What is private equity?
Private equity is a term used to describe investments in equity in unlisted companies. Private equity firms typically invest via limited partnerships (funds) established for a period of ten years. The investors (limited partners) in these funds are institutional investors such as large pension funds. The private equity firms hence function as intermediaries between such investors and investee companies. The private equity funds' investments in investee companies are generally made with a long-term investment horizon that reflects the term of the funds. PENM's investment horizon will in most cases be three to seven years.
A private equity ownership offers a number of benefits based on its long-term investment horizon and agreements, which aligns management's and owners' interests. Private equity investors are active owners and will generally require a seat on the board of their investee companies in order to actively support the companies in determining the strategic direction of the business. At PENM we are highly selective and will only invest with owners and management where we share common objectives and agree on how to develop the company further. We seek to develop the investee companies by growing the companies and professionalizing the business systems.
Private equity investors
The objective of a private equity investor is to enhance the performance of its investee companies over time in order for the investor to sell its investments at a premium to the acquisition price. Some private equity funds take a controlling interest in the investee companies. Others - such as PENM - take a minority interest with the intention of creating a partnership with the existing owners and managers of the investee companies. Our aim is to support businesses; not to run businesses. We invest only in good and sizeable companies with a strong position in the market which already have a management team that we trust in. We invest solely in equity and do not use leverage to finance our investments.
Private equity in Vietnam
The strong economic and market fundamentals in Vietnam has attracted an increasing number of private equity firms with international capital to invest. There are a number of firms applying the term "private equity", but it sometimes includes investment activities in e.g. real estate and the OTC market. There are few fund managers in Vietnam with focus on classical private equity, i.e. a comprehensive plan for adding value, legal agreements with investor protection/rights and board representation. In addition to PENM, Mekong Capital and VI Group have an investment approach which is based on these elements.