It was late 2006, Vietnam capital markets were booming and there was a lot of investor interest. At that time, we kept encountering stories about how other funds were raising a lot of capital and were growing very fast. They seemed to be making easy money investing in pre-IPO deals that would subsequently go on to list.
Meanwhile, we received many expressions of interest from LPs who were approaching us and wanted to invest in our funds. They proposed that we launch a Pre-IPO fund and they would invest.
Thus, Vietnam Azalea Fund (VAF) was launched in June 2007 with $100 million in committed capital after an easy fund-raising effort. The Fund made a total of 10 minority investments in companies that were expected to list on the stock exchange within 12 months of the initial investment.
Then in 2008, all hell broke loose. The stock market was in the process of crashing, hitting a bottom around mid-2008, down around 80% from its previous high. For a while at least, VAF's initial investments had lost around 70% of their value. Meanwhile, some of the Fund's LPs were facing a liquidity crisis so the Fund decided to cap the drawn down capital at $64 million, the amount which had already been drawn down.
The Fund's first 6 investments were deployed before the bottom of the crisis so in retrospect, the Fund overpaid for those initial investments. This resulted in a very deep J-curve for the Fund. However, the Fund's subsequent investments, including some follow-on investments, were at attractive valuations, which contributed to the Fund's performance.
Several of the Fund's investee companies implemented some aspects of Vision Driven Investing, which contributed to those companies growing the fastest within Vietnam Azalea Fund. For example, Phu Nhuan Jewelry (PNJ) and Traphaco applied various aspects of Vision Driven Investing. And Masan Consumer was a model of some aspects of Vision Driven Investing, although they had done this on their own and it wasn't the result of any intervention by Mekong Capital.
After the global financial crisis, we felt some pressure to make some divestments. Thus, in late 2010, we completed the divestment from Masan Consumer, generating a total return of 2x for the Fund, which seemed to be a good return over an 18 month time horizon. But six months later, KKR announced their investments in Masan Consumer at a valuation 2x the price at which we had sold. Then KKR themselves ultimately achieved a 2x return, and thus if we had held this and sold together with KKR, we may have achieved an 8x return. Similarly, in November 2016, the Fund completed the sale of all of its shares in PNJ. Over the next 2 years, after we divested, PNJ's stock price increased 3 times. So we learned some valuable lessons about not selling too early.
In November 2017, Vietnam Azalea Fund completed its final divestment. Over its 10-year lifetime, Vietnam Azalea Fund generated a gross return multiple of 1.8x and a gross IRR of 10.5%. Although we made many mistakes, and this was below our original targets, the Fund did significantly outperform its peers and Vietnam's public equity markets over the same period.