VinaCapital Vietnam Opportunity Fund Limited (VOF) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the VinaCapital investor presentation. [Operator Instructions] The company may not be in a position to answer every question they receive during today's meeting, however the company can review all questions submitted today, and we'll publish those responses where as appropriate to do so. Before we begin, we would like to submit the following poll. And I'm sure the company will be most grateful for your participation. I'd now like to hand over to Eric Levinson, Head of Business Development.

Good afternoon. My name is Eric Levinson with VinaCapital, and we're excited to present today for the Investor Meet company presentation. Today, our agenda is as follows: I'll do a quick introduction to VinaCapital. We then have Michael Kokalari, our Chief Economist, present the opportunity in Vietnam and the economy. And then finally, Khanh Vu, our Portfolio Manager of the Vietnam Opportunity Fund, will talk about how we invest in Vietnam to really take advantage of the great opportunities with the growing economy. Now first, a quick introduction to VinaCapital. We've been invested in Vietnam for over 21 years. We currently manage about $3.7 billion. And it's interesting here, we're unique in Vietnam that we have about 200 professionals and we have multi-asset class platform. We manage equities, fixed income, private equity, venture capital, real estate, energy and carbon. And we mentioned that because what it does is we have a very collaborative team. And so even though today, Khanh will talk about what the Vietnam Opportunity Fund does in both private equity and equity, the fact that we manage all of the other asset classes in each of those asset classes have dedicated teams gives me the capital additional insights, additional information to ultimately make the best decisions for the Vietnam Opportunity Fund. So with that, I'm going to turn the call over to Mr. Michael Kokalari, who will introduce you to the Vietnam economy.

Thanks, Eric. Okay. So I think a lot of you will have heard about the buzz that's happening in Vietnam, peripherally in the newspaper pops up and some newspaper articles occasionally. And what I want to do is to start by giving kind of the main snapshots what we think are kind of the main things that investors should be aware of because again, the awareness that a lot of people have in -- particularly in Europe is sort of periphery awareness. Like, oh, yes, that country is buzzing but what is it all about? So the main points of what it's about, first and foremost, is the demographics. You might be surprised to know that Vietnam is 100 million people. And the age is very young. It's a very young demographics, Vietnam and probably India are, I would say, 2 of the countries in the world that have really the best demographics. The other thing that's been happening for years in Vietnam, I've been here for almost 20 years. And the chart over here on the right, you can see that the proportion of Vietnam's exports that are high-tech products, has really skyrocketed over that time as companies like Intel, Samsung, et cetera, move more and more of their production of electronics, smartphones and other high-tech products here. So this is a key part of the story. The FDI keeps flowing into the country. And particularly, FDI is flowing into the production of high-tech products. So these are 2 of the first key points of what Vietnam is all about. And another really important point is that Vietnam is 1 of the countries in the world that's kind of in a very unique position in that -- they have very good relations with the whole China, sort of orbit -- BRICS orbit of countries and also with the U.S. sort of friend shoring orbit of countries. And that helps to explain a couple of things. First of all, it helps to explain why I don't think that Vietnam is going to be targeted by Trump, and that's a big topic for this week that we'll come back to in a second, but it also explains why Vietnam was such a big beneficiary of the first trade war between U.S. and China. In fact, I would say, Mexico and Vietnam, or really the 2 countries that benefited the most during Trump 1.0. And the last topic to -- sort of a broad overview to introduce to you the key points about Vietnam is that the government here is very pro-growth oriented, and there are also very pro-stability. When we think about emerging markets, investing in emerging markets, you think about big up and down with inflation and currency and all those kind of things. But the government here has recognized that by having a very stable macroeconomic environment, they make it very suitable place for foreign investors, in particular, to put their money here. They want to encourage that. One little snippet I would tell you is that during the post-COVID period, when inflation in places like the U.K. and the U.S. went up to like almost double digits, inflation in Vietnam was very well controlled, something like around 4% or something like that. So that's sort of the overall picture of the country. And now I'll go a little bit more into details. This chart here is how we think about the long-term growth of Vietnam. It's got these 3 elements to the story. And the first is that right now in Vietnam, the manufacturing is about 25% of GDP. And when you look at the other agent tigers, like Japan, Taiwan, et cetera, manufacturing went up to 30% -- even 30-plus percent of GDP. So just that alone means that we have a long way to go with just more build-out of the industrial base here of the manufacturing facilities. Vietnam is following what's called the East Asian development model. This is the same development model that all the Asian tigers followed. So we're on that -- we're following the same growth model. India, which I think is a country that has a lot of wonderful things from an investment point of view is not following this East Asian development model. So they have a different approach than we have. Vietnam is the only one that's following this approach. And that's the only sort of guaranteed way that has been repeated over and over that the Asian countries were able to get rich quickly, basically. So that's the core. Now when this industrialization is happening and the factories are hiring more and more workers, that's helping to boost the middle class. So you have the factory wages, people move from the farm to the factory and also the urbanization right now, about 40% of the people live in the cities, and they moved from the farm to factory to get these factory jobs. So this is kind of a core part of the story. And then I mentioned that with Vietnam's kind of unique -- they call it bamboo diplomacy here, like the bamboo tree that kind of sways in the wind. So Vietnam's government has been very savvy to sort of state friends with everyone. And that helps to make sure that these investment flows keep coming to the country. That coupled with the macro stability, the focus on stability that I mentioned before. So this is kind of the core of the story. Regarding the middle class, we look at this kind of recipe and some of these I've already mentioned. These are sort of recipes for the formation of a very rapidly growing middle class in Vietnam. One of the things that I didn't mention yet is that Vietnam has a very, very high female labor participation rate. So we're really using the -- getting the full utilization of the workforce here, which you don't see in a lot of places in Asia. So you can see the workforce participation rates like almost the Sweden level, above U.K., by the way. So that's another component of the whole emerging middle-class story. And next, I want to talk about something that's very topical, very in the news right now is what to expect with under Trump 2.0 and Vietnam. Now Vietnam does have a very large trade surplus with the U.S. I mentioned back here at the beginning slide, you can see that this is the exports or from the U.S. point of view imports. China's -- the amount of stuff that the U.S. imported from China plunge and then you can see Vietnam was one of the -- Mexico is not on here. We just have Asia only. But Vietnam, Mexico were the 2 biggest beneficiaries. So given that success story, now some people are saying, okay, but there's a lot of newspaper articles saying, well, Vietnam will get targeted by Trump in this -- what's coming up. And our answer to that is that the reality is that the U.S. is now in a position where they really need Vietnam. There's a lot of newspaper headlines. You can read about that topic. And that have affected, let's say, emerging markets in general. But our -- here's a couple of key points we want to make here. The first is that this is from the U.S. point of view. The U.S. imports an enormous proportion of many consumer products that are made here in Vietnam. So consumer electronics, 95% is imported to the U.S. The idea that the U.S. can reassure the production, which is kind of Trump's sort of stated -- one of his stated targets is that he wants to get factories to move back to the U.S. tariffs to encourage that and also some other more complicated dynamics involving tariffs and the value of the U.S. dollar, and what people are now calling the Mar-a-Lago Accord or the Plaza Accord 2.0, some people refer to it. But the core point here is that from a U.S. point of view, they need to buy these products from somewhere. And we see really 3 reasons why we don't expect Trump to really put onerous tariffs on Vietnam, despite the fact that we have a big trade surplus with the U.S. So it's against the U.S. economic interest. I just showed on the last slide, how much of the type of products that we make here are imported. So if you not -- if you don't want to purchase them from China, let's say, like #2 here, or you don't want to purchase them from Mexico or other countries, you've got to buy them from somewhere. And we do have very, very good relations with the U.S. And that's the second point. And the third point is that while to put it very candidly, Trump's own family is doing some economics -- has some economic interest in this country, and I'll come back to that in a second. So these are kind of 3 main reasons that we don't think that Vietnam is going to get targeted. And I'm mentioning that because it's very much in the news this week. So this idea of -- from national security point of view, you see more and more articles on -- these are from very kind of famous publications. Foreign policy is a very important publication that a lot of policymakers in Washington, D.C. either contribute to or read. So we should really pay attention to what we see in these type of publications. The policymakers are sort of signaling to you what their focus is. And again, the 2 biggest beneficiaries during Trump 1.0 was Vietnam and Mexico. And what you can see here is it's not going to -- Mexico is not going to benefit this time around. Okay. Trump's family is involved or his company -- his extended company is involved in a very big real estate development project here. And all that came up sort of around the time of the election. So I think the right way to think about this is that there's sort of an alignment of the interest of his own personal interest, his on family-centric, economic interest and for things in Vietnam to do well. And so we kind of -- I don't want to get into a whole political sort of commentary, but we know from all those years of Trump, both when he was a business leader and the last presidency, we know kind of what the things that motivate him. And so I think this is 1 thing that makes me feel quite comfortable that it's not going to do anything that would really economically harm Vietnam. More reasons. I think this -- some of the headlines I have here are important because you see that the Vietnamese government has really taken a lot of steps to try to engage with the U.S. administration to try to engage with the people around Donald Trump to what steps can we do to make sure that we're not going to be get targeted? And I mentioned before, we have a very large trade surplus, about $120 billion. I think it's the third biggest -- depending on how you count it. It's basically the third biggest from a country point of view, trade surplus with the U.S. And so there's a lot of discussion now about buying more aircraft engines -- Vietnam buying more aircraft engines, buying more LNG, this kind of stuff to shrink that trade deficit that the U.S. has with Vietnam. So the Vietnamese have been very proactive in trying to do whatever it takes to sort of remain on Trump's good side. By the way, I know I'm kind of really belaboring this point about the tariff thing, but this is like the only thing people ask us about these days. I mean we get asked about this really constantly. Another thing I would point out is that there were -- you can read some newspaper articles about the risk that exports from China to the U.S. are kind of flowing through Vietnam. So there was some concern, what if -- I mentioned before that a lot of factories have moved both from China and from other countries moved here to produce products that we export to the U.S. And there was some newspaper articles talking about this idea, like was there a risk that the Trump administration would clamp down because exports are just sort of flowing through Vietnam. They stick a Made in Vietnam stamp on it and then they go off to the U.S. And so here's a study from Harvard University, a couple of months ago, talking about the idea that there's actually not a big risk for that in Vietnam. The Vietnamese authorities have really clamped down on all -- any kind of a transshipment type risk, because they want to keep the good relations with the U.S. Okay. Next, I want to talk a little bit about what's going on in the economy this year, and it actually links quite nicely into what my colleague, Khanh Vu, is going to talk about the investment environment. Because what happened in Vietnam. And this -- it has nothing to do with the Trump story or tariffs or any of that kind of stuff. What's happening right now in Vietnam is that last year, 2024, was an amazing year for Vietnam's exports to the U.S. So our high-tech exports to the U.S. were up almost 40%, 4-0 percent. Our overall exports were up huge, like more than 20%. It actually didn't have anything to do with Trump and tariffs. I know that in some other countries in Asia, they saw sort of a burst in exports to the U.S. because they were afraid -- companies were afraid that, what if the products I want to buy from Asia are going to get tariffs. Let me try to import them. That happened with China a lot, by the way. That's not what the story was in Vietnam last year. It was just a kind of quirky confluence of -- when we look at the details of those big companies like Nike, Walmart, what's happening with their inventory cycle. So their inventory cycles sometimes go up and down. And it just so happened that last year was a year that they were rebuilding their inventories and also there's some demand for high-tech products because of all the interest in AI, people are upgrading their laptop, computers, this kind of thing. So we had a big surge in exports to the U.S. last year, and that's kind of flattening out this year, not dropping off a cliff, but just sort of normalizing. Coming back to -- I mentioned last year, our exports to the U.S. was around 20-plus percent, maybe this year it will be high single digits, 8%, 9%, something like that. So that story that boosted the GDP last year is sort of flattening out. And instead, what's picking up the slack is domestic driven growth. So this is things think about like real estate development, think about infrastructure spending. The government recently announced plans to increase infrastructure spending in Vietnam by almost 40%, 4-0 percent. We had a new subway open here in Ho Chi Minh City where we're located. And that's kind of built a lot of momentum in both the civil servants and also among the population that there's a lot of enthusiasm for further infrastructure spending. The government finances are actually in really good shape. And those projects had previously been held up for a couple of different reasons. And now all those blockades are sort of getting out of the way. And you're going to see a lot more of that and also a lot more real estate development. I think right now, the real estate market has been kind of bumbling along for the last couple of years, and we could talk more about the details of that. The demand for real estate in Vietnam outstrip supply, I'm talking about housing units for sort of normal middle-class people, outstrips supply by a factor of 2:1. So it's a very, very different story than in China, where they overbuilt, and now they have lots of vacancy. We don't have that. We had other issues that were kind of clamping down on the real estate market -- had to do with liquidity and project zoning and approvals and that kind of stuff. And those things are all being fixed now. So I think by the end of this year, you'll see a booming real estate market in Vietnam and that will make consumers feel more confident to spend money. So what we're exactly expecting for this year, 2025, is a pretty big pickup. And I have -- I call it here real retail sales, retail sales stripping on inflation. This is kind of the best proxy for light consumption. So a pretty big noticeable pickup in consumption and then kind of a flattening out of the manufacturing. And that's again because most of the stuff we manufacture here, we export, particularly the U.S. is our biggest export market. So that whole story is kind of flattening out. But the key thing that I want to point out here, and so my colleague, Khanh Vu, we call K.V., he is going to go through this in more detail in a minute, is that, when the growth shifts to more domestic -- domestic-driven growth, this is actually very good news for investors. Sure, when we export a lot of stuff, it's great for the overall economy, and they hire workers and those workers spend money. But most of those companies are Korean or American or something like that. So now we're coming into this domestically driven growth phase, particularly this year, and that's going to be really good for -- present a lot of investment opportunities, both in the listed equity and the private equity. So I'm going to bring up now our K.V., who is the Head of the VOF fund here, who's going to talk about that.

Thanks, Mike. Thank you very much for that. Well, good morning to our viewers from the U.K., and thank you again for joining us on this Investor Meet Company presentation. You've heard Mike talk about the Vietnam economy. And I think that's very important to reflect on what is driving our investment decisions because it's all about the economy when you look at Vietnam. Remember that Mike talked about that very simple framework that 1 would add that triangle that shows you the industrial and the industrialization of Vietnam, manufacturing, exports, the demographics, that 100 million population that's rising, that an emerging middle-income class. And then importantly, the geopolitics and the stability of that politics, the friendshoring, those elements together very much created a very strong domestic environment for us to invest in. And so if you think about VOF, we've been doing this since 2003 when we founded the firm. Today, the Fund is a FTSE 250 listed investment company, which means that we're 1 of the few Vietnamese companies actually listed in London on the FTSE -- and the FTSE 250 constituent. Today, we manage about just over GBP 870 million. When we started this, I think we started initially with just GBP 10 million. And so over the years, through the investments that we've made in this Fund over GBP 200 million, as well as the exits that we've made, we've been able to generate significant returns. And we're going to talk a little bit about that power of returns, the power of compounding that performance in the next few slides. When we look at the opportunities here in the market, we're looking for businesses that deliver that stable compound growth. We're underwriting our investments between 15% to 20% return. And that's very much important because it reflects at its core, strong macro fundamentals, then importantly, companies that are able to deliver good, strong returns over that period of time. And another very important feature of this Fund is that consistent return of capital to our investors through the form of buybacks and importantly, through dividends. And again, we'll briefly discuss that. So you hear us talk when we think about VOF, we're a fund that very much focuses on sectors that benefit from this rapidly growing domestic economy. We talk about these principles of private equity because the Vietnamese market is still very much a market where there are plenty of opportunities in private companies through the processes where companies go from private to public. And again, that's where we have been able to identify and continue to identify tremendous amounts of opportunity. And then, of course, the conviction is very important. So if you look at our portfolio today, we've got about 25 holdings only within that GBP 870 million under management. So this slide sort of shows you a very interesting point of time. And that's really from COVID or post-COVID through today because very much we're in this cycle. And within those 5 years, we've seen that this Fund, we've been able to deliver a 67% return to our investors over that period of time. That translates to about 11% annualized returns over that 5-year period. You think about the index. It's no measure on a benchmark to the Fund, but it does serve as a useful reference for many investors, that's delivered less than half of that. So again, through the companies we've invested that the conviction, the quality of earnings growth, we've been able to deliver very strong performance. And particularly, if you think about what's happened over that 5-year period post-COVID. And therefore, what we do is, we also give you this idea that the volatility of our returns, you want to be investing in a market here in Vietnam, where you're not subject to the ups and downs of wild swings of volatility through the stock market, and the way that we construct our portfolio allows us to give a much lower volatility, and that translates to sort of this technical term, the sharp ratio being quite high. High returns, low volatility gives you a high sharp ratio. So one of the points that I made earlier is this return of capital to our investors. Over that period of time, the NAV has grown 67%, the share price has also grown. So that's obviously one way that we return performance to our investors. The other ways we do is through a buyback program. And last calendar year, we returned almost GBP 60 million. We bought back almost GBP 60 million in shares to our investors over that period of time. That's a little higher than normal. Last year represented just over 8% of our issued capital. We generally run between 4% to 5%. But given the wider discount that we're currently trading, we felt that it was important for us to be a lot more visible to step in during those periods of volatility where that discount has widened. Importantly, the dividend program that we've initiated since 2017, that's been going on. That continues to pay a 2% yield, about [ 2.45% ] on share price to investors twice a year, investors get a check in the mail for the dividends that are generated from the income from companies in this portfolio that we manage. I think importantly, that consistent return of capital has meant that since 2011, when we started the buybacks, 2017, when we started the dividend, we've returned over GBP 530 million to investors. I think the next slide here shows you really that power of investing in good companies and the power of compounding. So in 2011, when we started the buybacks, if you think we're coming out of the global financial crisis, the fund itself, we had just over -- just under GBP 460 million under management. Over that 14-year period, we've been able to generate almost GBP 1 billion in returns. And from those returns, we've given back to shareholders GBP 530 million, more than what we even started with at the site of the buybacks. So that power of investing in companies, good companies, the power of compounding and then that return of capital is again a very important feature of how we invest and how we think about returning to our shareholders. Now why is that possible? And I think if you think about how Vietnam's -- the earnings growth of corporates in Vietnam, both public, which is on this slide as well as in private companies, what we find is that Vietnamese companies are delivering a consistent average earnings growth much higher than the peers in the region. And for that, you're getting it at a valuation that is still actually relatively cheaper or lower than the valuations for regional markets. So that's sort of 1 of the attractiveness of the Vietnamese market, that, that we're getting strong earnings growth at very fair prices. So if you think about how we look at the sectors, that domestic economy theme that Mike talked about earlier, very much it surrounds itself around these 4 main sectors, financials, banks, nonbanks. Financials are a great way to access the GDP of a growing economy. And so therefore it's of no surprise that financials represent the largest allocation of our Fund, just over 20%. Real estate, you heard Mike talk about this real estate recovery that's beginning to show signs of green shoots, both in the north and the south of the country. Real estate, again, represents a large allocation in our portfolio, about 20%. The consumer, again, is a very important aspect. And with the -- that strong retail growth that Mike has been talking about and importantly, the consistent growth in retail consumption, it's no surprise that consumer staples, consumer discretionary make up around about 15% of the fund. And then if you think about -- you add health care to that, specifically hospitals, and the clinics, we are 1 of the largest investors in healthcare in the country through the private equity allocation in this portfolio. That actually brings consumer and healthcare to be the largest allocation in this Fund at over 23%. And then finally, industrialization and technology are very important themes. We've actually been invested in technology for some time now. And again, it represents quite an important aspect of that portfolio. If you think about these 4 sectors combined, they make up almost 90% of our portfolio allocation. So today, if you think about how the Fund is invested, about 80% of the holdings that we have are in publicly listed companies, and then about 20% in private. If you think about how we've invested into many of these public companies, in fact, we've entered them when they were private. And that's a very important feature of this. Being here on the ground here in Vietnam, we're able to identify, access, do the due diligence, invest and grow in some very high-quality private companies. And in some instances, these private companies make very good transitions towards being public companies. And on the top 10 this tier of our holdings, you can see within that there are several examples where we've invested into companies when they were private, sometimes many years ago, they've become public companies, they still demonstrate very strong growth and we remain invested. We also have, within that top 10, examples where we've invested into private companies. Number 6, number 9 are examples of the healthcare investments that we talked about a little earlier. And then if you just take 1 or 2 examples of this power of compounding, this power of investing to good companies with good management and then holding on to them for a long period of time. Hoa Phat is an example where they're the leading steel company in the country. We've invested in this company for 18 years. When we invested into them, they were actually outside of the top 10. Today, they're the #1 steel company with over 35% market share, almost USD 7 billion in market cap. We've generated over that 18 years almost a 20% return, that's like 20% every year for 18 years. We've made over 5x our investment. The important thing here is, as we've seen Hoa Phat grow, the share price perform. We've actually trimmed our holdings in Hoa Phat, and we've taken some of that money to reinvest into other opportunities. But again, holding on to good quality companies, growing with them over a period of time, this is this power of compounding. Another example is FPT. FPT is the leading technology company in Vietnam. They actually -- their core business is around software outsourcing. Only recently has this AI trend taken hold, and they've been certainly a beneficiary of that through their data centers and AI investments. We invested in them 8 years ago. Today, they're an $8 billion company. Over those 8 years, they've generated almost 34% annualized return for us and the multiple invested capital over 3x. Once again, holding on to good companies, investing into them and of course, the sale discipline. So of course, as FPT here has performed very strongly last year, up over 70% in share price, we've used that opportunity to trim some of that holdings and to reinvest into other opportunities. So I'll end here in terms of the presentation on the Fund. We're going to open it now to a Q&A session where Eric, Mike and myself will open ourselves to questions and answers from the audience. Thank you.

A couple of questions have come in. So I've got the iPad here. And so if you do have a question, please type it in. We'll go to the first 1 that came in regarding the buyback policy. In fact, Khanh, there's 2 questions that came in, so I'll combine them. Given that asset value per share has increased but the share prices decreased, how does the Board evaluate the effectiveness of the buyback strategy? Combine that with -- just explain the buyback policy, the discount [ persists ], do you expect to keep buying back? Does it get more aggressive? Does it get less aggressive? Is there a limit?

Well, thank you. And there's quite a few questions packed into that. I'll try to address each of those. With regards to the buyback, I think what's important to realize of the buyback is that it is there, it is present. And it is present during periods of volatility, in particular, in the last year, we've seen many U.K. investment for us suffer widening discounts. You've seen more aggressive buybacks. For us, that return of capital through the buybacks is a very important feature. And last year, because of that widening discount, we've stepped in. There is -- as a manager, our job is to both deliver on performance, return -- and there as well as return invested capital to our investors. And I think the key feature here is to be present and consistent throughout the different cycles. And last year simply was a period where things have just increased slightly more than historical. What we'd like to think it return back to normal so that we can continue to spend more of that capital back into reinvesting to good opportunities.

Thank you, Khanh. So a question came in, and this was actually pre-submitted, which is, when you look at the opportunities, what are the biggest opportunities in Vietnam from an investment standpoint? And are these ones that are recognized? Or are there other opportunities that are kind of undervalued or underappreciated? And maybe because VOF does both private equity and public equity, I don't know if maybe you can talk about either asset class.

I'm sorry, in terms of the...

Investment opportunities in Vietnam, are they all recognized? What is the most attractive today?

Look, I think when we look at the opportunity set, I always come back to Mike's framework. It is an economy that experience of immense and tremendous opportunity for growth. There's a chart that I saw recently a couple of weeks ago from a very large global investor that looked at what happens to economies when they reach about USD 4,000 per GDP per capita. What happens to GDP in the 10 years subsequent to that inflection point. And what's that average GDP growth. And they looked at it within the region. I think the only outline was Thailand, which was less than 4%, but everyone else in the region was 5%, 6%, 7%, 8%. Vietnam just reached that inflection point. We're delivering, we think 7% to 8% GDP growth this year. And I think that runway for GDP growth means that there's going to be a lot more opportunities specifically as we look at around domestic companies that we're going to see the growth of many domestic industries and companies, similar to what we've seen in other markets in the region. And that's for us -- is it sort of a very wide statement? Yes.

So how do you think about that in the context, 1 of the things that we talked about and some of the audience maybe familiar with is the potential upgrade from frontier to emerging market status that goes along with people kind of -- that emerging middle class usually equates to emerging markets. Vietnam is still technically a frontier market. There's talk of FTSE upgrading that MSCI yet. What is your view on that on the timeline? How engaged have you been with the regulators in FTSE?

So first thing is we don't have the crystal ball. So in terms of the timeline, we can't sit here and say with the certainty when that will be. Now there are a lot of interesting indicators that lead us to believe that, that ascension from frontier to emerging for FTSE will be within, let's say, from now until the end of 2026. So the important thing for investors is to start positioning themselves well ahead and well in advance of that ascension. Then that's going to be a really good thing for this market to say that, oh, you are now recognized as a frontier. If you think of though, the next big leg up, is the MSCI ascension, which is an index that's covered by a lot more managers globally. And that ascension perhaps is a little further way down the road. But this first step to FTSE is a very positive sign.

So ordinarily, Michael, most of the questions are macro. I'm sorry. They're not macro, they're portfolio specifics, but just look pretty. Okay. So a couple of really good questions are coming in. So from Rob, given the recent high-profile company governance concerns, how to fund managers and particularly VOF -- insurer governance within portfolio companies has overseen. So maybe talk about kind of what we've done with our ESG questionnaire, the analytics and maybe talk about, from a governance perspective, kind of the precondition, what we do both for private holdings where we can have more impact as well as listed equities in terms of governance.

Look, governance, I mean even well before ESG became such a high focus in the lens of many investments, investing to Vietnam, governance and understanding how companies governance works is critical. And this is where being on the ground here allows us to understand, allows us to understand the risks, and allows us to put in mechanisms in place where we can address potential governance issues. So with regards to our private equity investments, prior to investing, we will do an ESG review part of the due diligence process. And within that is understanding governance transactions within the companies, within related parties, and also understanding shareholding structures. That is kind of activity there being on the ground here through our networks, in business and government were able to discover and understand much better with much high fidelity that those governance, potential governance issues. On the public equity side, our firm has a very rigid and very robust ESG review process that happens annually. That gets reported in the VinaCapital ESG report, that's available to public every year. And within that, you can see how our views are on governance within public companies.

And I'll add to that because I think it's really important that VinaCapital, we play a role in improving not only corporate governance but overall ESG practices. So we tend to be not exclusionary, but where we can actually impact change. We send out letters to CEOs and Chairmans of companies. And they oftentimes come back thanking us for the recommendations. And additionally, there are certainly companies and we will not mention them that we don't invest because of governance. So those -- in a way that you talk about how do we measure and how do we engage, if there's governance and companies we're not comfortable with, we just won't put them in the portfolio. Okay. Two questions came in from Peter. I'm going to combine these. So I'll ask them both, but I think, K.V., you can combine the answer. Could we elaborate on the rationale behind the valuation adjustments for the private equity and real estate investments during the period? And then are there plans to bring in more frequency on valuation reviews, particularly for unlisted holdings? I think those can be combined.

Yes. So I'll address the second question first, and that's a really interesting feature or movement within many private equity managers that we're seeing whereby the managers themselves maybe will come out to the market more frequently. I think Baillie Gifford, for example, have a policy of 1/4 of the portfolio every quarter.

And how often do you value them to...

So for VOF, our valuation practice is for the illiquid or private equity investments, it's twice a year, done independently by a third-party. And that's approved by the auditors and our investment committee. Now that being said, obviously, as managers, we will always look at the values of our portfolio companies. If there is a transaction impairment, we will pass those through into the valuation. Now the other important feature for VOF though, is that, the public equity portfolio makes up 80%. The illiquid private equity about 20%. We actually do a daily NAV, right? So investors, for the most part, we get a very fair and balanced picture of what -- how the -- performing through that daily NAV publication.

So is there -- are you thinking about moving to quarterly? Or do you think semiannual is still the right way to do it?

Look, I think at the moment, we are keeping a very close eye on where the industry is heading. I think having that independent view semiannually when we produce or publish our reports is important. But again, there may be space here for the manager to have an opinion. In that, if there are significant changes that are happening in the market within portfolio companies, we need to pass that through.

Perfect. Michael, a question for you.

Well, I would just add to what he said that the -- the guy who runs the valuation team is German and theoretical mathematics. There was....

We're going to manage the time well. Okay. So a question from Neil. This is a really important question for people that maybe know Vietnam a bit, but have seen the economy develop. How is the comment as part of you the positive narrative and how much capitalism will they allow? And I think, again, I'll ask it a little bit differently as well, do you actually think of the leadership as communism, maybe how do you define that?

Yes, that's a good question. This is a very, very -- this is a very dynamic, economically dynamic country, very economically dynamic. American, I would say it's much more economically dynamic than the U.S. to be blunt. So it's true that the commanding heights of the economy, there are certain parts that are still SOEs or that are government. But the bulk of the economy is really functions in a very active capitalist way, I would say.

So if you think of it this way. And there have been stated targets actually about how much the government is driving the private sector to grow. And so the question here is about how much capital will they allow, I think it's almost [ unfair ], I mean, it's 1 of those views there. I think there was a poll done in America and actually in Vietnam, and many other countries, and I think...

You want to be an entrepreneur.

These had a positive view on capitalism. I'll just share 1 anecdote and I moved here 5 years ago, and I went to a government-sponsored venture capital conference. And that was my first kind of -- wait a minute, it's communism, but the government sponsoring kind of a shark tank for entrepreneurs on technology. And so it really was a great kind of introduction to me that if you think of the economic, the Asian targets you talked about, they all were single-party systems with 5-year plans, whether it's Thailand, whether it's South Korea, whether it's Japan, whether it's Singapore, this just happens to be economists, but I think it was more as a single party as opposed to an ideology.

Yes. It's good point.

It's the pure research by what that -- where Vietnam ranks the #1, well ahead of the U.S. and U.K. in terms of your embracing propensity towards capitalism. So there you go.

And this question just came in. It ties a bit with the governance. So -- but I'll just ask it anyway. So it says what impact has corruption had on the portfolio of companies?

We have -- I think that question might be directed towards the bond crisis and the real estate crisis in 2022, whereby several private developers were arrested and then that had a knock-on effect on to the wider market. So specifically in VOF, we have not invested in into any of those companies that are involved in corruption. And I think, again, as part of our diligence, as part of the work that we do on the ground, we are very aware that there is opportunity for that here in the country, but we always look to avoid that.

But to K.V.'s point, this is 1 of those things where it happened with one company impacted the sector. We had some holdings in the sector. So we -- even if we didn't own the company, we made the right decision, there was still a spillover effect in the market overall. Okay. Here's a question. So one of the things that people talk about and if you're in the U.K. or maybe reading this about the impact of tourism now that Thailand is still in the lead for lack of a term, but Vietnam tourism, you walk around the streets, it's massive. Are there ways that the fund actually can benefit from that? Does VOF invest in companies that benefit from tourism?

So I think, Mike, before I jump into this, I mean, tourism makes up about how much of GDP?

Foreigners tourism is about 8%, 9% of GDP.

And then the indirect services industry.

If you add it all together, it's probably around 12%, 13%, 14%.

Right. So an important part -- tourism does play an important part to the economy. How we access it? We've invested in the past and took the largest domestic carrier from public to private. So we've invested into an airline, a low-cost airline business, and took them public and we exited. We also participated in the privatization of the government's airport operations. Interestingly, Vietnam has the most number of airports of any country in the Southeast Asian region. We have 22, 23 airports. And it's a monopoly operated by the Airports Corporation of Vietnam. And being on here on the ground, we're able to participate when the government privatized ACV, Airports Corporation of Vietnam, still plays a very important aspect and part of our portfolio.

So I think we were supposed to 45 minutes. So let me just -- we'll have one last question that came in earlier, and we didn't get to it. So can we discuss the potential IPO outlook of the privately held assets as well as the valuation that they're held within fair value, and I guess, the levels of leverage with each firm. And I guess maybe just talk about kind of the IPO outlook in Vietnam. So just not just for holdings because there have been very, very few IPOs in the last few years. And so I think it's probably one of the reasons that we haven't had IPOs in the portfolio as well. So I think given the broader context.

Well, that's a little bit what I sort of alluded to before that the government's finances are actually in really good shape. And I think you would need to see more of a ramp-up in the infrastructure spending. They have a bunch of money already set aside before they feel the urgency that they need to raise capital. And the other thing, too, to be very blunt is that -- and that also links back to another question that you had asked earlier, the members of the government are very commercially dynamic. And Khanh had showed the evaluation of Vietnam stock market sort of quite reasonable. That's not the time to sell. So I think you would see more IPOs when the market is...

So right now, Vietnam is at kind of almost a 10-year low in terms of price to earnings. And so as the market gets more momentum and what we've seen in the last 2 years, 1.5 years, has been net foreign outflows. Money has gone towards AI, U.S. tech, et cetera. So maybe the overall IPO outlook as the market becomes more reasonable in a more expensive way...

Very commercially oriented. They're not going to sell.

And as a shareholder in private companies, have you said, let me wait until the environment is better to IPO as well?

So I think this is really important. We've studied this over several cycles. And to Mike's point, where you are trading at below your average, we're at about one standard deviation below historical average, you're not going to see a lot of that activity. But if you think about what you asked earlier, Eric, this ascension to emerging markets, the opening up of the market, this will basically -- these animal spirits will lift up the valuations. We're currently trading about 13x trailing. The portfolio is slightly cheaper than that. But when we get back towards the average or above that average, we tend to find a lot more IPO activity. But guess what? That's the perfect space for us as investors. We like to invest into companies pre-IPO. We like to find those opportunities and as a way to take these companies to list, if the cycles permit and we're in the right part of that cycle, we will bring these companies to list.

Terrific. And a question came in, so it's a cheap follow-up question. What is the kind of PE ratio, if you think of it that way for the private holdings?

So what you'd like to think is we're investing to companies that may be trading at below market peers but are delivering growth well in excess of mature companies that are listed. So you would argue that we should be finding companies that are trading at or below market peers if there are suitable comps. And that's generally, if you think about the private portfolios, the consumer companies, for example, they're trading at below. On the healthcare side, it's slightly different. We're not looking at PE ratios. We tend to look at other multiples, PE EBITDA multiples. The point there being is that, again, lower multiples than the market, higher growth.

Okay. Last final question. So we're in 49 minutes, but just it's a good question that came in earlier. So with several divestments, is the intention to continue to recycle capital? Or is the buildup of cash awaiting new opportunities?

Yes. So again, we're very fortunate. We -- our position is to be fully invested. We also do have a loan facility that we, on occasion, will draw into and bridge if we're sort of exiting an investment, we'll dip into the loan facility to make investments. We do like to be fully invested. But of course, at the current environment, a little bit of uncertainty, we have been building up cash. It's about 1%, 2% of NAV at the moment, and that loan facility remains undrawn for opportunities.

Yes. Well, with that, we'll just conclude our webinar, and thank you so much for the questions. We hope you found the content valuable from Michael on the economy and Khanh on the portfolio. If there are questions you have, you can go to our website, which is www.vinacapital.com. You can contact us there. There's plenty of information on the VOF website inside of our main website. Thank you very much for your questions and interest, and we look forward to speaking with you again.

That's great. Thank you very much indeed. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This may take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of VinaCapital Vietnam Opportunity Fund, we'd like to thank you for attending today's presentation, and good morning or good afternoon to you all. Thank you once again for your time.