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

Good morning. I am Huw Evans, Chair of VinaCapital Vietnam Opportunity Fund, and I'd like to welcome you to this presentation of the annual report and accounts of the company for the year to 30th of June 2025. I would particularly like to welcome shareholders who hold their shares on platforms such as Hargreaves Lansdownm, AJ Bell or Interactive Investor and who have registered to attend this morning. I hold my shares on one of the platforms, and it has been a source of personal frustration that the platforms can act as insulation between the company and its shareholders. I'm pleased that we've been able to find a way to communicate with our shareholders directly, and I'm heartened that so many of you have taken advantage of the opportunity to participate today. Whereas I and my colleagues on the Board are responsible for the running of the company, we delegate the management of the assets in Vietnam to VinaCapital Investment Management based in Ho Chi Minh City. And I'll shortly be handing over to members of the VinaCapital team to talk to you about the results and the prospects for the future. The Board takes its responsibilities very seriously and has just returned from a week in Vietnam, during which we held extensive meetings with VinaCapital and with some of the companies in which we are invested in order to satisfy ourselves that VinaCapital is doing a good job on our behalf and to the benefit of shareholders in the company. With no further ado, therefore, I would like to introduce Khanh Vu, Michael Kokalari and Eric Levinson, who will take you through the presentation.

Well, Huw, thank you very much for the kind words, and I will echo what he said. It's overdue, and we're very excited to be connecting with you directly. My name is Eric Levinson. I'm joined here with Portfolio Manager, Khanh Vu; and our Chief Economist, Michael Kokalari. And our agenda for today is pretty simple. We'll do a quick overview of Vietnam. We'll talk about the economic environment. We'll talk about the Vietnam Opportunity Fund, which we call VOF. We'll talk about the investments, dividend, share and buybacks. We'll talk about performance. And then importantly, open up the call for Q&A. Now a quick thing, just a quick intro of VinaCapital. Now what's interesting is VinaCapital was actually established with the Vietnam Opportunity Fund in 2003. It was a $10 million fund, which is now roughly $1 billion. And the firm has actually grown into nearly $4 billion organization, and we manage multiple asset classes, public equity, private equity and then a wide suite of alternatives, including real estate, venture capital, energy and infrastructure. Now the most important thing to remember here is that we have a singular focus, Vietnam. And so while we do manage multiple asset classes only in Vietnam, and we've done that since our inception in 2003. And our mission is very, very simple, to deliver Vietnam to the world and to enable our investors to benefit from capitalizing on the growth of Vietnam. So with that, I'll turn it over to our Chief Economist, Michael Kokalari, to really talk about what's going on with the Vietnam economy. There have been some pretty exciting changes.

So I think we wanted to start the discussion today with just having a little bit of an overview of sort of the big picture. And if you had to remember one and only one thing about Vietnam, the thing that you want to remember is that Vietnam is doing what's called the East Asian development model. And this is the same economic model that all the Tiger economies like Japan, Korea, Taiwan, it's the same approach. And long story short, what it entails is manufacturing exports and over time, the exports that you're manufacturing of more and more complicated sophisticated products because there is a higher -- the profit margin is higher on that. If you only had to remember one thing, that's the thing you want to remember. And if you wanted to remember two things, then the other thing I would add is that we have a really fabulous demographic picture in Vietnam, which will go for about the next 10 years. I would say that India and Vietnam are the 2 countries in the world that have the best demographics. India, by the way, we also think is interesting for different reasons, but it's not doing this East Asian development model. So these are the two most important things to remember. I think sometimes we also talk about the fact that a lot of people don't realize how big the country is. It's almost -- it's 100 million people, kind of similar to the size of Japan during its bubble economy. So I think this is the kind of overview thing we want to remember.

I think the other thing, Mike, to add to that is that of that 100 million demographic, there's a massive growing middle class and that very much shapes how we think about…

Fastest-growing middle class. I mean, depending on how you measure it, but basically the fastest growing, like certainly in the region.

And then one thing here, especially on the slide, to make sure you get to it. The median age is 32. And so not only is it 100 million people, but it's a very, very young population and also has the second highest participation of females in the workforce, so the workforce is incredibly productive.

So we talk a little bit about what's been going on in the economy right now this year and next year. We have very high GDP growth in Vietnam, almost 8% in the first 9 months of the year. That may moderate out a little bit for the full year. I'm expecting about 7.5% for 2025. And again, 7.5% for next year. What's happening in Vietnam right now is we have a surge in our exports to the U.S. We were concerned that after the Trump's tariffs came in that maybe the exports were going to roll over, and we haven't seen that at all. And the reason why is that Vietnam is exporting an enormous amount of computers, electronics; companies like Apple are moving their production here and the export of computers from Vietnam is up almost 50% this year, and that's not starting from a small base. That's starting from a high base.

Can you also touch on inflation? Because oftentimes, when economies have this type of really strong GDP growth, inflation tends to flare up.

Yes, that's a good point. We import a lot -- or we -- I shouldn't say we import, but China and Vietnam share a lot of the same like food, energy, stuff like that. And partly because China's economy is kind of depressed, we, in a way, get kind of a backwards benefit from that because economically, it doesn't hurt us. We import from China and then we export to the U.S., but it's helped to keep inflation low. So inflation in Vietnam is around 3% right now. Not a big concern basically.

And Mike, if you think about, say, a quarter ago in April or more, tariffs sort of dominate a lot of these conversations. And yet these numbers you're showing shows that your exports to the U.S.?

No impact. Literally no impact. I think the key there is that what matters is the differential between Vietnam's tariff level and the tariff level of our peers. As long as the tariffs in Vietnam are not 10 percentage points higher than our peers and they're not, then it's kind of a nonissue. The other thing we've seen is that the FDI continues to surge into the country.

FDI is?

A foreign direct investment. Yes, so people setting up factories here to manufacture exports that get sold to the U.S. Well, you would think if the tariffs are big issue, those foreign multinationals would stop building factories here, and there hasn't been any slowdown at all.

I mean I love to get into -- go to the supermarkets or the stores in the U.K. and the U.S. and you always read them, where is this product made in Vietnam?

It used to be like my socks, my underwear made in Vietnam. And now it's like my laptop and my phone, iPhone, this kind of stuff. Okay. So that's the main picture that we want to set for people, particularly for 2025. One thing we should note, though, is that although the export picture is really strong, we also have a surge of tourism that's going on right now, particularly Chinese tourists. One thing that has been -- I wouldn't say weak, but not strong, not weak, but just kind of going along sideways is the consumption. So in Vietnam, pre-COVID, consumption by local domestic consumers used to grow at about an 8% or 9% pace. This year, we look at the real retail sales, that's retail sales stripping out inflation. That's growing at about a 7% pace I showed on the previous slide. However, that number is boosted by tourists. If you strip out the tourists, it's growing at about a 5% pace. Now why is the domestic consumption not kind of rebouncing more strongly? That's because during COVID, people depleted their savings. So local consumers used up all of their savings. And so the savings rate in Vietnam since COVID has been about 10 percentage points above normal. If you look at that elevated savings rate, how long it's been elevated, we think that probably by -- maybe the middle of next year, you'll see spending start to recover by domestic consumers. The other things that are helping that is that the stock market is up, real estate is doing pretty well. So all factors considered, we think we'll have a rebound in consumption next year. And so we're looking for another very strong GDP growth next year, basically. Okay. Some other things. We have a slide here where we talk about the strong exports to the U.S., Apple moving some of their production facilities. This is the point that I mentioned earlier about the wage differential is the main thing that counts as far as tariffs are concerned. Another important factor that explains why our exports to the U.S. are very strong, we often get asked, hey, like over 1/4 of your exports are to the U.S., so are you vulnerable if there's a slowdown in the U.S. economy, particularly we read a lot of headlines these days about people worried about what's going on in the U.S. economy. So what you need to know there is that there is now this phenomenon people call the K-shaped economy. So you think about the letter K, it's going upper part and the lower part. And long story short, what's happening in the U.S. is that the consumption, the upper portion of the consumers, the top 10%, they're accounting for more and more of the picture. So as long as that upper 10% of the consumers in the U.S. are doing well, our exports continue to do well. And that's basically the story there. Another thing people are very interested in, in Vietnam right now is what's called the Doi Moi 2.0 Reform. So the government reforms that are intended to support the GDP going forward. There's reforms that are focused on making the government more efficient, making the approvals process for real estate projects, infrastructure projects, things like that more efficient. And also, there's a whole set of reforms that are meant to base the capability of the private sector. So to put the private sector on an equal footing as SOEs, for example.

Let me just interrupt. So just for clarification, the original Doi Moi was in 1986. And that is when Vietnam really opened up its economy not only through foreigners, but it became more of a market economy, foreign investment came in. And so this Doi Moi 2.0 is -- it's really the concept of what gets you here isn't what gets you there. A to B is great, but B to C is different. The government recognized this. So a lot of people are calling it Doi Moi 2.0. We need to know what Doi Moi was for…

Good point. Thank you. We actually coined the term Doi Moi 2.0 here at this firm a couple of years ago. And gradually, we're seeing that this -- if I had to sum it all, actually, if I really want to summarize it, I would say that this will add something like 2 percentage points to Vietnam's long-term growth potential. That's a calculation that we've come up with. And I was recently on a panel with the IMF. They've done a much more sophisticated mathematical analysis, and they've come to kind of a similar conclusion that the Doi Moi 2.0 reforms would add something like 2 percentage points to Vietnam's long-term economic growth.

And sorry, Mike, that's important because historically, Vietnam's GDP growth is about 6% to 7%.

Yes. Last few years, we've been in this kind of 6% to 7% orbit. And as you and I talked often, it's almost like we'll pop up to kind of a 7% to 8% type orbit. There's an awful lot. If you follow Vietnam, there's an enormous number of announcements and decrees and laws. And even for us, it's kind of hard to follow everything is happening so quickly. So therefore, the way that we summarize it to people, how to think about the Doi Moi 2.0 reforms is, first and foremost, it's a mindset change. So when we go to visit government officials, we find that they have a spring in their step. They're much more action oriented. They're much more soliciting our ideas, our advice, taking notes during the meeting. We see that they've become much more action oriented. So it's a major mindset shift within the civil service and the government. So that's the first thing that people should know about these Doi Moi 2.0 reforms. The other thing that's important to know is that if you look at all the different measures that have been announced, we liken it to this famous book that was in the 1980s from -- there was a Stanford Business School Professor, which is why I went to business school. And that book was about the idea of -- and this is for companies at that time, but it was for companies to succeed by setting very, very big audacious kind of targets, kind of goals. And so if you look at all the different measures that are happening here, they're setting some really aggressive targets based on my 15 years working in Vietnam, 10 years here at this firm, based on what we've seen of -- when the government kind of sets a direction and the whole Vietnam society kind of goes on to that direction, we can feel really confident that they're going to achieve that goal. So these are the two things people really need to know is that it's a mindset change, and we're setting like very, very big audacious goals. Do you have any perspective, Khanh?

A lot guys, I think these are the moonshots. This is really important. These are really important for investors because you're investing into a country that has a will to have a step change, move ahead. And that can't be said to a lot of places in the world. So that's what excites us. And when we cover the fun, we'll talk about how some of those examples we're looking at and how we're taking advantage of these changes.

He had the word I was looking for, moonshot. So the other thing I'm really optimistic about is everything that's happening in artificial intelligence. And in Vietnam, we have really, really very strong STEM ability. They have very, very strong science and mathematic and the PISA scores do really well here. What I have on the screen at the moment is if you go to Amazon, you can find out that right now, the #1 AI book in the world is written by a woman named Chip Huyen, who came from the countryside here in Vietnam, got a scholarship to study computer science at Stanford. And now she's like a really big figure in the field. Vietnam is really punching above its weight in terms of the number of experts in the field. I also have up on the slide here, there was a really interesting development for here locally, which is there was an AI lab that was set up originally by VIN Group, which is the big conglomerate that we'll talk a little bit about in a second. They set up this AI lab was led by another Stanford guy and that lab eventually got sold to Qualcomm. And now they're doing some really leading-edge research in the field here. The point that I'm making here is that I think there's a really, really huge potential for this field to flourish here in Vietnam, and that will be just another factor that makes us feel very optimistic about the long-term trajectory of growth.

I think the important thing as you think about what does that mean to us as investors, we talk about and Michael mentioned at the beginning, was the kind of East Asian development model is really about the evolution of the economy and moving away from kind of exporting garments to whether it's exporting technology products or ultimately developing technology services, apps, et cetera. And so this is just, I think, a proof statement on the education, on the work ethic and ultimately, the results of what is becoming a rapidly growing educator workforce.

And all those other East Asian development country model I mentioned, they all got into more and more complicated tech products. So this is the future that I see for this country.

Really excited.

So this is where we pivot now to the Vietnam Opportunity Fund overview. Khanh, you've been working on this fund for how many years now?

So I've been with the firm for 15 years and on this fund for 13 years. And today, I'm the portfolio manager, but what's incredible is that we have a very deep bench of experienced professionals working on this.

The next slide is a very exciting slide that has just numbers.

So look, I think as Eric mentioned earlier, VOF, this fund was founded when the firm was founded. If you think about Vietnam in 2003, for those that have visited lots of bicycles on the streets, no high rise. The stock market, though, was only three years old. And at that point, we had about 50 listed companies. So that very much shaped our strategy, shaped the opportunities that we looked at. And so when we started this fund, we looked at not just public companies, less than 50. We also looked at private companies. And that has set the structure, the DNA for how we invest into the market today. And what we'd like to say is we're an opportunity fund that allows us to invest across both public companies, but also really interestingly, the private companies. And as Mike mentioned earlier, the private sector reform and the promotion of private sector really sets the stage for a lot of interesting opportunities for us. The other thing that differentiates this fund perhaps from other investment trust that invest in Vietnam is that we are a firm believer that we return capital to our investors. We return that in the form of dividends. We've been doing that since 2017. And we've had this buyback program where we help narrow that discount through buybacks. We'll discuss that later in the presentation. Today, the fund is just under $1 billion under management. I'm aware that we're talking about results here, Eric, Mike, that are over 100 days old. So what we'd like to do is we'll bridge that what happened at 30 June, which is very important because that's the financial year-end, but also what's been happening in the last quarter.

And also our forward-looking view because at the end of the day, it's not about what happened through the end of June and what happened in the last 3 months, but what's the outlook in this Doi Moi 2.0 and how that guides the team in terms of what the opportunities look like for the next couple of years.

That's right. And again, the last point on this slide sort of illustrates that we're long-term investors. That means that we're looking at for shareholder returns over the long period. And if you think about our 5-year return, NAVs return to shareholders on a sterling basis, 43%, 50%, almost 60% on dollar terms, and the share price has well performed equally in step with that.

So what exactly is the philosophy? How do you think about this day-to-day when you're leading a large, large team? How do you think about what the mission is every day?

So I mentioned earlier, we start off with the name of the fund. We're an opportunity fund. And again, that allows us to invest across that spectrum, both private as well as public companies. But again, from our genesis, we have to have to apply this private equity mindset. Now what is a private equity mindset, right? For us, it means that we are active long-term investors. We spend time doing due diligence, really looking under the hood of the car, so to speak, really understanding the companies that we invest in, the management, what drives growth, what's the revenue structures, what are the margins. These are things that give us confidence to invest and invest in the long term. And what comes out of this? What comes out of this is that we find in our portfolio over the time, we end up investing in what are leaders or potential future leaders in the market. And really, our focus, Eric and Mike is very much around this domestic economy. You heard what Mike said about a country of 100 million people. That's an incredible demographic for us to be tapping into and the opportunities to invest there are really interesting.

So as you think about what are the kind of good examples of this philosophy action?

Yes. And what shapes our thinking around companies, as I said, is several things. One is scale. Again, you're tapping into a market that is growing, rising middle income. So scale of your business is going to be important. Also brand recognition, right? So if you think about some of our investments here, PNJ is a leading jewelry company. It's a consumer discretionary company, company we've been investing in, in fact, for over 18 years, been a strong, good compounder to performance. A new investment is Tho Phat, and that's an example of distribution. Tho Phat, if you go on Sunday to your dim sum in the steam buns, that's what Tho Phat does. You walk into a 7-Eleven store here in Vietnam, you look behind the counter, steam buns are there. In fact, Tho Phat have over 10,000 point of sales across the country. So that...

For a lot of people in the West, it's interesting that the convenience stores here are where a lot of people actually eat.

And again, that idea of convenience is a very different model from perhaps in [indiscernible]

Yes, [indiscernible] have like a little chair or something like that plastic chairs. [indiscernible]

Other important aspects of our investment is alignment with management. And this is sort of very important because very much you're investing into businesses that perhaps the first, not even second-generation entrepreneurs. So having that management alignment, having people that are focused in their business is important. FPT, leading technology company, not distracted by many other things, very much focusing on technology, software outsourcing data. Businesses with wide moats. I think, Eric, when we were talking about this, this reference probably makes sense in a place where there are lots of cases, right and moats. But ACP, Airports Corporation of Vietnam is a state-owned company, but what's important is that they privatized and they own 22 of the 24 airports in the country. It's very difficult to go out there and build and create that. So businesses that have a natural wide moat, boundaries there actually make very interesting opportunities.

In fact, many of these companies have wide moats. We just particularly chose that one that is really hard to replicate as you can't -- infrastructure, by definition, kind of has a wide moat hard to go build an airport.

That's right. And then the last thing that's also very important is this idea of sustainability because you are investing into a frontier market and the elements of governance, sustainability, these are important, and these have been very sort of stalwart principles within our investment. An Cuong is a leading wood laminate manufacturer that when we invested into them, we've helped them invest into better factories and machinery, and they have a very strong mindset around sustainability. So again, this is what we look for in companies. And I think how does that translate to returns to our investors. So FBT, that technology company I was talking to you about, we've been invested in them for eight years, well before this whole AI trend and no disrespect, Mike. But at its core, this is a software outsourcing business, 60% revenue is generated from that. This is a company that has delivered good long-term compounding performance for us. Now there's also a discipline here I played, Eric, is that there is -- we will trim, and we will take profit. And you can see that in the last two, three years, FBT have had a tremendous run-up obviously leveraging and benefiting from the AI story. And we've taken opportunities to top slice and recycle that cash back into the portfolio or return capital to investors.

And again, it's not really a negative view on FPT, which is still a top holding. It's more about how much of this do we want in the portfolio? And are there attractive options?

Absolutely. That portfolio construction is a very core discipline of how we think about construction here. Another example is Hoa Phat. It's a leading steel company in Vietnam. Again, this is an example where we invest in this company when it was private and then we took them to list publicly, and we've held on because they've delivered strong growth over that almost 20 years of our investment holding. Equally, there are times where we do trim top slice because of portfolio weights or our views on the sector. So again, this is an example where the private sector, companies in the private sector are emerging or now becoming really important parts of the economy, okay? And the final point is that on the private equity side, we're one of the biggest investors into hospitals and private hospitals in the country. Now Mike, healthcare is a sector that's very difficult to access in the public market.

It's something every emerging middle-class consumer wants.

When you say difficult to access, what do you actually mean by that?

So if you go to the stock market, right, there's, I think, only one platform that's listed and about three generic pharmaceutical companies. But to Mike's point, healthcare is a natural way to play this rising consumption story. If you get more wealthy, you do a few things. You buy better house, you get better education and you look for better healthcare. And so for us, being able to access these opportunities, invest into hospitals, Tam Tri is an example where, in fact, this is the second time we've invested with this founder. We invested the first time when he launched and founded Hoan My Hospital. We exited and sold that. We reinvested with him seven years ago. And we've just exited this investment. It's an investment we initially put $25 million in. We're just looking to bring back the proceeds of the fund almost $60 million. There's -- we built this hospital out to 7 hospitals from initially 4 and grew it to over 1,000 beds.

So that's kind of an example of the investment philosophy, kind of some [indiscernible] Holdings. Talk a bit about the dividend and buyback strategy.

Yes. So what are the cost strong compounders and what does that -- all that return do? Well, part of that is to return money to our investors. And as we mentioned earlier, one of the key features of this fund is that we pay a consistent dividend. We've been doing that since 2007. If you think about the yield, it's about 2.7% in yield on the share price, equivalent to about 2% of the NAV. Since 2017, we've returned to investors USD 180 million, about GBP 140 million in dividends. On top of that, we also do what we call share buyback, where we will participate in the market, we'll buy back shares from the market and cancel those. We've been doing that since 2008.

Well, those really to help narrow the discount.

Right, absolutely to stabilize and give some stability in the discount and the share price, knowing that there is liquidity for our investors out there during times of volatility. Now we've spent since 2011, when we started this USD 600 million. You combine the two of those things, that's over almost USD 800 million that we return capital to investors.

So one of the questions people have is, okay, great. How have you done? What's performance looked like for the last couple of years?

So that's been an area where we got disappointed because last year, in terms of financial year ending 30 June 2025, the fund returned minus 2.2%. Part of that is actually explained by the return of capital. So we've taken out about $100 million to do buyback activity because we saw a period where discounts were significantly wide. It's about 11% of shares. Equally said, though, we also invested $200 million into new opportunities. And those opportunities are now actually beginning to accrue dividends. I mentioned earlier, Eric, that post year-end, we've seen a very strong performance in the market.

I say year-end, you mean end of June.

Sorry, being private again. Since the end of 30 June up into the subsequent quarter, the stock market has done very well. And equally, the portfolio has done very well. So this is a reflection of the history, the past, and this is a reflection of what's happened since. So if you think about what's happened since the tariffs, the Trump tariffs announcement in April, the Vietnam stock market actually is up about 25%. And so therefore, we've been able to benefit from that because our portfolio is 80% listed, 15% private equity and the balance is cash. And I think what's important is that longer term, if you think about what reform is happening, the focus on the private sector, we believe that those investments into the private sector will translate into strong returns.

So that's kind of what just happened. We have here now the top 10 holdings just to kind of give everybody an idea of, okay, we talked about Hoa Phat, FPT, Tam Tri. Maybe just mention a couple of others or why you own them kind of thematically, and then we'll talk about more of a future outlook as opposed to the past.

Yes. So if you think about the top 10 holdings, the key thing there here is that if you look at last year's top 10 holdings, the key holdings, the top ones remain the same, right? Over the year, we trimmed, we've taken profit on about 5 of those top 10 holdings. What we've done is we've recycled that money back into new investments. For example, #5, MBB. MB Bank is one of the leading commercial banks in the country. It's a bank that has an incredible large established customer base, and we've initiated positioning there. Another one has been in KIDO Group, #10 there. KIDO Group is an example of private equity investment with a public company. We identified the steam bun business. We talked about, Tho Phat. We partnered with a listed company, KIDO Group, a company we've invested alongside in and out for 20 years now. The entrepreneurs have been able to demonstrate really strong returns for the fund and we partnered with them to invest into this opportunity. So again, throughout the year, there's been activity both on the private side but also on the public side.

So now we've talked about the holdings. We've talked the structure, the dividends, the buybacks. Let's talk a bit about what we think about. And I think this slide, I think about it is really about what does Doi Moi 2.0 really mean for the economy. We talk about policy, but what does that mean for corporate earnings?

So this slide here really is a slide that illustrates three points in time, three periods in time. The future is what Eric is saying, is that we expect a stability in earnings growth of companies and what we expect our research and expects is that looking ahead in the next three years, the market will deliver between 15% to 20% earnings growth. That's really important because that stability and the certainty in the earnings growth translates into the return we expect in the portfolio. The last five years has been one of volatility. We're coming out of COVID. We're into COVID and we're coming out of COVID. There have been geopolitical concerns. There have also been sort of domestic issues around the bond and corporate crisis in Vietnam. And that's resulted in a very volatile environment to predict and invest into corporate earnings. We know that Vietnam can deliver stable corporate earnings because the previous five years before COVID, you can see that on average, the market is delivering about a 20% earnings growth. So for us, that certainty and the stability in the earnings growth is an environment that's going to be very important for us to be investing in.

And one thing we didn't touch on, you mentioned the word frontier very briefly in your opening comments. Just, I think, two weeks ago, FTSE announced that Vietnam, the stock market was going to be elevated from a frontier market to an emerging market. that will be reviewed again in March of 2026, likely kind of implemented in September or October of 2026, but that -- it's not a destination, it's part of the journey of Vietnam capital markets, moving from a frontier market to an emerging market that may have received actually more press in the U.K. than it did. So I just want to mention that when we talk about Vietnam as a frontier market, by nearly every metric, it's an emerging market. That frontier status is more about the capital markets, but even FTSE just elevated or announced an elevation of Vietnam from frontier to EM, that will likely mean more active flows, certainly more passive flows into Vietnam. You may read more about Vietnam or FTSE in the future as well. So I thought I'd mention that.

Absolutely. So just to round it off on that point that Eric talks about, why is this ascension important? Because this journey is taking us to a space where there's new opportunities. And one of the things that our team is really actively looking at the moment are IPO opportunities, pre-IPO opportunities because in the past, we've made investments into companies, taking them to IPO, have been very successful. So as markets respond to this re-rating, we've seen that valuations are actually still very fair. The stock market has done well, but actually, valuations remain very fair relative to the region, in fact, relative to history. And for that, investors are getting attractive valuation and yet very strong earnings growth. So that for us is another reason for investors to really look at Vietnam as an investment opportunity and not just as a holiday destination, although it's great [indiscernible] so Eric, I think on that, perhaps we can turn that to the Q&A session.

[Operator Instructions] And hopefully, this will be the best part of the call. We appreciate you joining us, and we look forward to answering your questions. All right. Well, thank you for joining us. If you do have questions, please put them in the chat function. I've got an iPad here, which will let me know what the questions are. One person just asked a question, I should say, made a comment about, unfortunately, the three of us blocking the slides. I do want to let you know that we will have the slide presentation up on the IMC website as well as the VinaCapital website. We'll put that on Monday. So let me go to first couple of questions. A couple of questions came in kind about performance. And so question, I'll just kind of aggregate them. Hey, I bought the fund a few years ago, performance hasn't been what I have expected it to be, a little bit disappointed. How do you think you'll get that performance back? Do you kind of think about -- I know this isn't really built around an index, but certainly, people use it to compare. How do you think about in terms of performance expectations next year, year after vis-a-vis the index, et cetera?

Thanks. Thank you, Eric. And certainly, the thing that -- the only thing we're measured on is our performance. This year's performance, we've alluded to, has been one that has been very narrow base. That has been around certain, how we say, private sector champions, conglomerates, they've really pulled ahead. Some of those companies or one of those companies are reflecting our portfolio. But in general, they don't meet sort of the investment criteria or how we look at constructing our portfolio. In recent years, the performance has been affected by some of the valuation adjustments. We've talked about those value adjustments, specifically relating to some of the real estate investments in our portfolio. That was sort of triggered since 2022, right? What we're seeing now is, one, importantly, a recovery of those adjustments. The second thing is that looking ahead, looking at how our portfolio is constructed, we have confidence that the names that are in there, the names that we've added to the portfolio in recent years, that they will contribute to performance. There are existing names of the portfolio we've held that have been good, strong compounders over the years. And again, how we think about the portfolio construction today and where it looks like looking ahead, certainly, we want to be able to deliver to investors the kind of returns they do expect for investing here.

And so is this about the narrowness of the market? Or is this about maybe not adjusting the investment process, adjusting the team for what's going on in the market today?

Yes. We believe we have been investing into this market for 20 years now, Eric. We believe that the strategy that we have, the way we execute that strategy, many of the team members in the VOF team have been here for 10, 15 years. They've gone through various cycles. They have the battle scars to prove that we are able to invest into this market over the long term. What we've seen, I think we had a slide earlier, Eric, that the last five years, the cycle has been very volatile. The earnings from corporates have been very volatile. That volatility, we think, is abating and that the outlook ahead certainly sets up what our team does and what we're able to deliver through the wider VinaCapital platform to be able to deliver to our investors.

Okay. All right. So this is partially my fault. A lot of great questions coming in. So I'm going to ask you guys to maybe shorten the answers. All right. One great question came in. This is a short answer question. So to close probe, I'll go to you. Are there still foreign investment limits? Or have these been removed completely?

Certainly, there are still foreign ownership limits. And we are seeing a gradual progression where companies lift or remove entirely the foreign ownership limits. But certainly, this is something that needs to accelerate and continue to happen.

And I'll just add to that to be specific for some of the folks that may not be familiar with it. In strategic sectors like banking, foreigners can own 30% of a bank. In some of the other sectors, it might be 50%. There has been talk about lifting those over time, but currently, it's 30% or 50% in certain sectors, that's kind of the ground rules that we see today. Another question came in, and it came in from a few people. I don't love necessarily the Coke versus Pepsi question, but a few people have asked about how do you compare versus Vail. Obviously, these are the two large trusts that invest in Vietnam on the exchange. So how do we compare versus Vail from an investment strategy standpoint? Their discount most recently has been a little bit narrower. So just maybe make some comments about positioning VinaCapital Opportunity Fund versus Vail, which is a question you get all the time.

Yes. Look, certainly, Vietnam is a market that is moving from frontier to emerging market. One of the key considerations when investors deploy money, whether you're managers like us here on the ground or if you're sitting in the U.K. is the liquidity of those investments. So even within the public markets, liquidity is a very important screen that should come into the minds of investors. Vail's strategy, and I'm not here to talk about Vail here.

Let’s talk about what we do.

Yes, absolutely. There are -- sounds like that, that focus on public equities. Our strategy looks at the best opportunities in the market, whether they be public companies or private companies. And therefore, what we've seen is that if you look over the passage of time, whether it be 10 years, 20 years, that the returns that we're delivering is about the same as our peers. However, what we'd like to add is that given the way we construct our portfolio, the concentration of names, the fewer names perhaps that we hold in the portfolio, the longer times that we hold these names to compound and earn that gives investors much lower volatility. So how we like to think about this is when you invest into VOF, we like to think of smooth takeoff, smooth landing, like an aeroplane ride. We don't want that volatility. With regards to the discount, look, the discount does change. I think we're around about the same vicinity. The last 12 months, for example, Vail's discount, I believe, is about 22%. I'm sure that the fact sheets will show that. Our average discount is about 20%. So within that portfolio construction, where we have private equity as well as public equities, we're still being able to keep a discount that's quite within our peer group. And the final thing I'd like to add is that I showed a slide earlier that the discount management in this fund has been a program that's been around since 2011 along with the dividend, which we started in 2017, that return of capital to investors through buybacks as well as to dividends has been something that's been consistent and that's been constant for investors during that period.

Two questions just came in. They're brief questions, so I'll do you a favor. I'll actually answer them. One is for MSCI, Vietnam is still frontier. When will that change? We certainly don't know when. We are pleased that the government has gone recently publicly and said they'd like the chance to be upgraded by 2030. There are some things that would need to change. One of those would be the foreign ownership limits, which would create better breadth and depth in terms of foreign access. The second question, which is a little bit related, is foreign ownership. Are we considered a local investor or a foreign investor? Do the restrictions apply to us for the Vietnam Opportunity Fund?

Certainly, we are treated as a foreign investor. Our shareholders in the U.K., in Europe, in the U.S., your foreign investors. And so therefore, as a manager, that foreign ownership consideration is very important. So that's why our strategy goes between private investments, what we didn't add early is private companies, there are no foreign restrictions, right? Whereas on public companies, there may be. So...

And just a broader answer on that for VinaCapital, if we're managing funds for local investors, we're considered a local investor. So it's really about the domicile of the product and the end shareholder as opposed to company. So yes, where we sit in Ho Chi Minh City, it's who we're buying for actually determines whether we are a local investor or a foreign investor. Okay. A question came in about private equity. Two questions, I'll combine it. Number one, how do we deal source? How do we stay ahead of this? And then the second part is how do we value the private equity portion of the portfolio?

So deal sourcing, if I said earlier, performance is the #1 priority. Deal sourcing is very close there, if not 1.1, right? Because we are boots on the ground here and our job is to identify the best opportunities. And what we found, Eric, over time is that deal sourcing can come from third parties, from advisers. But the best deals and the deals that generate for us, perhaps the better returns come from what we say is proprietary, where myself, our founders, the team, we go out to the market. We use the VinaCapital network, the ecosystem that we invest in to go out and source and identify opportunities. And that's why, if you recall earlier, Eric, we showed a slide around Resolution 68, how the private sector is become going to be a very important part of this economy and the market.

So quickly move to valuation.

And, yes, sorry. And that means that deal sourcing is going to be our skill set and those opportunities were very important. On valuations, it's really simple. Valuations of private equity is done independently. We have KPMG here in Vietnam to independently value the private equity portfolio twice a year, and that gets approved by our Audit Committee.

So a third question came in related, which is what does the IPO pipeline look like in Vietnam? And I would say this for the first time, we have a very positive answer on that. I'll ask a follow-up question on that client's behalf, which is and what does that mean for VOF.

Yes. So I think what we've recently concluded is participation in one of the first IPOs we've seen in a few years, right, probably since 2017.

'17…

Mike has the numbers, right? So that's the first -- one of the first few IPOs that have happened in the market. It was into a leading stock brokerage company. They're doing things very differently. We'll come back to investors over the coming weeks and months with more color on that. But the point being is that the pipeline looks really interesting. There's a few other brokerages that have taken the reference of Techcombank Security to also go to the market. Importantly, for us, what we're seeing, and it comes back to a theme that Mike was talking about earlier is around the consumer sector. So if we look over the horizon into 2026 and 2027, there are going to be sectors, particularly around the consumer sector, where we see IPO opportunities. And once again, boots on the ground here, it means, Eric, that we're able to access those.

Okay. A couple more related questions. I'll ask them both if you can combine the answer. What is the breakdown between private and public investments in your portfolio? And then do we have a max allocation to private equity? So certainly -- actually, and this one says max private companies or might be by company as well, [indiscernible].

Right. So at the moment, the portfolio, I think there was an earlier slide, about 80% is in private – I’m sorry, public companies, publicly listed companies, 15% is in private equity, private companies and about 5% in cash. There is no fixed limit, but certainly, we understand that between investing in private companies and public companies, there are liquidity considerations. So how we construct the portfolio is very cognizant of being ensuring that we have liquidity in the portfolio should and if we need it to fund new investments, to fund buybacks and dividends. However, for us, there is no hard and fixed, but certainly, what our experience has shown us over the many cycles is that the allocation that we currently have, give or take a little bit, is the right allocation for this market. Now the other thing is that we showed a slide earlier is it's not necessarily how the pie looks like today, but it's how we enter these investments through pre-IPO, through privatizations, through private placements, this privately negotiated approach to investing. That's really the consideration and that, I think, what differentiates our strategy perhaps from others is that we take this private equity approach to investing. So how it lands in the portfolio in the annual accounts is perhaps very different to how we look at the opportunity set here in the market.

Okay. So to be clear, you're saying out of your listed. How did you get into it?

So VOF had in 2007, $40 million investment, private, public.

Yes, exactly.

So couple of questions. So people have been doing their homework before the call, which is excellent. A couple of questions came in on what was, I guess, a little bit of a hiccup in the market last week based on concerns around credit, concerns around maybe the misuse of bond proceeds. A, does that concern us? Is that going to be widespread like what happened in 2022? And is the portfolio potentially impacted by that?

Yes. So obviously, for those that are really well read into Vietnam, there was an announcement that there's some investigations into corporate bond issuances between 2015 to 2023. So this is history. And it was a period where perhaps...

We just published most recently.

Only published. So these investigations have been going on for a lot. So those companies named within that, we don't hold. There is one real estate company where we do hold an investment, but that investment is in the form of a bond where we're restructured and we're recovering it. So we're not caught up into the bond issuances that these companies gave to retail investors. Our understanding, obviously, it did cause a bit of a hiccup. Our sense is that the market responded in that way because perhaps it needed any reason to have a bit of a correction. If you recall, the market has been on a one-way direction since April this year. And I think any relief from that…

But just to be clear, do we think that -- and I know the answer to this, but do we think that we're in a 2022 scenario again because that's already been kind of dealt with those [indiscernible]

No, certainly not, certainly not. The path of direction of travel, what Mike said earlier around the path of reform, the promotion of the private sector, I think that's the direction of travel. Perhaps this is simply a -- we're not going to repeat the mistakes of the past. This is a warning not to repeat the mistakes of the past. And going forward, Vietnam has to be that institutional market for both local investors, but also for international investors.

So Michael, we'll let KV have a chance to breathe here. A question came in, and it's probably still more for KV, but this is good for you as well. Is VOF, see, able to cope or insulate it from U.S. tariff volatility?

Yes. And I alluded to that a little bit in my presentation. The tariffs have had very little impact on the economy here and actually, the stocks that are listed on the stock market are generally don't have a lot of export exposure, some -- a little bit here and there. It's mainly the FDI companies. There was a phenomenon that happened two years ago when the exports -- and it wasn't because of tariffs, but when our exports really slowed, there were layoffs from the factories, so there's a risk of kind of indirect effect. But as I said, so far, the tariffs have had no impact on our exports, no impact on the FDI.

It's in a weird way been the opposite because of the kept -- the 90-day delay, the 90-day delay, what ended up happening was there were a lot more orders that came in front-loading to kind of maybe solve that problem. I think the second part is, I would say there is impact from a headline risk. There have been foreign outflows this year because people were more concerned. The reality hasn't been a lot of impact, but the headline risk created volatility in the equity market.

It's interesting that the foreigners were selling and local investors were buying, so they could see that the earnings are really good and valuation is good, all…

All right. The great question came in kind of a follow-up to our conversation. So okay, great. What are we bearish about or at least what are the biggest risks that can impact VOF that aren't [indiscernible]

[indiscernible] Dong, it's clearly…

The currency is one.

Yes, this is the main thing.

And certainly, we've seen a lot more volatility in the currency this time. Normally, Mike, we wouldn't see this level of devaluation.

Usually, in the past, they would tend to limit the devaluation to something like 3%. And this time around, we bumped up around the 3% level a couple of times. FX reserves is a little bit below. It's around 2.5 months' worth of imports. Normally, that should be over 3 months, a few other things. So -- and then just in general, they're really stimulating the economy very aggressively, which is good. I mean that helps to explain why the stock market is up so much. But when you stimulate to the point that you're pushing on the gas like really, really hard, sometimes there'll be an escape valve someplace. And in this case, it's the currency.

So we're kind of getting the hook here, but I'll ask two final questions. One, a question came in about the public companies. So I guess, are we concerned where we are in valuations? And what is the average valuation if you look at the aggregate of the 80% that's public?

Yes. So if you think about where the market is at the moment, there was a slide earlier. If you heard us last year, we were talking about valuations perhaps two standard deviations below the average. We were bumping along at about 10 to 11x forward earnings. Today, we're up to about 13x, which is getting us very close back to that historical average. And this is partly explains why you're seeing a lot more IPO activities because as valuations get very frothy -- not frothy yet, but heading towards that direction, you see a lot more of IPO activity. For the portfolio, our portfolio, what we find is it's 2 metrics. It's valuation and earnings growth. So the valuation of this portfolio is below the index. The index today is about 13x forward. The VOF portfolio is about 11x forward. But importantly, the earnings growth, the market earnings growth, if you saw in the earlier slide, our research team is forecasting anywhere between 13% to 15% next year, perhaps up to 20% the year after. VOF’s portfolio is much higher, doing much higher. We're currently forecasting 15% this year and next year, 18% to 20%, so well ahead of the index.

And final kind of close probe to you, which is I think in the presentation, I think the cash was a little less than 7%, 6.7%, maybe end of June. What's the cash level today? And if it's around that, do you think about will that be deployed?

So we've shown a slide that actually we have been deploying, right? So that cash today is about 3%. We are -- the dips in the market that we saw in the week, the team is sitting ready to add to positions. That also being said, we're also very sell disciplined. So we have been selling where valuations and prices have gone and performed very well. But in terms of cash on hand, still very comfortable. And we also have the loan facility available should we need to tap into there.

Okay. Cool. Well, any, there's -- we didn't get to every question. I'm aware of that. So you can e-mail [email protected]. So if there's a question here that we didn't get to.

And I just wanted to say to our audience, thank you for joining us, firstly, both on the Investor Meet Company platform, but also on to the webinar. Our team will get this on to the website as well as Investor Meet companies as well with the presentation. I want to say -- take a moment to say thank you to Huw Evans, the Chairman of the fund, who opened today's presentation. As many of you may have seen in the annual report, Huw is set to retire at the end of this year in December. Huw has been an incredibly important figure to this fund and to our team over the last 9 years and more recent years as Chairman. Huw, thank you for your time and your vision and your guidance. We also want to welcome Kathryn Matthews, who is the incoming Chair. She's been with the fund for several years. Equally, Julian Healy, who's been with the fund for several years, is stepping down from audit Chair. He still remains on the Board of the fund. Charlotta Ginman, new Board member, stepping up into the audit Chair. One unique feature of our fund perhaps to others is that we maintain a fully independent Board. And so again, on behalf of the manager, we do thank you for their guidance. And to Huw specifically, thanks again.

Again, sorry, we didn't get to all the questions. Please e-mail us if there's a question that we did not get to the -- still like an answer to. Thank you very much. It's Friday late afternoon here in Ho Chi Minh City. So I'll just say to everybody, have a wonderful weekend, and we look forward to speaking with you again.