Mr Vietnam picks the best of the frontier markets

Markus Winkler pads softly out of the lift and stands in the lobby of the University Hospital of Zurich clutching a pink plastic bag full of magazines. He looks tired – but then, so would you a few days after having an inch of your colon removed. Then he smiles genially, suggests a drink, and the creases around his eyes vanish.

We wander downstairs to the basement café, order two large glasses of iced water, and settle in at a quiet table in the corner. Five minutes in Winkler’s company is, frankly, an exhausting experience. Even in his temporarily diminished capacity, the words tumble out, cataloguing a working life that began more than four decades ago in the Swiss Alps and is now gently winding down in the Gulf of Thailand, where he spends a large part of the year.

In between, he built and sold half a dozen wealth management firms, turned down a job working as number-two to the investment guru Mark Mobius, and amassed a very tidy fortune investing in emerging Asian markets. Oh, and he became – and remains – Vietnam’s greatest European financial ally, backer and believer; over the last 17 years he has helped to direct more than $1 billion into private equity firms, many of which he co-founded, in the fast-growing frontier state.

What emerges over the course of the next two hours is the story of a career shaped as much by financial acumen as by abstract factors such as luck and timing, not to mention a highly un-Swiss love of risk. 

Winkler’s ability, Forrest Gump-style, to be in the right place at the right time – and to know when to make himself scarce – is almost uncanny.

While studying economics at the University of St. Gallen in 1973, he set up his own wealth management firm, VGZ, which is still alive and kicking and located nearby on Mainaustrasse.

Casting around for a way to distinguish his firm from Zurich’s many other asset managers, he settled on Japan. Little was known about the market in some European circles, so Winkler contacted every Japanese bank and broker he could think of.

“I was amazed to see that my library on Japan was better equipped than that of the then-manager of UBS’s Japan fund,” he says.

After renting office space and launching a direct marketing campaign, he set out to meet investors.

“Telling prospective investors that I knew more about portfolio management than the ‘gnomes of Zurich’ with their grey hair and pinstripe suits was a real challenge.” But it worked, and VGZ gained a loyal following among Swiss and European investors.

Wind forward over a decade to 1989, and you find Winkler selling his firm to a European fund manager that he declines to name, in order to “concentrate on investment opportunities in emerging Asia”.

The reason for his discretion soon becomes clear. Having bought VGZ on the assumption that the Nikkei would go on rising for ever, the European institution was burned when the market peaked a year later and began its long, slow slide. Twelve months on, Winkler received a knock on the door and agreed to repurchase VGZ at a fraction of the price.

This is a recurring theme.

He first visited Vietnam, the market that came to define his life and career, in 1994, immediately falling in love with a place that had only begun to open up to the world eight years earlier.

Half a dozen funds, including Ho Chi Minh City-based Dragon Capital, had sprouted up, backed by a mix of local and foreign capital. He travelled the length of the country, meeting investors, watching and observing.

But he felt the market wasn’t ready for the big time – and he was right. Four years later, the Asian financial crisis blew up. Other markets in the region were harder hit, but Vietnam’s young capital markets suffered badly, with funds pulling out and money fleeing back to New York, London and Singapore. Only Dragon’s Vietnam Enterprise Investments (VEIL) fund survived, and only then by the skin of its teeth, thanks to a $12 million loan from the International Finance Corporation.

Then in 2001, Winkler read that Washington and Hanoi were engaged in talks aimed at normalizing US-Vietnam trade relations. He jumped on a flight and headed east. While the Vietnam he found was not in a good place, struggling for growth and unable to attract private-sector capital, he decided to stick around.

“It was the right time to invest,” he says. “I considered Vietnam to be by far the region’s most interesting macro story and investment case, so I decided to focus wholly on the country and to become the competence centre for Vietnam in Europe.”

It is an accurate if somewhat dry description of the man and his life from that moment forward.

Winkler threw himself into making sure that Vietnam worked, visiting the country up to six times a year and typically spending two to three months on the ground. When he wasn’t in Hanoi or Ho Chi Minh City, meeting firms, funds and investors, he flitted around Europe, talking to fund managers and organizing and running Vietnam-themed conferences.

Since 2002, he reckons he has been responsible for channelling more than $1 billion in European institutional capital into Vietnam funds.

“Around $800 million has come directly from me and investors around me, as well as Swiss private banks and asset managers with an open ear for emerging markets in Asia, who I have known for ages,” he says. The remaining $200 million is indirect, he adds, the result of “the hundreds of presentations, publications and seminars I have held or organized”.

At first, it wasn’t an easy sell. The VN-Index fell steadily, from an already low base, through the first 30 months of the new century. Growth was good if unexceptional, while the country was yet to evolve into a sponge for foreign direct investment.

Winkler continued to roam the land, meeting ambitious young entrepreneurs and older nationals who had made their money in the US and former Soviet states before coming home. Everywhere, he saw people willing to work hard and pull together to reap rewards. Yet there was precious little interest from Europe’s fund managers, and barely anything in which to actually invest.

Slowly, his hard work began to pay off. In February 2002, he received a call from John Shrimpton, the English co-founder of Dragon Capital. Winterthur Insurance, a long-standing investor in VEIL was, remembers Winkler, “struggling in the post-9/11 world. Volatility was rising and the Swiss insurance group was being forced to sell its stake in the fund at a substantial discount.” Did he want to buy in? Winkler bit Shrimpton’s hand off, wrote out a cheque for $16.4 million, and became a substantial shareholder in the pioneering fund.

Winkler began to field calls from Vietnam-based fund managers who coveted his cash and connections, and European investors keen to access a market that was showing signs of life.

The VN-Index crawled along for the next few years before going on a tear, shooting up from 300 in early 2006 to four times that level a year later.

Winkler earned a reputation for being able to whip up capital at a moment’s notice. In November 2003, Kevin Snowball, the chief executive of PXP Vietnam Asset Management, called while Winkler was waiting to board a flight.

“He wanted to launch the PXP Vietnam Fund, his first offering, but he was struggling to get the $6 million he needed to get off the ground,” Winkler says. “I was about to leave Switzerland to go on a tour of southeast Asia, but I made a couple of phone calls and raised the missing $3.6 million.”

He would spend the next seven years on PXP’s board of directors.

Two years later, Juerg Vontobel, a veteran operator who cut his teeth at First Chicago Bank and ran ING’s Vietnam operations in the middle of the 1990s, rang looking for advice and funding.

He was keen to launch a fund, which became VietNam Holding when it was launched in June 2006, with Winkler stumping up 60% of the paid-in capital. The Cayman Islands-domiciled investment firm is still listed on London’s AIM Market; at the end of July, it had a net asset value of $193 million.

Another notable investment, dating from November 2007, was when Winkler raised 60% of the capital invested in Vietnam Property Holding and Vietnam Equity Holding (VEH), two investment funds run by Saigon Asset Management. He remains a shareholder in both.

VEH, a Stuttgart-listed open-ended fund with more than $200 million of assets under management, continues to invest in undervalued small- and mid-cap stocks in the real estate, consumer goods and technology sectors. It has grown 106% since inception and 70% over the last five years, outperforming the VN-Index.

It’s hard at first to equate the man with his achievements.

True, no one is ever likely to be their peak self when sitting in a blazing hot hospital café clad in pyjamas. But can this genial chap with the salt-and-pepper beard and unthreatening demeanour of a quietly successful dentist, really be the tough operator described by a fund manager the previous week over drinks in a Saigon bar as “Mr. Vietnam”?

Winkler shifts in his seat. Like many Swiss, he’s deeply uncomfortable with personal praise and wary of claims that he might have helped spark Vietnam’s capital markets into life.

“It’s true, I don’t know anyone with this deep insight into Vietnam living in Europe,” he says finally. “That’s why I got the nickname ‘Mr Vietnam’.”

But no other investor, surely, was as influential in his day.

When Chris Gradel, the co-founder of Ho Chi Minh City-based VinaCapital, approached him in 2003 to invest in his new closed-end Vietnam Opportunity Fund (VOF), Winkler suggested a few tweaks to the prospectus. According to documents seen by Asiamoney, he suggested replacing the distribution of capital gains in the form of taxable dividends with tender offers at net asset value, allowing shareholders to choose whether to take the profit from the table.

A year later, Gradel agreed to the changes, and Winkler doubled the size of the new fund to $36 million. VOF is now a diversified fund with $1.8 billion in assets under management and branches in Vietnam and Singapore.

VinaCapital later launched a real estate fund, VinaLand, which still focuses on the residential, retail, hospitality and office sectors, and trades on London’s AIM.

It has to be asked, though: would Vietnam be where it is today without his energy, drive and ability to gather and channel serious foreign capital into funds investing in small caps with little working cash but bright futures?

True, the $1 billion-plus he has helped to raise pales in comparison to the $17 billion that a single Korean conglomerate, Samsung, has invested in the country.

Winkler purses his lips at the question: “I believe Vietnam would be the same place. If it wasn’t me, it would have been someone else. But I will admit it’s unusual for a European investor to go that deeply into a frontier market so far away.”

Again, it’s hard to penetrate the self-effacing cloak that forms each time he’s asked to discuss the direct impact of his own thoughts and actions. Ask his peers, though, and a different picture emerges.

“It’s easy to look at Vietnam and see good growth, a booming private sector, and plenty of working capital,” says a leading Ho Chi Minh City investor who knows Winkler well. “None of that was there when he arrived. If you were looking for capital to start a private equity fund 15 years ago, good luck with that.”

Even his detractors – and there are many – credit him with helping to put Vietnam on the investment map.

“He’s very Marmite,” says one fund manager, referring to the sticky black spreadable paste that people famously either love or hate.

Another investor, who fell out with Winkler 10 years ago and hasn’t spoken to him since, adds: “I don’t like him. But I do respect what he’s accomplished.”

To be fair, the man is clearly aware of his obstinacy and ability to ruffle feathers. He reaches back in his memory to 1989. Asia was starting to recover from its recent crisis, while Japan was still riding (for a few months more) the mother of all bull markets.

“A head-hunter called me on behalf of [the emerging-market investment guru] Mark Mobius, asking if I wanted to work as his assistant in Hong Kong,” at Templeton Emerging Markets Group. Winkler was at a loose end after selling VGZ, and he thought long and hard about the offer.

“There were a few sleepless nights, but in the end, I turned the proposal down. Most probably, it wouldn’t have worked anyway, I think – two strong characters working side by side usually doesn’t go well.”

It’s impossible to ignore the fact that the capital he helped to raise has funded several early-stage private firms that have since become national champions. The list includes Vinamilk, Vietnam’s largest dairy producer, and Mobile World, the country’s largest retailer by revenue and profits, with interests spanning consumer electronics, fresh food and e-commerce.

Mobile World’s shareholders include Dragon Capital, Singapore-listed Jardine Cycle & Carriage, and Kuala Lumpur-based private equity firm Creador, which invested $43.8 million in the firm in February.

Spend long enough with anybody, and you start to see what makes them tick. Money matters to Winkler, just as it did to the Zurich gnomes he faced down as a young buck. He reckons that over the years, he has made a five-fold cumulative return on his investments in Vietnam. If correct, that means he has turned his $200 million into a cool $1 billion and expanded the overall investment pool from $1 billion to $5 billion. Not bad for a decade and a half’s work in a market that likes to veer sharply between devastating down-cycles and adrenaline-fueled bull markets.

But there’s more to it than the money. When the seminars and conferences in London, Zurich and elsewhere are mentioned, pride creeps into his voice. And he clearly wanted Vietnam to succeed from the start.

“I always loved the country, ever since my first visit,” he says. “I respected the people, their hard work and mentality. I considered it a once-in-a-lifetime opportunity.”

Many have said, Winkler included, that the emerging Asian state is the world’s last great emerging market, with the potential to become the Taiwan or South Korea of southeast Asia, filled with export-focused firms fully integrated into regional supply chains. He nods.

“When I first visited, the country was a recipient of food aid from the World Health Organization, but for me it was always a question of when, not if, they’d succeed. Now, it’s a major exporter of seafood, nuts, coffee and rice, and it’s still the best investment story I’ve seen in my life.”

So where would he put his cash to work if he was a young investor just starting out? “I have the same view as [I did in] 2001,” he replies. “I’d look for non-export-oriented companies that benefit from Vietnam’s rising purchasing power. Retail is ideal, and real estate is a no-brainer. I made a couple of great short-term property bets where prices jumped 10-fold in less than six months.”

He points to Ho Chi Minh City, a city of 14 million growing by 750,000 people a year. “Prices [there] can only go in one direction. The demand for affordable housing is insatiable.”

He also identifies an unusual metric: the benefit of investing in firms run by a woman chief executive, highlighting the examples of Vinamilk’s Mai Kieu Lien, DHG Pharmaceutical’s Pham Thi Viet Nga, and Phu Nhuan Jewelry’s Cao Thi Ngoc Dung.

“It’s interesting that the chief executives of some of the most successful corporates are female,” he says. “When we were building a research team at VietNam Holding, about 80% of our analysts were females. We hired them because they are really intelligent and hard-working, and married to their jobs, while men are more interested in pubs and bars.”

Asked what investments in Vietnam he remembers with the greatest affection, he replies without drawing breath: “Vinamilk. It was one of the best long-term investments I ever made. I rebalanced it I don’t know how many times.”

He also made a bundle at the height of the global financial crisis by gobbling up shares in locally listed funds at huge discounts.

“This way, I was able to turn my worst investment – in VinaLand – into a very good investment,” he says.

He still owns shares in Dragon’s VEIL fund, as well as VietNam Holding, Saigon Asset Management’s Vietnam Equity Holding and VinaCapital’s two funds. He is gently easing himself into retirement, and spends more time now at his home in Thailand, but says he has no plans to sell or reduce his holdings any time soon.

An investment colleague in Ho Chi Minh City says that Winkler is regularly on the phone asking for data, market analysis and research. Those close to him say he still knows people close to the ruling party in Hanoi, and can call on help if and when it’s needed.

Winkler needs to leave: his medical procedure was a complicated one and he has a meeting with his doctor. Before he goes, we discuss one final issue: Vietnam’s future. The investor did much to lift up the country during its dark days when most fund managers wanted nothing to do with the frontier state. The same investors are now casting covetous eyes in the market’s direction.

True, Vietnam’s private sector is young and its capital markets still worryingly shallow, but a host of other metrics point in the right direction. The IMF tips economic output to swell by about 6.5% this year and next; in 2017, Vietnam attracted a record $35.9 billion in inward FDI, according to the Foreign Investment Agency. And despite rising 23.5% in the 12 months to the end of August 2018, the VN-Index is still “attractively valued compared to the rest of the region”, notes one local broker. 

So where does Vietnam go from here? Winkler clutches his pink plastic bag a little tighter and points to three factors likely to work in its favour. The first is its inclusion in the MSCI Emerging Markets Index, which is both long overdue and likely to happen by 2020. That will allow it to shed its frontier-market status and to be tracked by funds with more than $1.6 billion in assets under management.

The second involves China. A mix of factors including rising wages, political meddling in corporate affairs, and a trade war with the United States, are eroding some of Beijing’s credibility. Corporates from Korea, Singapore and Malaysia, as well as China itself, are shifting production to Vietnam, attracted by its lower labour costs, surfeit of highly educated young workers and free trade agreements with Europe and the US. Investors are following in their wake, putting their capital to work in unlisted private firms and undervalued stocks.

“Three years ago, Hong Kong wasn’t interested at all,” Winkler says. “Singapore – no interest. China – no interest. Malaysia – no interest. But now everyone is moving their gaze to Vietnam.”

The third factor is an unusual one, if only because politics is an issue rarely discussed in a one-party state. Yet it’s clearly a subject close to Winkler’s heart.

“People don’t realize how strong the political system is,” he says. “Parliamentary debates are broadcast live here – real, hard debates, there for all to see. It’s not like China, where the internal pressure will explode at some point, or India, which makes no progress because politicians debate everything until they are blue in the face, then pass a bunch of diluted bills they don’t enforce.

“That’s why Vietnam will continue to outpace its neighbours, why I made more money here than I could have done in India or China, and why I will continue to make more in the future.”