Profile: PENM Partners’ Hans Christian Jacobsen

“I had spent my entire career in difficult environments with regime changes. What I had learned is that government stability and policy stability were crucial for private equity,” said Hans Christian Jacobsen, a managing partner at Vietnam-focused PENM Partners.

“We had many meetings with officials when we entered Vietnam. There is certainly red tape, but unlike other countries, we could always see a road to profit – from getting established, opening a bank account, and obtaining approvals to getting money out of the country when you sell. We saw a real willingness to accommodate the private sector, including foreign investors.”

That is why Jacobsen, a Danish national who cut his teeth doing deals in Eastern Europe after the fall of the iron curtain and went on to invest everywhere from Egypt to Kazakhstan, has spent the last 17 years managing a country-focused private equity firm that operates out of Ho Chi Minh City.

The pandemic period has proved highly disruptive, with Jacobsen and Lars Kjaer, PENM’s deputy managing partner, separated from the local team for long periods. Their trips from Denmark to Vietnam were at times dictated by the availability of 30-day working visas and the prospect of spending the first 21 days in quarantine.

Travel restrictions stymied new investments at the GP level and prevented LPs from performing on-site due diligence, effectively delaying the launch of a fifth fund that was almost ready to go before COVID-19 arrived. Nevertheless, Jacobsen is preparing to return to market later this year, his zest for emerging entrepreneurship undiminished.

“In the early days, in Eastern Europe and Russia, we would invest in companies founded by a couple of families or a group of friends. They had received no help and often lacked the right background or experience, but they had built businesses by being very entrepreneurial,” he said.

“That’s what contributed to me forming PENM – that entrepreneurial drive. Every investment we’ve made has been in a business that is family founded, family owned, and family managed.”

Seeds of inspiration

Jacobsen’s interest in entrepreneurship, or more specifically, the transformative power of private capital in emerging markets, was inspired by Zambia. His father and uncle, two of five sons in a Danish farming family, moved to England after graduating from agricultural college in the 1950s. They worked for estate owners who also ran farms in Africa and seized the opportunity to go there.

In the early 1960s, as numerous African countries secured independence from the UK, Zambia appealed for skilled Western farmers to help develop its agriculture industry. Jacobsen’s father and uncle got started by leasing a few thousand acres. His uncle – now nearly 90 – and cousin still live in Zambia, rearing cattle and growing tobacco, maize, and sorghum on a 40,000-acre farm.

“We would go there as kids during school holidays. That’s where I saw the difference the private sector could make in a poor country and it made me interested in emerging markets,” Jacobsen said.

“I wanted to work in agriculture – I did my master’s in Copenhagen and then went to business school there – but I also wanted to learn about the private sector. Most of the aid I had seen going from developed to emerging markets had come through governments. I thought there must be room to improve private investment.”

This led him to development finance institutions (DFIs), and in the 1980s in Demark, that meant the Investment Fund for Developing Countries (IFU). Jacobsen started out covering Africa and the Middle East, but his remit soon broadened to include Asia. With China and India essentially off limits, Malaysia, Thailand, and the Philippines were the most active markets, followed by Indonesia.

Even then, Jacobsen noted a natural entrepreneurship in Asia – which translated into a private sector opportunity – that far exceeded that of Africa. At the same time, it wasn’t easy. For example, IFU had high hopes for the Philippines only for “red tape and behavioural issues” to thwart progress and prompt foreign investors to look elsewhere over the following decade.

His next assignment was with IØ Fonden, a sister fund of IFU mandated to invest in Central and Eastern Europe, often laying the ground for expansion by Scandinavian companies. Starting in 1989, opportunities tracked the wave of political change sweeping across the region: Poland, the Czech Republic, Slovakia, Hungary, the Baltic states of Estonia, Latvia, and Lithuania, and eventually Russia.

Two years later, the newly formed European Bank for Reconstruction and Development (EBRD) came calling and Jacobsen was placed in charge of agriculture, horticulture, and fisheries, covering the entire food supply chain. The initial goal was to support the private sector as Central and Eastern European nations transitioned from centrally planned economies to market-based economies.

“It was fun; EBRD had the financial muscle to make a difference. At first, we focused on countries closer to Western Europe, but later we went into Russia, Ukraine and even Kazakhstan,” he said.

“Two-thirds of what we did were equity commitments, but there were a lot of credit lines as well. Some markets were so tough, we were the sole lender of record. At one point, there wasn’t a single loan to a Russian or Ukrainian entity that wasn’t issued by EBRD or IFC [International Finance Corporation] and sold down to participating banks.”

Given the scale of the project, Jacobsen’s team concentrated on large co-investment lines – with standardised due diligence and investment approval processes and turnaround times of less than four weeks – for multinationals pursuing expansion strategies. There were 27 equity investments in subsidiaries of Carlsberg and 14 for Danone, and others for the likes of Cadbury and Parmalat.

Gradually, the emphasis switched to local companies. “What we saw was the skill base expanding. We were dealing with small companies, and when the opportunity emerged, they ran with it,” Jacobsen said. “The young Russians, especially, were so bright, so promising. It is very sad to look at what has happened since then.”

Asked to identify a country that has managed to successfully sustain private sector expansion, he points to Poland, noting that entrepreneurs now account for a significant portion of an economy previously subject to a mismanaged and unpleasant regime. The Baltic states and Hungary are also praised, Romania and Bulgaria less so.

Narrowing focus

Jacobsen’s tenure at EBRD ended in 2006. He had been approached by several Scandinavian institutional investors keen on exploring private equity opportunities in emerging markets beyond the BRIC (Brazil, Russia, India, China) economies. One of them, Denmark’s BankInvest, proposed establishing a joint venture fund management company.

BankInvest contributed most of the USD 94m Fund I corpus and helped raise the rest on the condition that investments span at least three countries. Jacobsen was adamant that Southeast Asia, and Vietnam in particular, should be included. They added the Middle East and North Africa (MENA) – Egypt looked interesting – and South Africa. Offices were set up in these geographies.

“It soon became clear that South Africa would be difficult. We made two investments in Egypt, in pharmaceuticals and chemicals, and they were great. Then the Muslim Brotherhood appeared out of nowhere, got into power, and it became impossible to sell those companies,” said Jacobsen.

Fund I generated distributions to paid-in (DPI) of 79% and a -3.9% IRR. The two Egypt investments, which exited at a loss, were the main drag on performance. The other eight deals, all in Vietnam across food and beverage manufacturing, construction materials, household appliances, and non-life insurance, did well. Jacobsen resolved to pursue a Vietnam-only strategy for Fund II.

The second fund closed on USD 153m in 2008, by which point BankInvest had exited as sponsor. Jacobsen and Kjaer – who Jacobsen first met when making his Carlsberg investments at EBRD – bought out BankInvest, taking two thirds-one third ownership of the fund management entity.

Fund II was notable for investments in two nascent Vietnamese conglomerates, Masan Group and Hoa Phat Group. Both have come to characterise the PENM story, featuring in Funds II, III, and IV. They are emblematic of the firm’s preference for repeat investments in strategic relationships.

“Whenever you make a new investment, you can do all the checks and due diligence, you can talk to everyone who ever worked there, but you don’t really know if the partnership will work,” said Jacobsen. “Instead of entering into seven or eight new relationships with each fund, the most valuable thing for us is the knowledge and trust we have built with a company.”

The relationship with Masan – which began with the acquisition of two of PENM’s Fund I portfolio companies – evolved in line with the needs of the Vietnamese conglomerate. PENM invested in unlisted Masan subsidiaries targeting mining and meat production, helping these businesses get traction and then exiting by converting its interest into shares in the listed Masan entity.

PENM’s second fund, for example, committed about USD 50m to several Masan subsidiaries between 2008 and 2009. Its position was consolidated and became liquid under Masan Group and a series of partial exits followed – the last was in 2017 when USD 100m worth of shares were sold to KKR. Fund II generated an IRR of 28%. Fund III backed Masan in 2013 and exited in 2020 with a 10.3% IRR.

It was much the same with Hoa Phat, a steel producer that expanded into multiple adjacent areas, and PENM hopes to replicate the relationship with food ingredients supplier Asia Ingredients Group (AIG) and in-airport services provider Taseco Air Services (TAS). AIG is in Funds III and IV, while Taseco is in Fund IV only. PENM expects Masan, Hoa Phat, AIG, and TAS to feature in Fund V.

“We want these companies to be in the fund. Many LPs require no crossover investments between funds, but we made it clear that is part of our strategy,” said Jacobsen. “Two-thirds of the capital in our upcoming funds will be allocated to these core companies and the rest will go to three or four new opportunities.”

New faces, old faces

Fund IV launched in 2015 with a USD 113m corpus and was fully deployed by the first quarter of 2021. The nature of the firm’s investment activity changed visibly between 2019 and 2021, largely due to travel restrictions, with one new investment and nine follow-ons. This compares to nine new investments and two follow-ons during the three years prior.

“We should have launched our fifth fund three years ago, but it just wasn’t possible. Fundraising died overnight because investors could not come and see us,” said Jacobsen. “We had some money left, and because Lars and I couldn’t go to Vietnam either, we put it into companies that we knew.”

Fund V is likely to see some alteration in the LP base. For the last three vintages, PENM has been supported by a cluster of Danish pension funds, but Jacobsen recognises this may dwindle as these investors come up against minimum cheque size constraints. Fund-of-funds, European family offices, and investors out of Korea and Japan are expected to feature more prominently.

What won’t change is PENM’s sweet spot. Private equity investment in Vietnam has grown significantly in recent years – USD 9.1bn was deployed in 2018-2022, up from USD 3.3bn for the five years before that – but this is primarily driven by an increased number of large-cap deals, which remain somewhat intermittent. PENM hasn’t seen as much movement in the middle market.

“We don’t want to raise any more than USD 200m, probably USD 150m-USD 200m,” Jacobsen said. “Vietnam still isn’t a large market and this size fits with our philosophy as a minority investor in companies we know well. We want to invest the full 20% allocation in each of them, and then for new companies, maybe we put in USD 5m and then another USD 5m if it goes well.”

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• Topics
• Southeast Asia
• GPs
• Vietnam
• PENM Partners