Vietnam’s Mekong closes Fund IV at $246m

Mekong Enterprise Fund IV (MEF IV) was launched in September 2019 with a hard cap of $250 million. Mitsui Group, a longstanding LP re-upped alongside a significant number of existing backers. The International Finance Corporation (IFC) provided $30 million.

AVCJ understands that the fundraise was characterized by less dependence on LPs in Western markets and greater interest from new Asian investors, especially in Japan and Korea. Japanese support came from prominent life insurance, asset management, and financial services groups, including government-connected entities, while Korean interest was more corporate in nature. There was also a strong showing by existing and incoming family offices.

MEF III closed in 2016 at $112 million with contributions from the likes of Sarona Asset Management, UPMC Master Trust, IFC, and fellow development finance institutions FMO. Mekong closed its first fund at $18.5 million in 2003, with subsequent vintages raising $50 million and $64.1 million in 2006 and 2007, respectively. MEF IV is the GP’s fifth fund overall, including Vietnam Azalea Fund, a $64 million pre-IPO vehicle raised in 2007 following expressions of interest from LPs.

MEF IV will make about 12 growth equity investments in a range of $10-35 million in Vietnamese companies that can benefit from growth in consumer demand and the adoption of modern business practices. The fund will focus in particular on retail, education, restaurants, consumer services, healthcare, and fast-moving consumer goods. Investments will be primarily significant minority stakes of 40-45%, although there will be some scope for selective buyout activity.

Mekong’s first three funds have been fully exited, with MEF II realizing a net return of 4.6x. MEF III has now been fully deployed, with portfolio companies including farm-to-table restaurant chain Pizza 4P’s, mattress and bedding retailer Vua Nem, and Pharmacity, the largest local drugstore chain.

The standout deal from the broader portfolio is electronics and appliances retailer Mobile World, which was invested by MEF II in 2007 and secured an overall return of 57x across multiple exits. Other exits include Asia Chemical Corporation, which generated a gross return multiple of 2.6x and a gross IRR of 15.1%, as well as pharmaceuticals company Traphaco, which saw a gross return of 6.3x.

Mekong's approach to value creation involves in-house functional teams comprised of two digital transformation specialists and four recruitment professionals who work across the portfolio. Last year, the firm named Nguyen Thi Minh Giang, formerly head of the portfolio skills sourcing unit, as a partner with responsibility for talent and culture. Additional resources in this vein include a “value optimization board” of industry experts who offer high-level advice.

“We are so excited to be launching this Fund in Vietnam at this time. Over the last 20 years since Mekong first established its operations in Vietnam in early 2001, Vietnam has consistently been a forward-looking, stable, and attractive investment destination,” Chris Freund, a founding partner of Mekong, said in a statement. “Vietnam’s middle class continues to emerge as the driving force in the economy and provides a robust base for the country’s ongoing growth.”

Vietnam is expected to benefit from several headwinds that include rising incomes, supply chain relocations, increasing urbanization, favorable demographics, and a rapidly digitizing consumer base, buoyed by a strong public health response to the COVID-19 pandemic. However, economists warn that the country’s reliance on exports could prove a macro vulnerability amid a global downturn.

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