Investment funds face capital mobilisation pressure

VNStockNews.com - All foreign investment fund management companies in Vietnam are mapping out plans to mobilise capital for establishment of new investment funds. However, in the current context, in order to have successful capital mobilisation, they have to overcome two big challenges.

Firstly, they have to convince investors about their dominant effectiveness in business activities against Exchange Traded Funds (ETFs).

Secondly, they have to solve problems on market price of fund certificates that are being traded lower than net asset value (NAV).

Exchange-Traded Funds, or ETFs, are index funds that trade just like stocks on major stock exchanges. ETFs are the most practical vehicle helping the investor focus on what is most important and choice of assets classes. ETFs often choose some representative share codes for the VN Index to invest. ETFs' leader can makes order decision from foreign countries like the US or Singapore.
Dominic Scriven, Dragon Capital's general director said that distance investment funds operating base on the fluctuation of the VN Index can attain a high growth in a short time. Meanwhile, investment funds in Vietnam such as closed funds with their own structure features, can not gain efficiency in short time like distance funds.

At present, investment funds in Vietnam are pumping capital not only in listed shares but also in non-listed shares including shares of state equitised enterprises. The value of these investments does not depend on the fluctuation of the VN Index monthly.

According to Nguyen The Lu, SAM's general director, the biggest challenge for funds when raising capital is that they have to persuade investors that they will make more effective investments than ETFs. While ETFs collect a very cheap fee of by 0.1 percent of fund value each year, closed fund management companies collect 0.2 percent plus 20 percent of profit exceeding the minimum committed profit of 8 percent.

Currently, two ETFs investing in Vietnam are VanEck in the US's New York with a total investment of some $70 million and Deutsche Bank in Singapore with a total investment of some $20 million. These ETFs are attracting foreign investors' interest thanks to attractive profit ratio when making investments according to the VN Index and collecting low fee.

"Domestic funds are able to totally do this because we know clearly about enterprises. Our strategy is to seek realty firms with large land fund and make investments since the price is low to gain high profit when these firms carry out projects. Meanwhile, ETFs can earn a maximum profit of 70 percent when the VN Index increases 50 percent" said Lu.

Although domestic investment funds have more advantages in increasing effectiveness of long term investments than ETFs, according to Dominic, in order to attract more capital sources for new funds, the most important problem as for funds not only in Vietnam but also in the world to overcome is that price of fund certificate is always lower than NAV. Investors always wonder why we have to spend money on new funds while we can buy fund certificates with lower price than NAV of these funds in the market.

At present, funds find their own ideas for their new capital mobilisation plans. In particular, VinaCapital raises more capital to invest in real estate projects, Dragon Capital seeks capital for its energy fund and SAM mobilises capital for smart investment fund.

Lu added, after the Lunar New Year, SAM will have a talk with global investors to mobilise capital.