Fund focus: Asian LPs amplify Mekong’s ambitions

COVID-19 has contributed to a more Asian profile to the LP base for Vietnam’s Mekong Capital. Several European and North American investors had expressed interest in the firm’s latest middle-market fund, but had to bow out, not being able to travel for due diligence. Logically, most of the new investors in Mekong Capital Enterprise Fund IV (MEF IV) – which closed last week at $246 million – are Asian and already have some presence in Vietnam.

Altogether financial institutions either headquartered in Asia or operating via a regional office represent about 20% of the fund by value. Development finance institutions account for 30%, with 12% coming from Asian fund-of-funds. The rest is a mix including a sovereign wealth fund subsidiary, a foundation, and various family offices. Previous vintages had a stronger Western flavor.

Mekong was heading this way regardless of the pandemic, however. MEF IV hit its first close in December 2019, and its roadshow was limited to Hong Kong, Singapore, Seoul, and Tokyo. Key backers include Japan’s Mitsui Group and Shinhan Bank, as well as the Asian Development Bank.

“Asian LPs understand Asia much better and normally Vietnam is already a part of their global strategy, so our fund is complementary. When you’re talking to a European or North American investor who has never invested here, they can get cold feet for all kinds of silly reasons,” says Chris Freund, founder of Mekong (pictured right).

“In the US, there’s a huge trade deficit, they’re printing a lot of money, and massive inflation will eventually happen. By every economic indicator, the Vietnamese dong is a much healthier, safer currency than the US dollar, and the yield is much higher. It’s funny how global investors say there’s too much currency risk in the Vietnamese dong relative to the US dollar. I don’t see it that way at all.”

The previous fund, MEF III, launched in 2015 and went on to deploy $112 million in nine companies. MEF IV will put more than twice that amount into only 12 with a continued focus on retail, education, restaurants, consumer services, healthcare, and fast-moving consumer goods. Five deals with an average check size of $15 million have been identified to date.

Investments will be minority stakes of 40-45%, with some scope for selective buyout activity. These will be managed following Mekong’s continuously refined ontological approach, which stresses realism about the role of human nature in operational overhauls, tactful business coaching, empathy with the investee perspective, and the relative nature of so-called best practices.

“It’s all about transformation and getting people to shift how things occur for them, not trying to solve issues by telling people what to do. The norm in private equity is to give solutions and ideas, but sometimes companies don’t own those ideas, so they don’t execute,” Freund says.

“Our role is to really get into the world of the CEO and employees, asking questions that could help them discover something new for themselves. It won’t work if we tell them how to do it – they have to discover it for themselves.”

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