial situation regularly of related company through financial report or public information For each company, at least one analyst is in charge of and working closely to help related company solve problem immediately.
Diagram 3.1: Structure of Investment Company
The previous model is one kind; the investment fund in Vietnam could improve and adjust it to be suitable for Vietnamese market.
R ECOMMENDATIONS TO IMPROVE THE ROLE OF I NVESTMENT
3.3.1 Recommendations to the Government to improve the role of Investment Company in Vietnam
To develop the economy, Vietnam needs the following solution:
Firstly, Vietnam should quickly eliminate the inhibitory factor of the old mechanism that is ask – give; State monopoly; State protection The old mechanism is applied in many core industries which make inefficient use of capital.
Secondly, development of market must be in accordance with a uniform schedule which base on market rule and step by step Specifically, the development of high level market (money market, capital market) must base on development of commodity market or basic market (labor, technology…) The simultaneous and proper development of each market institutions will create a favorable environment for growth of economic development.
Thirdly, raising the quality of the process of making policy, strategy is in line with market mechanisms in order to promote trade, investment and other business activities development in the right direction and high efficiency.
Fourthly, Vietnam should continue to critically reform of the State organization which includes four contents: administrative structure, the administrative apparatus, quality of human resource and public finance.
Fifthly, improve the quality of education at all levels in which education in university is the first Increasing investment and promote method in education will quickly improve the quality of human resource which serves the requirement in the future.
Sixthly, renew mechanism of scientific management - technology creates coherence of scientific activities, technology development and economic and social activities Making motivation and sufficient resources for scientific activities - technology development, will gradually increase technological innovation capability.
Seventhly, implementation of curbing the growth rate of population and the sustainable use of natural resources and ecological environment protection is necessary immediate action Besides, the Government should improve the quality of economic programs - such as social poverty alleviation, job creation, economic development programs - in areas of social and localities which have not developed.
Vietnam has to ensure the implementation of the roadmap which completes the conversion of all state companies under the Enterprise Law 2005, as well as ensure SOEs to become public trade companies
Vietnam must thoroughly understand some issues with the following principles:
First of all, Vietnam is to confirm the correct of SOE equitization but should note that equitization is not the only way to reorganize the SOEs in Vietnam. Besides, we should avoid highly evaluating the equitization, considering it is the most successful way to help companies more efficient If not, we could fall into running equitization as goal of volume We should pay attention to other aspects of SOEs such as building the corporation, leasing companies…
Secondly, the government should be extended the object of equitization, decreasing percentage owning of state in enterprises The percentage of shares held by the State in the equitization of enterprises is too high We need to gradually reduce the rate of state capital in the company stock and reduce the rate of joint- stock companies where the State holds controlling shares.
Thirdly, keep improving the legal environment to facilitate the public trade company conducting activities conveniently with high efficiency We should eliminate improper intervention of the Law of regulation institution in the internal affairs of the Company It is needed to promote the role of Board of Director under the management practices best corporate governance Equitization shoule be added to the listing on the stock market.
Fourthly, the Government must strictly follow the process of equitization in order to avoid the abuse of this one Million of billions VND has been lost, the value of asset is knowingly devalued The Government must guarantee that the process is transparency and follow the law.
In the long-term, Vietnam should modernize the market, complete the infrastructure and strictly supervise it Moreover, the domestic market should have close link with region and international one.
_Promote the bond market to be more professional, create the modern market such as derivative, securitization of loan…
_Develop Stock market in a variety of levels to meet the needs of issuance, listing and trading of various types of enterprises but still ensure that the State could manage and supervise it.
Development of intermediate institutions and market services
Increase quantity, improve operational and financial capacity of securities companies, fund management companies, securities investment companies The
Government should support intermediate institutions to have diversified service and well as improve the quality of each ones.
Establish independent credit rating institution in Vietnam and second the foreign one to operate in Vietnam.
Develop the investment system into domestic market and foreign market. Encourage professional investment institutions (Banks, Securities, Insurance ) to invest in the market Diversify the types of investment funds to attract investors to participate in investment, encourage the establishment of long- term investment funds of foreign investor in Vietnam.
Improve the capacity of management, supervision of Government
Complete the law system of supervision to meet the requirements of regional and international integration Apply the standard market surveillance under international rules, promote supervision-inspection any participants of market, any participants who don’t follow the law will be forced.
3.3.2 Recommendations to the regulation institutions to improve the role of Investment Company in Vietnam
In order to develop the stock market and make it become efficient capital mobilization channel in long-term, regulation institutions could follow some recommendations:
Complete the guiding document of implementing Law, Decrees and other business processes for managing and executing stock market Organize training period and disseminate the Securities Act guidelines Handle any issues related to
Setting the proper fee to participants in the market, closely work with SBV to supervise the modern financial instruments.
Strengthen the management activities of goods in the market
Help companies IOP or issue new shares and strictly follow Securities Law. Accelerate the equitization of SOEs.
Manage and improve the activities of intermediate institution Support the security companies and Investment Company to have convenient enviroment.
Grant the business license or certificate of securities to make sure intermediate institutions follow the law.
Build a monitoring mechanism of direct investment, especially from investment fund Unify the management of representative office, and the way of report to the representative office.