Mekong closes Vietnam fund at $112m

Mekong Enterprise Fund III launched in 2014 and had a first close of $87 million in May 2015. The GP raised $50 million for its previous fund in 2006, with significant support from development finance institutions. FMO is among those to re-up for Fund III, committing $17.5 million, while the International Finance Corporation (IFC), a new investor, said it would contribute $15 million.

The new fund will focus exclusively on consumer-related businesses, which is where Mekong has enjoyed the most success in the past. Typical targets will include retail, restaurant and consumer products and services businesses, with companies concentrating on the convergence between online and offline also coming under consideration.

Investments, which could be for minority or majority stakes, will be in the $8-15 million range. Approximately 12 investments are expected to be made during the first three years of the 10-year fund.

Mekong Enterprise Fund II made 10 investments and has divested all but three of them. The portfolio includes mobile phone retailer Mobile World, from which the GP has made multiple partial exits: to CDH Investments in 2013 and then via the public market in 2014, following an IPO on the Vietnam bourse. Mekong also retains interests in Vietnam Australia International School and Asia Chemical Corp.

Notable full exits include restaurant operator Golden Gate, which generated a 9.1x net multiple and a 45.1% IRR. The GP made an initial commitment of $1.5 million in 2008, helped the business expand from five to 67 outlets, and sold its stake in 2014 when Standard Chartered Private Equity acquired a significant minority interest in the business for $35 million.

Speaking to AVCJ in 2014, Chad Ovel, a partner at Mekong, said that investors often point to the relative youth of the private sector and management teams and question whether a Vietnam fund can deliver a portfolio of 10 investments and generate consistent returns of 2-3x.

"Our response to that is because of the huge opportunity of scalability in the consumer sector it is possible to have 2-3 runaway successes," he said. "In our second fund we've got a 22x and an 8x. Those can offset any mistakes you might have in 1-2 companies that come in below cost. We have become much more aggressive in cutting losses early to the benefit of the IRR, slimming down the portfolio and focusing on the winners."

Established in 2001, Mekong has a team of more than 25 people based in Ho Chi Minh City and Hanoi.

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• Topics
• Southeast Asia
• Fundraising
• Consumer
• GPs
• Mekong Capital
• Vietnam