(Tiểu luận) topic fund management companies andinvestment funds in viet nam

Currentlythere are about 44 fund management companies operating in the Vietnamesemarket. Stage 1 2011 - 2013: The growth of the fund management industry can be considered relatively fas

GROUP ASSIGNMENT

-ooOoo -TOPIC: FUND MANAGEMENT COMPANIES AND INVESTMENT FUNDS IN VIET NAM

Nguyen Thi Quynh Anh

Le Minh Duyen Luong Nhat Minh Phung Thanh Thao Tran Thi Minh Hanh Tran Le Vy

Table of Contents

A Fund Management Companies in Vietnam 3

I Current situation in Vietnam 3

1 Establishment conditions 3

2 Situation through each stage 4

II Evaluations 9

1 Achievements 9

2 Shortcomings and limitations 12

3 Solutions 14

B Investment Funds in Vietnam 18

I Current situation in Vietnam 18

1 Classifications of investment funds 18

2 Investment funds throughout stages 20

II Evaluation 23

1 Achievements 23

2 Limitations and reasons 24

3 Solutions 27

References 27

A Fund Management Companies in Vietnam

I Current situation in Vietnam

1 Establishment conditions

The Fund management company is also one of the entities subject to conditionalbusiness operations This means that in order to establish and operate, a fundmanagement company must meet the legal requirements, which include requirementsrelated to physical infrastructure, equipment, personnel, and capital.

- Behavioral competence, no legal violations

- Experience in the financial, banking, insurance sector

- Professional certifications as required

- Professional ethics compliance

Furthermore, the FMCs is required to have a minimum of 5 professional staffmembers with fund management professional certification

 Infrastructure Requirements:

Due to the nature of FMCs activities, which heavily rely on the development ofinformation technology systems, the physical infrastructure requirements for FMCs willprimarily focus on safety, data security, and various software systems The FMCs mustmeet requirements related to physical infrastructure, technical aspects, office equipment,computer systems, software for investment analysis, risk analysis, and management, aswell as secure storage and preservation of records, documents, and devices ensuringsafety and security for the company's working headquarters Additionally, the company'sheadquarters must also comply with regulatory requirements

 Shareholders/ Capital contributors Requirements:

According to the regulations in Vietnam, when establishing a FMCs, compliancewith personnel requirements is required for founding members, individuals, andorganizations, specifically as follows:

For individuals, they must have full legal capacity, not be subject to imprisonment,

or have their business activities restricted by a court order In the case of legal entities,they must operate legally and have the financial capacity to contribute capital

Shareholder/Member Structure Requirements: There must be a minimum of two

founding shareholders/members who are organizations meeting the financial andoperational duration requirements The founding shareholders/members, who areorganizations, must own a minimum of 65% of the charter capital, with insurancecompanies, commercial banks, and securities companies owning at least 30% of thecharter capital In the case of a company limited, the owner must be an insurancecompany, commercial bank, or securities company

2 Situation through each stage

(Source: Vfin)

In the ten years from 2011 to 2020, Vietnam has had outstandingdevelopment in the fund management industry, both in quantity and quality.Specifically, the issuance of new fund types (i.e open-end funds and ETFs)marked an important milestone in the asset management industry In Vietnam,FMCs belonging to insurance companies manage a significant proportion of thetotal industry AUM (77%) while 65% of AUM is managed by foreign FMCs.-Total AUM managed by FMC has grown dramatically over the past decade From

2011 to 2020, the AUM of the fund management industry grew at an average rate

of 16%/year: While all FMCs managed AUM at VND 98,58 billion in 2011, total

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AUM reached approximately VND 430 billion in 2020 Net asset value (NAV)reached about 57 billion VND, causing an increase of 15.3% in AUM Currentlythere are about 44 fund management companies operating in the Vietnamesemarket.

 Stage 1 (2011 - 2013): The growth of the fund management industry can be

considered relatively fast, but is still modest compared to the developmentpotential and needs of Vietnam's stock market

During this period, the number of FMCs decreased slightly while ROE and profitsskyrocketed in 2013 From the time the first securities investment fund was licensed to beestablished in May 2004 to December 31, 2012, there were 13 companies managing 23investment funds, including 17 member funds and 06 funds public funds (public fundsare all listed on the Ho Chi Minh City Stock Exchange (PRUBF1, MAFPF1, VF1,VF4,VFA, ACBGF) Total net asset value (NAV) of Funds as of December 31, 2012 wereVND more than 9 billion, accounting for about 10% of total assets under management Inaddition, FMCs also perform investment portfolio management activities for domesticand foreign organizations and individuals As of December 31, 2012, the total number ofinvestment portfolio management contracts for domestic and foreign organizations andindividuals was 307 contracts with the size of entrusted capital being 77,146 billionVND Thus, as of December 31, 2012, FMCs managed a volume of assets of about86,669 billion VND (equivalent to more than 4 billion USD)

 Stage 2 ( 2014 - 2015): Period of testing the endurance of fund

management companies

During this period, only the number of companies and portfolio managementscontinued to increase slightly For important indicators such as: profit, profit, ROE, NAVand AUM were all very modest In particular, 2014 saw a slight decrease in NAVcompared to 2013 According to assessments of FMCs, 2014 will be the most difficultyear for FMCs since the establishment of the industry (2003) until now This will also be

a particularly difficult year in terms of revenue for the vast majority of companies in theindustry when the operating cycle of closed-end funds has ended and funds operatingunder the open fund model have not had the necessary growth to have enough revenue tocover management costs along with the general market situation does not indicate thepossibility of significant changes in the investment trust assets In addition, regularlycarrying out capital mobilization activities for open funds will increase the fundmanagement company's costs compared to previous times Thus, the years 2014 and 2015may be a period of testing the endurance of FMCs and will also be the period where therewill be "acid tests", the harshest challenges, for existing and upcoming funds in theworld market Apart from a minority of FMCs that have entrusted funds from the parentcorporation, the majority of companies in the industry will face this challenging period.

 Stage 3 (2016 – 2020): The activities of fund management companies have

grown significantly during this period, however the proportion of fund size

is only quite small in stock market capitalization at the end of 2021

In recent years, the securities investment fund management industry in Vietnamhas matured rapidly and achieved many important milestones In 6 years, all indexesincreased sharply:

- Profits of fund management companies only reached 108 billion VND in 2015,but reached 585 billion VND in 2020, an increase of more than 5 times

- In addition, ROE increased approximately 4 times Two important indicatorslike NAV, AUM all increased (NAV growth extremely strongly: 8 times morefrom only 6989 billion VND in 2015 to about 58000 billion VND in 2020)

As of the end of 2020, the total value of assets under management of fundmanagement companies accounted for only 5.5% of Vietnam's GDP However, the ratio

of the value of assets under management of fund management companies to Vietnam'sGDP is smaller than that of some countries in the region (0.05% compared to 27%average in the world) In contrast, 2018 saw a decline in profits and ROE

70 billion dong and revenue of 600 billion dong.

- During this phase, many fund management companies developed existinginvestment portfolios and also sought new entrusted investors Among them,SSI Asset Management Company (SSIAM) achieved that, with SSIAM's totalassets increasing by 13% compared to 2011, and pre-tax profit increasing bymore than three times compared to 2011

Reasons:

- Foreign capital inflow : Thanks to the strong push of foreign capital inflows,especially from two Index Funds (ETFs), it made the stock market increasesignificantly in 2013 Investors bought a net amount of 42 million USD worth

of stocks in more than 10 days at the beginning of the year

- Legal documents issued : The fund management industry had a lot ofdevelopment in 2013 when legal documents opened the way for new products

to be issued such as open-end funds, or upcoming products like ETFs,retirement funds, real estate funds, and securities investment companies

Impact of these advantages on the stock market and the Vietnamese economy:

- Economic growth: The VN-Index of the Vietnamese stock market increasedsignificantly in 2013, contributing to the development of the Vietnameseeconomy in general

- In November 2013, the VN-Index increased by about 23%, surpassing thegrowth rate of many countries in the region This helped attract the attention ofinternational investors to the Vietnamese economy, contributing to promotinginvestment in local companies and enhancing trade relations.

- Financial growth : The fund management industry helped to promote financialgrowth for the Vietnamese economy by supporting local and foreign businesses

to invest in the Vietnamese market

- In 2013, the fund management industry helped to boost foreign investment inVietnamese businesses Franklin Templeton Fund bought 20 million shares ofVinamilk, which was a large investment on the Vietnamese market

- This increase is considered a sign of the development of the fund managementindustry in Vietnam during this phase, and also shows the interest of investors

in investment funds

- Fund management companies have also strengthened the implementation ofdiversified investment fund products and improved service quality to meet theneeds of investors

Reasons:

- Competition among fund management companies : To compete and meet theinvestment needs of customers, many fund management companies haveexpanded their scale of operations, implemented various investment fundproducts, and improved service quality

- Significant increase in deposits and investment capital sources: During thisphase, Vietnam had stable economic growth and the state budget was adjusted

to reduce taxes, support investment activities, creating favorable conditions forthe growth of deposits and investment capital sources

Impact of these advantages on the stock market and the Vietnamese economy:

- The growth of the fund management industry has contributed to leverage andrankings for the Vietnamese stock market, while promoting market liquidityand creating strong competition among fund management companies

- The fund management industry has had a positive impact on the Vietnameseeconomy during this phase Fund management companies have developed andpenetrated industries such as real estate, energy, natural resources, andeducation

 Phase 3 (2016 – 2020):

Notable aspects: During this stage, all indexes experienced strong growth.

- The asset management of the fund management sector reached a record high

- Fund management companies also focused on using new technologies toimprove their fund management processes and create more professional fundproducts

Reasons:

- In this phase, the stock market had become more stable compared to theprevious period, which provided favorable conditions for financial funds andincreased investor confidence in investment funds in the stock market

- Due to economic growth and improved financial conditions for investors, thedemand for investment in financial funds also increased significantly Thiscreated a large amount of new resources for the fund management sector,thereby enhancing the asset management of fund management companies

- With increased investment from investors, the demand for investment in thestock market also increased, thereby boosting the prices of stocks.

- According to a report by Bao Viet Securities Company (BVSC) published onDecember 29, 2020, the top-priced shares on the Ho Chi Minh City StockExchange (HOSE) increased by an average of 48% from the beginning of theyear to the end of the year This shows the positive impact of enhancedinvestment on the stock market

- The enhanced investment activity is supportive for the development ofbusinesses and the improvement of competitiveness This creates favorableconditions for the country’s economic growth

+ According to the evaluation of the General Statistics Office of Vietnam, thescale of investment in Vietnam grew significantly during this stage By the end

of 2020, the investment scale in Vietnam reached 4.65 billion USD, three timeshigher than in 2015

+ In addition, according to a report by Vingroup Corporation, Vinhomessuccessfully raised over 12.77 trillion dong through the issuance of stocks andbonds in late 2019 This demonstrates the positive impact of the fundmanagement sector on investment and development activities of businesses

2 Shortcomings and limitations

 Phase 1: From 2011 to 2013, the growth of the fund management industry

can be considered relatively fast, but still modest compared to the potential for development and demand in the Vietnamese stock market

The number of companies and funds decreased, with many units having to suspend operations or dissolve The remaining active businesses experienced low growth

- The difficult of Vietnam’s economy:

In 2013, Vietnam's economy continued to face challenges as GDP growth only reached about 5.42% In this context, the majority of investors were cautious The decreasing demand for financial investment has put pressure on the capital mobilization

process, plus the fact that most of these companies are small and medium-sized (charter capital 25-50 billion VND) so they were unable to stay afloat.

By the end of 2013, only 41 out of 47 fund management companies and 19 out of

23 (compared to 2011) funds were still operating

- Ineffective policies:

Apart from the general market situation, another important reason for difficulties

in fund mobilization is that current policies and mechanisms fail to encourage investors

to put money into creating funds Domestic fund-raising sources are difficult, and attracting capital from foreign investors faces obstacles due to tax issues, due to the tax rate difference between foreign investors trading through current accounts and the 25% tax rate of profits for investment funds

 Phase 2: 2014-2015, the period of endurance testing for fund management

companies

The number of companies continued to increase, but profits and ROE decreased

In addition, the net asset value (NAV) of fund management companies at the end of 2013 was lower than that of the same period in 2011 and 2012 For small and less established fund management companies, losses and further investment losses continued when the semi-annual financial report for 2015 was reviewed and announced Even big players in the industry, companies with foreign capital, also suffered losses, such as the Joint Stock Company Securities Investment Fund Management Vietcombank, Eastspring InvestmentsLimited Liability Company, VinaWealth Fund Management Joint Stock Company

- Limited "Land" made a limited profit

Due to the small scale of open-end funds and ETF funds (mostly 50 billion VND), the fees that fund management companies collect are very low Meanwhile, with small self-capital, only a few dozen of billion VNDs, plus the need for investment entrustment

is not yet common, the profitable piece of land for many fund management companies is too narrow

The profitability of open-end funds and ETF funds is uncertain, along with the lowinvestment efficiency and business performance of fund management companies, which

is causing these firms to struggle in raising funds to establish funds, as well as in finding clients to delegate investments NAV has not increased much, but has even decreased compared to the period of 2011-2013 (NAV table)

- Permission to establish fund management companies