Financial experts believe that the stock market is quite different from 9-10 years ago, when it first began operation. Therefore, now may be the right time for Vietnam to consider setting up open-end funds as well closed-end funds.
With capital of $10 million, Frontiers Vietnam Fund (FVF), now listing on Amsterdam stock market, began disbursement to Vietnam in 2009. Last year, the net asset value (NAV) of the fund increased by 46 percent, while in the first eight months of 2010, the fund’s NAV increased by six percent.
Ten million dollars is really modest, nothing compared with other foreign funds operating in Vietnam. However, FVF is a “new voice” with different characteristics: FVF is an open-end fund, while all others in Vietnam are closed-end. FVF’s fund certificates are being traded everyday like closed-end funds. However, at any time, when new investors want to make capital contributions, it will issue more certificates.
In case the fund’s shareholders want to withdraw capital, the fund will liquidate investors’ assets right within the day and pay back assets to shareholders (of course, they will have to pay certain fees for withdrawing capital). With unfixed capital and flexibility in making capital contribution, it is clear that open funds are being favored all over the world.
That explains why foreign fund managers in Vietnam are attempting to change closed funds into open funds because it is more and more difficult to extend the operation duration for closed funds. Some closed funds have drawn up plans to become open funds, which allow managers to call for more investment capital more easily and rapidly.
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When the stock market was still small five years ago, closed-end funds were the suitable, according to Willem Stuive, Director of Liberator Asset Management, the management company for FVF. At that time, investors needed to wait to see market growth and the increases in value of listed companies thanks to profit accumulated year after year. Now the situation is quite different. The overly big discounts of closed funds’ certificate prices have discouraged investors, who cannot withdraw capital until closed funds terminate operation.
Yet it won’t be easy to change closed funds into open ones, because management companies must obtain agreement from investors and face legal issues, even though most foreign funds operating in Vietnam are established and listed in foreign countries. It is now impossible to establish open funds in accordance with Vietnamese laws, because current laws still do not allow for open funds.
Nguyen Doan Hung, Deputy Chair of the State Securities Commission, commented: “We are just beginning to study about open funds. However, it is highly possible that open funds will be allowed to be set up in Vietnam, because 95 percent of investment funds in the world are not open funds.”
Hung stressed that it is indispensable to create a legal framework for open funds, because Vietnam’s stock market will more deeply join the region, especially ASEAN. “The transactions within the ASEAN bloc will help enterprises better mobilize capital, but the competition will also be fiercer,” he remarked.
Willem Stuive arrived in Vietnam in 2006 as an individual investor. Three years later, he began managing some Dutch funds that specialize investment in Vietnam. He said doubtless the scale and the liquidity of Vietnam’s securities will increase in some more years and people will see a wave of foreign open funds.
Shareholders of open funds come and go every day. Open funds purchase and sell assets daily as well. They usually keep certain amounts of cash to satisfy investors’ demand for withdrawing capital at any time and to ensure prompt disbursement when new investors make capital contributions. Therefore, open funds always choose markets with high liquidity. In Vietnam, according to Stuive, open funds will invest in shares with big daily transaction values and volumes.
As such, everyday transactions of open funds will have a big impact on the market. The market may rise or fall suddenly if open funds make disbursements or withdraw capital. This worries management agencies.
Analysts have warned that foreign open funds in Vietnam are inevitable, especially when the scales of Hanoi Stock Exchange and HCM City Stock Exchange have been increasing day by day.
In order to earn money in Vietnam, foreign investors can open personal accounts at securities companies and make direct transactions. However, to do that, they need time to gain experience and learn about the market. In the meantime, they can earn money through open funds, and thus open funds will be their top choice.
