Vietnam’s high exposure to nat cats has a significant impact on supply chains says VinaCapital’s Ly Xuan Thu
Thu, who is the Vietnamese investment management and real estate development firm’s head of risk and compliance, knows that the country’s natural catastrophes exposure can make it difficult to secure appropriate insurance.
“Our company is an asset management company and we encounter the issue of natural catastrophe risk with property projects every year, especially in central Vietnam,” she said.
“We purchase insurance policies to protect property, but some insurers don’t really want to cover us because we have a really high risk. However, there are other insurers willing to write the policy for us.”
Thu points out that other industries are not always able to source appropriate insurance, so they devise alternative risk-management strategies.
“Many manufacturing companies don’t even have factories in central Vietnam, as natural catastrophe is the big issue for the manufacturing sector there,” she said.
“They establish distribution channels there to deliver goods or products, but they avoid that area during the high-risk time.
“Natural catastrophes have significant impact on the logistics of a company and its supply chain.”
Thu, who is based in Ho Chi Minh City but grew up in the Mekong Delta, told SR that, after natural catastrophe risk, economic risk was Vietnam’s most pressing challenge.
“The government is in the process of restructuring the banking sector because it has not performed well in the past and was impacted by the economic crisis,” she explained.
“The government is trying to restructure the sector to review the non-performing loans (NPLs) and control the inflation rate, while still maintaining a reasonable economic growth rate. It established a company to buy NPLs back from companies to improve the liquidity of the local banking sector.”
Thu is well placed to understand these economic challenges having worked for several large accounting firms, including PricewaterhouseCoopers, in Thailand, Singapore and Vietnam. Last year she joined VinaCapital, which manages three closed-end funds trading on AIM, the international market for growing companies trading on the London Stock Exchange. They are the VinaCapital Vietnam Opportunity Fund Limited (VOF), VinaLand Limited (VNL) and Vietnam Infrastructure Limited (VNI).
“For the capital market, most of the time we deal with market risk and we rely on the health of the Vietnam Stock Index,” she said.
“Because we have equity funds and we trade every day, we depend on the health of the blue chip companies in Vietnam; if they have a good performance, we also have a good performance for the fund.”
Risk and return
Thu describes her current role as focussing on building an integrated enterprise risk management strategy across VinaCapital.
“We develop a risk register at corporate and fund level, and then we report quarterly to the board,” she said.
“We balance risk and return for every single project we engage in, and the board has very experienced people who have strong backgrounds in risk management and corporate governance.
“They challenge and ask questions about risk and return for our projects, so we are quite comfortable with the knowledge of the board members not only at the fund level but also at the corporate level.”
Thu explains that the VNI fund invests in energy, transportation, telecommunications and environmental utilities projects.
“We look for opportunities to build with the government in the infrastructure sector – big projects like bridges, hydropower plants and industrial parks – so it depends on the stability of the economy and government policy,” she said.
“We are comfortable with this operation at a corporate level but we keep an eye on the macroeconomic risk.”
As Thu explains, there are particular risks that must be dealt with when managing VNL, a real estate fund that makes direct investments in the residential, retail, hospitality and office sectors. The issue, she says, is that over the past five years, real estate companies have created an oversupply of residential and commercial buildings, while demand has fallen away.
“Sales are way down, leaving a huge inventory of properties,” she said. “Prices have fallen as owners try to sell quickly.”
Thu is the only Vietnamese board member of Pan-Asia Risk and Insurance Management Association (PARIMA), which she says gives her the responsibility of developing a local PARIMA chapter.
“We will establish a risk manager community in Vietnam and organise conferences and seminars here,” she said.
“Risk management maturity in Vietnam is the challenge at this early stage. However, most companies have a person who is in charge of insurance – maybe they take care of both insurance and risk management – so at an operational level, PARIMA can help them understand the benefits that ERM can bring to their company.”
Thu says that she hopes her work with PARIMA can elevate risk management practices in Vietnam to “international standards”.
“That will help attract more investors and encourage them to learn more about Vietnam’s economy and opportunities,” she said.