Exclusive: Mekong launches $150m Vietnam fund

The firm has started fundraising for its fourth vehicle after an exit from MobileWorld.

Vietnam-focused private equity firm Mekong Capital has launched its fourth country vehicle, which has a target and hard cap of $150 million, a source with direct knowledge of the matter told Private Equity International.  

The fund, which will invest in consumer businesses, has two confirmed anchor investors, committing a combined minimum of $40 million, with a third potential anchor considering committing about $30 million, the source said.

Chris Freund and Chad Ovel will embark on the fund’s roadshow in May, expecting a first close soon after, given the interest in the fund. Mekong currently has 50 LPs, largely family offices in the US, and is anticipating a high re-up rate from existing investors.

The new vehicle, Mekong Enterprise Fund III, is actually the firm’s fourth private equity vehicle, but its predecessor, the Vietnam Azalea Fund, had focused on pre-IPO plays in the country.

The firm has now reverted to its original strategy of investing with a traditional private equity model, although has a more focused strategy than Mekong Enterprise Funds I and II.

It will target mostly retail or packaged consumer products businesses that are owned by entrepreneurs or were formerly state-owned. Mekong’s previous funds have spanned across a number of sectors, with Fund I widely exposed to manufacturing.

The fund will also avoid investing in family-owned businesses in Vietnam, which have been Mekong’s worst performing assets historically, PEI’s source explained.

While Vietnam has previously experienced issues with corruption and macroeconomic volatility, the withdrawal of investors has now opened the market up for local players.

“There hasn’t been much capital raised for funds for quite a long time so it is very uncompetitive. Mekong focuses on a deal size smaller than what the global funds are willing to do – with a sweet spot between $8 and $15 million,” the source said.

He added that due to a trade surplus, largely driven by the vast quantity of mobile devices produced in Vietnam and exported by Samsung, the Vietnamese dong has stabilised.

“[It] has been the second most stable currency in Asia over the last two years, second only to China's [RMB]. For many years there was a trade deficit and they had to keep devaluing because there was a shortage of US dollars. Now it is the opposite and the foreign exchange reserves keep growing and inflation is coming in below target.”

Aside from macroeconomic indicators picking up, Mekong has also demonstrated that attractive private equity returns can be delivered by Vietnam-focused firms.

Last week, Mekong said it had gained a 21.8x return from a partial exit of its investment in MobileWorld, a mobile phone carrier known locally as TheGioDiDong, PEI reported earlier. The firm sold 9 percent of the company via an IPO but remains a shareholder.