VinaCapital Vietnam Opportunity Fund (VOF), the lowest rated of three London-listed Vietnam funds, has reduced its annual management charge by 23% and improved the terms of the performance fee arrangement with fund manager VinaCapital.
From 1 July, the management fee that VOF pays VinaCapital Investment Management for running the $930m portfolio will reduce from 1.3% of net assets with a new tier of 1.2% up to $500m and 0.8% from $500m to $1.5bn.
That will produce a blended rate of 1%, a saving of 0.3%, the company stated.
A third tier of 0.5%, down from 0.75%, will apply if assets grow beyond $1.5bn.
In addition, the current 10% performance fee VinaCapital receives on any annual increase in net asset value (NAV) over a 10% hurdle has been scrapped.
From this week, over a four-year transition, VOF’s performance will be measured against the FTSE Vietnam All-Share index which is viewed as better than the VN Index benchmark from the Ho Chi Minh City Stock Exchange that the investment company has used.
Based on market capitalisation, the VN Index has been dominated by conglomerates such as Vingroup, banks and companies where the state and/or founders have large stakes. The FTSE benchmark solves the problem of over concentration by being based on free float, or the amount of shares in companies that are actually available to trade.
VinaCapital will earn three basis points (0.03%) for every 100 basis points (1%) of outperformance against the FTSE Vietnam All-Share over five-year periods. Fees will be clawed back at the same rate up to a maximum of 0.2% of NAV if Vincapital’s returns fall behind the index.
In addition, there will be no carry forward of performance fees when they exceed 1.5% of NAV. A new cap will ensure the total of base and performance fees cannot exceed 2.5% of net assets.
Portfolio manager Khanh Vu, who was appointed early last year following the death of chief investment officer Andy Ho, said: “The market-based benchmark is designed to give shareholders a clearer way to assess VOF’s ability to generate excess returns over the long term. With our long-term annualised returns of 11% in USD total return terms, VOF has historically outperformed the market-based benchmark in every market decline over the past 10 years.”
Recent performance has been less impressive, however, with 15% and 12% total investment returns over three and five years that mostly lag rivals Vietnam Enterprise (VEIL) and Vietnam Holding (VNH). VOF shares stand 19.6% below NAV compared to narrower 14.6% and 9.4% discounts on VEIL and VNH, despite returning $880m through dividends and share buybacks in the past 15 years.
Vu said: “Our stakeholders have been very clear: investment performance needs to improve, and the discount needs to narrow. We are responding with a sharper focus on high performance, and a clearer internal structure with disciplined execution on research, fundamental analysis, due diligence and risk management.”
As part of this, Ho Chi Minh-based Vincapital has reorganised its investment team around the country’s core sectors and hired five executives to improve deal sourcing, origination and active portfolio management.
Vu said this was producing results with the team achieving attractive valuations on $430m of disposals of public and private equity holdings in the past year alongside $365m of new investments in pre-flotation transactions and privately negotiated public-market investments.
Significant progress had been made on restructuring illiquid legacy investments which currently account for 11.5% of assets and would not be increased until further returns and recovery had been demonstrated, Vu said.
Our view
QuotedData senior analyst Matthew Read said: “VOF’s board and manager have clearly got the message that shareholders want better performance and a narrower discount. The revised fee structure is welcome: it cuts the effective base fee by around 30bps, lowers the overall fee cap and, importantly, ties any performance fee to long-term relative returns against a more relevant Vietnam equity benchmark. The clawback mechanism and removal of carried-forward performance fees also improve alignment. However, the discount is unlikely to fix itself without stronger performance – VOF is the poorest performer of the Vietnamese equity funds over three years – and shareholders will need to see evidence that Khanh Vu’s reorganisation of the investment team and refocusing of the portfolio translate to an improvement in NAV performance.”
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