Fund managers eye retirement option

The State Securities Commission (SSC) is expected to green-light the open-ended fund model by the end of this month. Accordingly, brokerages can deploy typical open- ended structures including mutual funds, retirement funds, hedge funds, exchange-traded funds and unit trusts.

All of these fund structures allow investors to both contribute to and withdraw from funds regularly but it is retirement funds which have caused the most excitement among local fund managers.

Retirement funds present a “golden opportunity” in Vietnam at the moment, said Dominic Scriven, representative for the Vietnam Business Forum’s capital market working group. Scriven runs Dragon Capital – one of a few big fund management firms in Vietnam.

This “golden opportunity” came from Vietnam’s growing population and the absence of a private retirement fund in the nation, according to Scriven. Vietnam is the world’s 13th most populous country with 86 million people mostly between the ages of 25-35, but the only social security funds available so far are state-run and have limited fund sources.

“The fund type [retirement funds] has not appeared in Vietnam at all although it is very popular around the world,” said Henk Ruitenberg, CEO of Prudential Fund Management which manages about $1.2 billion in assets.

VinaCapital managing director Andy Ho said: “We believe that the future of fund management will be in mutual funds and retirement funds”. The firm has some $2 billion under management.
Ho estimated the money in the government’s social security funds was much lower than the total needs of retired people. Meanwhile, such state-run funds in most countries were generally not very efficient.

He said instead of committing a fixed amount to retired people, the state should make investments with the outstanding money and divide the earnings among retired investors.
Ho indicated that VinaCapital was conducting market research about local retired people’s financial needs in preparation for his firm’s plans to launch retirement funds.

However, there remains one major obstacle for raising retirement funds: local people’s investment habits. Being unfamiliar with open-ended funds and not acquainted well with insurance services, Vietnamese people tend to save their money in banks, or invest in gold or other high-liquid investment channels because of ongoing high inflation and macroeconomic volatilities.

“The biggest obstacle is how to persuade people to put their cash into retirement funds.
“The process will depend on the market situation,” said Ho.

Ho hoped the progress of encouraging people to invest in retirement funds would be supported by the regulators’ specific tax regime for the funds. The regime is currently under SSC development.

He was less positive on other open-ended fund types such as  hedge funds and exchange-traded funds, saying they would meet with difficulties in terms of legal regulations as the framework for such funds were still incomplete. “Some other simple types might meet with difficulties of unfavourable market conditions,” added Ho.