Despite numerous challenges, the market for structured products in Vietnam has experienced significant growth in the last twelve months. The country is becoming a preferred venue for both local and foreign investors, and opening new opportunities for structured products providers following the launch of a derivatives market with a backdrop of improving economic indicators, such as low inflation and interest rates, according to Steven Mantle (pictured), offshore fund raising director at VietFund Management (VFM), a fund management company in Vietnam.

"The market for structured products this year is up over 20% and everything is very positive at the moment," says Mantle. "There is lots of interest in Vietnam and the key is to differentiate, to bring a product to the market that isn't available elsewhere - something that is exclusive."

According to Mantle, a significant number of oversees providers want different offerings to their local markets so anyone can pick up an actively managed fund investing in listed equity, or exchange-traded fund (ETF). "[However] in terms of bespoke products, for example, we have one Asian asset manager working with us [that is] requesting [that] a variety of corporate debt instruments issued by companies in Vietnam are put in to a specialized fund managed by us at local level purely for their local institutional market," he says. "We hear various ideas from private equity targeting specific sectors for their investors from a developed market."

The launch of the first derivatives market and central counterparty (CCP) clearing house in Vietnam is expected to promote the use of structured products although with a cautious approach, according to Mantle. "Liquidity is a few million US dollars a day, this will increase as foreign investors get more access, but at the moment there are still some details to iron out on counterparty risk" he says. "In terms of structured products, the market is still relatively in infancy stage, although covered warrants will start trading later in the year. Even something such as margin lending for retail investors is still very carefully governed to ensure bubbles aren't create, or in an attempt to control irresponsible lending."

The fund house started the year with US$75m of assets under management (AUM) and is now in the region of US$120m, according to Mantle. "We are up over 50% in terms of AUM and this has been a reflection of two things - the performance of the capital and the bond markets as well as the investor appetite at domestic and foreign level," he says. "Lots of Vietnamese high net worth individuals, are coming to our funds. Also, we observe high interest from investors in south east and north Asia."

Mantle notes that daily liquidity is now often between US$200m and US$300m and that, in terms of stocks, foreign ownership increased in the last fifteen months. "The foreign ownership limit (FOL) is rising," says Mantle. "This is a sign of demand for the best companies in Vietnam and also for additional supply coming on." However, according to Mantle, "the majority of the book building process for IPOs has been taken up by foreign investors".

At the moment, VFM has four mutual funds, one ETF and discretionary portfolio management service, and is also working on new products. "We worked closely with the Vietnamese government and the regulators to create the Provident fund - a corporate pension fund within Vietnam," Mantle says, adding that currently over half of the country's population is under 35 years old and that one day this is going to be a burden. "One day these 45 million people under 35 years old will face a completely different set of challenges and will be in need of pensions and health care," he says. "Therefore, we need to start preparing for the future now and we hope to launch this fund in the next year or two."

According to Mantle, however, the company can't offer clients full capital protection. "We can't shelter clients from the market," he said. "although when it comes to our actively managed funds, when we see a correction coming in the market, we often sell out some of the equities to move a bit more into cash to protect ourselves from the likely downside. This is part of our active strategy."

VietFund Management's ETF (E1VFVN30) was selected by Korea Investment Management in July 2016 as the underlying for synthetic ETF listed on the Kospi exchange.

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