VIETNAM<br/>Still a frontier

Often referred to as a frontier market, Vietnam continues to pose challenges to private equity investors. After receiving increasing attention from institutional investors in the couple of years leading to the onset of the global financial crisis, the country was hard hit post-Lehman.

Many foreign investors rushed capital out of Vietnam as quickly as it had arrived in the years preceding the crisis. The country's stock market was not immune to the effects of the turmoil and duly plummeted.

However, the government acted swiftly to stabilise the country's economy with a stimulus programme at the end of 2008. The stimulus bolstered the public market – the Ho Chi Minh Stock Exchange has surged by more than 150 percent to 609 points since reaching a low in February this year.

In recent weeks, Vietnam fund managers have shown they are willing to test the waters by entering the market for new funds, reflecting increased confidence in the private equity community.

Ho Chin Minh-headquartered Mekong Capital, for instance, is currently in the market for Mekong Enterprise Fund III, which is targeting commitments of $150 million and a final close in nine to 12 months.

First-time manager Vietnam Pioneer Partners has also begun raising capital for its debut fund targeting commitments of $100 million and a first close by the first quarter of 2010.

Saigon Asset Management, also a Ho Chi Minh City-based private equity and real estate firm, is poised to launch follow-ups to its private equity and real estate funds in the near future and has appointed a chief investment officer to help facilitate its plans.

However, a few concerns remain – chief of which is the lack of exit opportunities. There are few strategic buyers for Vietnamese assets presently. Vietnam is dwarfed by China, its northern neighbour, and most non-Vietnamese strategic investors see investing in China as a more viable proposition.

The IPO route, meanwhile, is fraught with uncertainty as the country's public market is prone to sharp fluctuations. From March 2007 to February 2009, for instance, the Ho Chi Minh index plunged from 1,107 points to just 235.5 points before climbing again.

Furthermore, the state still plays a crucial role in the Vietnamese economy and there are very few established private companies.