At first glance it may seem strange for a fund, focused almost exclusively on investments in Vietnam, to seek a home on the London Stock Exchange.
London is some 6,300 miles from Ho Chi Minh City but as one of the world’s most international exchanges listing myriad closed ended funds, it offers an almost unparalleled opportunity for Dragon Capital’s flagship fund, Vietnam Enterprise Investments Limited (VEIL), to continue its development.
Launched over 20 years ago with assets of $16 million, VEIL was the first-ever Vietnamese closed-ended fund. Today it has assets of over $800 million and provides exposure to a portfolio of Vietnamese equities, approximately half of which are at their foreign ownership limits and are otherwise difficult for foreign investors to access. For Dragon Capital, coming to London made perfect sense.
We could bring a unique investment proposition, providing easy access to the Vietnamese growth opportunity, to a sophisticated investor audience within a market governed by stringent regulation and governance requirements (the lack of which remains a charge often levelled at emerging and frontier investment opportunities.)
Whilst London would seem to be a logical choice to us, the decision was made after thorough research into the alternatives. Many other markets offer significant opportunity - the fund has been listed in Ireland since inception - but in the end, the LSE’s preeminent position as the “go to” market for closed-ended funds was the deciding factor.
There are over 400 such funds listed there, where they benefit from a long tradition in the UK. Both investors and regulators there fully understand the nature of these funds, unlike other exchanges, and the liquidity of premium listings in the LSE’s main market is substantially better.
In addition to the global reputation of the LSE, the prospect of being included in the All Share index and perhaps soon being large enough to qualify for the FTSE 250 were also compelling arguments. Being on the cusp of the FTSE 250 gives us something to aim for, with the ultimate prize being the inevitable inflows that would be generated from the large number of tracker funds should we achieve the requisite size and scale.
That would give support to the share price through on-going demand and narrow the current discount to NAV. Changing from quoting in $ to GBP would be necessary, but that would not have a significant impact on the day-to-day operations or accounting.
Daily valuations, being GBP-quoted, and having no incentive fee should also attract UK retail and HNW investors, giving them an opportunity to invest in the Vietnam story which up until now has been the domain of the long-underperforming ETFs. Gaining more shareholders and increasing liquidity will go a long way towards managing VEIL’s discount, which currently provides significant opportunity on the upside.
With a young population and an economy increasingly seen as “China’s China”, Vietnam presents a compelling proposition. Finding the right portfolio management team and fund, however, is critical to effectively harness the opportunity. In an LSE-listed VEIL, with its portfolio management team who have been together for the last 15 years, we feel we have the solution.
Dominic Scriven OBE (pictured) is the executive chairman of Dragon Capital