Dominic Scriven is running late to our Zoom meeting. You might think this a fairly regular occurrence for the founder and chairman of Dragon Capital, the largest private investor in Vietnam, given his status as one of the most respected fund managers in southeast Asia, but he’s nonetheless full of apologies when his floating head pops up on my computer screen a little later than planned.
Scriven, a fabulous storyteller if ever there was one, weaves the most wonderful excuse for his tardiness. He’s been attending the Loseby Lecture – an annual lecture organised in association with Dragon Capital – in remembrance of Frank Loseby, a solicitor who acted for Ho Chi Minh in Hong Kong in the early 1930s.
“It’s a really cool story about Vietnam and Britain. In 1931, Ho Chi Minh was on the run in Hong Kong and the French agents dobbed him in to the Hong Kong authorities who subsequently apprehended him. They put him on trial and said he needed to be expelled back to French Indochina where there was a death penalty waiting for Ho Chi Minh. Of course, they were doing this because they were all colonial mates together. And this English lawyer called Frank Loseby pops up and he goes, ‘That’s not right. They can’t do that.’ And he files a suit of habeas corpus and gets Ho Chi Minh off,” Scriven chuckles.
“The Hong Kong authorities are embarrassed. And so they appeal and they start changing the law, messing around. And this Loseby goes, ‘I’m not having any of this. This is fucking around with the rule of law.’ He went all the way to the House of Lords – and the House of Lords advised the British government that they’ll lose. So there’s basically a deal done, and Ho Chi Minh is free to go wherever he wants and he goes on to Moscow. The rest is history: he comes back to Vietnam in 1945, saves the nation, and creates Northern Vietnam.
“This Loseby fellow is amazing. We wanted to do an annual lecture on the rule of law here as part of our outreach. We’ve just closed off the sixth of our annual lectures and it’s very cool. We have the head of the UK Law Society talking about the rule of law. What is it for? It’s fundamental. It’s wonderful, it’s great stuff. Anyway, I’m very sorry I’m late.”
Loseby acts as our jumping off point for what transpires to be a fascinating interview, filled with stories of Vietnam and its rapid growth from a war-ravaged country to a nation filled with economic opportunity. It’s a world Scriven has occupied from the early 1990s when he first spotted its potential on a whirlwind tour of the nation. He left his position as a fund manager in Hong Kong and spent two years learning Vietnamese at Hanoi General University before “running out of money” and setting up his own fund.
Scriven co-founded Dragon Capital in 1994 and launched the closed-end fund VEIL (Vietnam Enterprise Investments Limited) a year later in preparation for the opening of the Vietnam stock exchange in 1996, but the financial crisis in Asia would scupper those plans for several years. Former colleagues back in Hong Kong would often ask one another about the state of the Vietnam market and the reply was always the same, “Dominic’s working on it.” By 2000, Scriven finally got his way: the stock market opened with just two companies listed, both of which were on Dragon’s books.
From the outset, the fortunes of Dragon Capital have been inexorably tied to those of Vietnam. Launched with just $16m invested in its VEIL investment trust, Dragon now employs 170+ people with VEIL valued at more than $1.6bn and listed on the FTSE 250. Since 2000, it has delivered annualised returns of 11.6% for investors. Or, as Scriven surmises, “Not breathtaking, but it’s good, it’s consistent, and over a long period, it’s great.”
Was it always the plan to lay roots in Vietnam? As is so often the case, not exactly. “Like everybody, when you start a business you think, ‘Oh, I’ll give it a couple of years then sell the business and go and hang out on the beach.’ But needless to say, that didn’t happen because there was a crisis and another crisis and another crisis. So you sort of get into it and then you get middle-aged, and then you realise actually if you sold a business you wouldn’t know what to do anyway. So you stay there and then you start thinking about long-term issues like succession and legacy and all those things. I wouldn’t change it. It’s been an interesting journey.”
Interesting is one heck of an understatement. Please do enjoy a thoroughly entertaining chat through Scriven’s colourful life and career.
Photo by Ciaran McCrickard
Square Mile: What led you to Vietnam and ultimately to settling there?
Dominic Scriven: My first job was at M&G. In those days, M&G was an independent fund manager, and I got put on the Asian desk. Eventually, I found my way to Hong Kong and worked as a fund manager there for a few years. But I wanted to take some time out and I wanted in particular to study a tonal language. So, you are familiar with the fact that most languages are phonetic, the meaning of a word comes from a sound. In tonal languages, the meaning of a word comes from a picture and so in linguistic terms, that’s it. It’s a hugely different way of thinking about language. In Vietnam, thanks to the Jesuits, there is the Roman alphabet, so the learning of the language is made quite a lot easier, as opposed to learning all the characters.
I was at university in Hanoi for a couple of years studying, which was an absolutely fantastic way to learn the country, learn the language, and then I ran out of money, but decided that I wanted to stay there. That meant finding something to do, so I did the only thing I could do, which was think about starting a fund.
That was in 1994. So Vietnam didn’t have any markets then, but there were a few people doing early stage funds. They were what we would now call venture funds or private capital funds, that sort of thing. Dragon Capital started with a small fund – $16m – but we didn’t go into the sort of classic venture areas. We looked for Vietnamese companies. We went and talked to Vietnamese owners and early privatisations and some of the private sector groups and persuaded them we weren’t dangerous and we could be helpful.
The whole idea was based on the fact that Vietnam would start its stock market soon. We launched our fund in 1995 and there was a plan to launch a market in 1996, but of course that was when the Asian crisis happened, so that market was put off until 2000. We slightly twiddled our thumbs for a few years and lost a bit of money and pulled our belts in, but we did a lot of learning. Then in 2000 the country opened a stock market and there were two companies listed and we owned stakes – good stakes – in both companies. And that was good. And then the market went up, we went down and went up, boom, boom, boom. And here we are 22 years later and the market’s down this year.
Whether or not you get that exemption often comes down to looking people in the eyes and the bloke asking, ‘This ain’t going to fuck up, is it?’
If you’d invested in day one, basically $1 went to sort of 12 by the end of 2021, which is not brilliant actually, but it’s getting there. Compounded it’s 11.6% annually in dollars, net of everything. That’s really what we’ve been able to achieve for our clients, so it’s not breathtaking but it’s good, it’s consistent and over a long period it’s great. In fact, I’ve looked since the beginning of the Vietnam stock market – there wasn’t an emerging market index then actually – but if you look at every other index in the world, Vietnam beats them all: gold, DOW, NASDAQ, everything.
That’s the journey – growing with Vietnam. It means being long term, because when we arrived, company law was completely silent on foreign investments. Which basically meant anybody who expressed an opinion would go, “Well, foreigners can’t be investors here.” So we had to go to the prime minister’s office and seek exceptions for every single investment we made before the stock market opened.
You meet people and you try to explain, but at the end of the day, whether or not you get that exemption often comes down to looking people in the eyes and the bloke asking, “This ain’t going to fuck up, is it?” So the proposition has to be good.
Square Mile: This was never meant to be a get rich quick scheme, was it? You couldn’t float in as the colonisers and swindle from the country’s growth potential and then leave. It just doesn’t work that way.
Dominic Scriven: No, I mean people try and do that everywhere, don’t they? But that’s a short-term strategy you can probably only do once. If you want to create something that has substance it requires more.
I actually wrote this down the other day: “Passion, vision, confidence, independence, risk management and patience.” Those words all come to mind in terms of how you get from there to here.
When Dragon was 25 years old a few years ago, I did a lot of thinking about how on Earth we got here. It came to me that in our case, it wasn’t really a function of numbers – because numbers are just numbers – it was a function of values, it was a function of culture. And culture really represents values.
The thing about values is the most important ones are not what you do or what you say you do. The most important values are represented by what you do not do. The power of the negative is immense.
Of course, the problem with that is it takes time to work out what you don’t do. I can tell you I do something and maybe I do it, but if I tell you I don’t do something, you’ve got to wait and test me, right?
Photo by Ciaran McCrickard
Square Mile: Do you have people who have inspired you or influenced your management style?
Dominic Scriven: Not really, to be honest. That’s not meant to sound like I’m out here carving my own path. Vietnam is now no stranger to much of the world, but for a lot of the period we’ve been here, it’s been a small, unknown, unvisited nation, and we’ve just got about doing our own thing. We are very influenced by the way Vietnam’s influenced.
In practice, Vietnam has gone its own way, but many of the triggers and the policy points and the areas of evolution have reflected what’s happened in neighbouring countries. So there’s a sense of not reinventing the wheel. There’s a sense of ‘in the land of the blind, the one-eyed man is king’ in a way. I think that each generation and each nation does it in a slightly different way, but they’re more or less all trying to do the same thing. So we’ve been following that, with Vietnamese characteristics.
Square Mile: You say you don’t forge your own path, but of course there wasn’t another asset manager in Vietnam until 2003, almost a decade after you first launched…
Dominic Scriven: I suppose there’s been a lot of being first – but it’s not difficult being first, not necessarily. It’s not about being brilliant, it’s about knowing the way of things.
For example, it would be nonsensical for Vietnam to have no foreign capital in its banking sector, therefore it would be nonsensical to assume that there were no broadly sensible principles of governance about the way banks are run, et cetera. And beginning to bring all these things together.
More recently, we have spent ten years of technical assistance work with the Ministry of Finance on pension funds. Last year, we launched Dragon Capital Vietfund Management (DCVFM), the first voluntary retirement pension program in Vietnam. In fact, it’s still the only pension fund. In some ways, it’s a duck-billed platypus – various different orders or classes of creature – and it’s going to be difficult. It’s difficult for companies to willingly sign up. But I know that in ten years time it’s going to be a great part of Vietnam and it will be a great part of Dragon. But again, that’s not because any of us have any particular brilliance, it’s because we know it’s going to happen.
It’s not about being brilliant, it’s about knowing the way of things – like, it’d be nonsensical for Vietnam to have no foreign capital in its banking sectors
Square Mile: You’re preaching the values of common sense, but it seems to me that you’re having to be the grown-up in the room when it comes to explaining this to government.
Dominic Scriven: The issue with them, of course, is government always has tonnes of different priorities – and how do they order their priorities? I would argue that institutionalisation generally is still not given the priority that it deserves here. So we have enormous levels of retail turnover in the markets, both equity and debt with the result that there’s not much governor on risk. So we had a bit of a blow-up in the corporate debt market this year entirely because inexperienced retail investors were engaging in the corporate debt and issuers just took them to the cleaners. But then I feel that if I go banging on about that, they think I’m just banging my own drum and they’re a little bit sensitive to that.
Square Mile: I imagine that comes from prior experience of overzealousness. Are there any particular failures that acted as steep learning curves for Dragon?
Dominic Scriven: Oh, there are a bunch of lessons learned. I suppose the two key points that come out are governance and ambition. Being over ambitious never really works. It can work in the short term, I think. But one of our big mistakes was to be over ambitious and that took us into areas where our risk management was below where it should have been. And as a result we had an accident. When you have an accident it always takes much longer to clear up than it does to happen, right?
That was where we embarked on an investment in mining in 2007, before the GFC. And there was a sort of chapter of mistakes really, if I’m absolutely honest. It was a painful process. And I tell you what, one of the peaks of that over ambition was that we ended up being a majority shareholder. We’re a financial institution, we run our own business on behalf of clients, we’ve no business controlling companies. That’s not what we do. We provide capital, we’re an institutional investor. So overreach, that would be one.
The other lesson is really governance. Governance is also to an extent a function of risk management, but it’s more to other aspects as well. It’s aligning interests and obligations, it’s degrees of transparency, it’s treating parties fairly, knowing when to be at arm’s length. The mistakes that we’ve made in governance are essentially our inability to properly assess other people’s governance. So sometimes that comes down to putting too much faith in people or in situations or relationships – or sometimes because you don’t have enough faith. You try to create other government structures to paper over what you think is inadequacy and actually you are using a sledgehammer to crack a knot and that has its own unintended consequences.
Photo by Ciaran McCrickard
Square Mile: These lessons are especially pertinent now you’re launched Green Dragon in Bangladesh? I suppose therein lies a very new market which, similar to Vietnam, has tremendous growth potential.
Dominic Scriven: Yes, is the short answer. I would have to say that Vietnam is our strategy. Vietnamese capital markets are our strategy, asset management investment is our DNA. So investing in Vietnamese capital markets is really about as close as you can get to our chromosomes as possible. But over time you sort of learn things and you think, “Well, where else would these be relevant, these lessons?”
What we call ‘frontier Asia’, or below emerging Asia, is an area where we ought to feel empowered. In part, that’s because one of the questions people used to ask is ‘Who’s going to compete with Vietnam?’, and in our part of the world the answer, in our minds, was Bangladesh.
Bangladesh has the right demographics, but there’s differences in the culture too. Of course, Bangladesh has some advances over Vietnam, one of which is that it has a common law legal system and legal tradition and financial markets. We think that’s an interesting area. So we’re in a joint venture – again, we wouldn’t control it – with a partner that’s key and we’ll see how it goes. But that’ll take a while. That might well be ten years before we know how successful that is. But that’s fine, float it. But having done that, we come back here and we think, “Right, well there’s quite a lot going on in Vietnam still.”
Square Mile: For those who might not be familiar with Dragon Capital, could you detail your business strategy.
Dominic Scriven: We run around $5bn of capital on behalf of mostly international investors who range from sovereign wealth in Europe and Asia through big foundations, endowments, families, wealth platforms, and so on. Our clients are in Europe, they’re in the US and they’re in Asia, so in a way we would say we’ve been trying to bring Vietnam to the world in an investment sense. How do we do that? We do that through investment structures and through fund structures.
We have several different strategies. The first is what we call a semi-liquid strategy. It’s semi-liquid because it’s in the form of an investment trust, which is listed on the LSE, it’s a FTSE 250 company, it’s about $2bn. Then we have a liquid strategy which is open-ended. So daily liquidity in and out, which is smaller and centred around the UCITS fund concept. Then we have what I would call more of a deal-based structure, which is of concentrated portfolio, longer term, looking through cycles and not focused on a benchmark. All of those are long-only equity in Vietnam, but they’re different ways. We have to be quite careful not to muddle up the different ways because we’ve only got Vietnam – and so we need to ensure that mandates are clear, there’s no crossovers, and that interests are managed properly, et cetera.
Everybody has a story here. It’s a rich environment and one that repays study and, that word again, patience
Those are the structures and we have created portfolios from a universe of 1,600 companies, so it’s quite big. We screen that down to our own Dragon universe of about 130 or 140 companies, and then we follow about 80+ in extreme detail. We create portfolios of about 25 to 35 holdings. The thematics that drive the portfolio construction are these sort of long-term themes that everyone I think is aware of in Vietnam: demographics, urbanisation, industrialisation, income growth, the growth of the middle class, infrastructure, these sort of multi-decade themes.
Then we back those thematics into the markets, which means that around a quarter of our portfolios are in financials, different kinds. It could be SME banking, it could be mortgage financing, it could be consumer lending, it could be Fintech-type concepts. And another quarter or so of our portfolios are involved in essentially urbanisation plays. So that’s infrastructure, urban development, residential development, it’s apartments, it’s shopping malls, that sort of area. And then the balance is split between materials, which are of course necessary for infrastructure, and some energy.
One of the strong aspects of Vietnam’s economy is agriculture. So fertiliser, which of course is energy related, is a big play for us. Then probably the biggest of the remaining sectors is retail. Retail and consumer durables, which could be autos, could be smartphones. F&B is quite expensive at the moment, but F&B we’ve been long term in, too.
In a way, no real surprises. But it’s important to know the companies and know what they’re going through, what their challenges are. The market’s reasonably liquid now, but you still can’t just call up a broker and buy a whole weighting and then sell the weighting the next day. We have investment horizons that are one to three years in length. In fact, there’s one company we’ve owned in the portfolio since 1996.
Square Mile: I was going to ask you about that… I believe that bank’s grown from one or two branches to several hundred across Vietnam.
Dominic Scriven: Yes, this was a small bank in Ho Chi Minh whose main shareholder really became a banker because he was quite successful at making soap, of all things. He was a professor at university, but during the tough times he started making soap. He was so successful that the local government said ‘We need you going into business.’ What area of business would you like to be in? This was in the very early days of reform post-1975. He said, ‘Well I’d like to go to banking.’ So they enabled him to go into banking – and boom! It was, I think, the first bank to have foreign investors and it’s a great bank. Pretty cool, right? There’s a lot of stories like that, as you can imagine.
Square Mile: I feel that’s the story of Vietnam.
Dominic Scriven: Everybody has a story here. It’s a rich environment and one that repays study and, that word again, patience. That sort of approach I think is sensible in most frontier markets. You look at the big themes, the long-term themes, because you’re never going to be able to get it right short term.
You’ve got to have patience, which means that investors, your client base, need to have reasonable expectations. It would be wrong to encourage massive short-term funding structures in a place that’s not able to support them. Being prepared to be an advocate, to be first and to enjoy it. Enjoying it, even when it’s tough.
Photo by Ciaran McCrickard
Square Mile: It strikes me that you are very conscious of what you are putting in as much as you’re getting out of Vietnam.
Dominic Scriven: We’ve all got to make a profit, right? We’ve got to make a profit for our clients. They’ll have my head off if we don’t. So we can’t afford to be asleep at the wheel. And we can’t afford to be too woolly. We need to care about what we’re after. But I think being a bit more holistic, yes. I mean, I don’t think the people who pull wings off flies get very far in frontier markets.
Square Mile: Does Vietnam sit outside of the more turbulent side of the geopolitical landscape?
Dominic Scriven: Well that’s a ‘yes’ and a ‘no’, because the ‘no’ would be that Vietnam is a massively open economy. Exports and imports are each 100% of GDP. So trade is 200% of GDP. That’s a huge number. And FDI for investment is like 6-7% GDP. Nobody really has a level that high anywhere. So very open and very much into trade agreements and international cooperation. So if we hit a major bump in the road and we get massive global protectionism, Vietnam is exposed. Or indeed just a massive slowdown in trade, Vietnam is exposed for sure. There’s a lot of looking at that. What’s going on at the moment? What’s it mean for trade numbers, trade flows, investment flows.
The immediate comfort, I would say, is that Vietnam does appear to be actually benefiting from the current global fallout. I’m very nervous about making that point, but Vietnam’s largest trading partner is China which only has a $40-50bn deficit, and its second largest trading partner is the US which has a $50bn surplus. That’s no accident, because as manufacturers and traders are repositioning away from China, a logical stopping place is Vietnam. Actually that’s not just people in China, but it’s the whole set of supply chains. Japan, Korea, Taiwan, Hong Kong, China, it’s all sort of kinetically repositioning itself.
Vietnam seems to be benefiting because it’s quite large and it’s cost competitive and the demographics are OK and the government has got its head screwed on right. We’re not protected from the stresses in the international economy, though, be they the strength of the dollar or rising interest rates or supply chain constrictions.
We’ve got to make a profit for our clients while being a bit holistic. I don’t think the people who pull wings off flies get very far in frontier markets
Square Mile: Does the evolving landscape in Britain, Brexit or our political comedy of errors, make itself felt in Vietnam?
Dominic Scriven: It’s relevant to us because we have a vehicle that’s an investment trust listed on the LSE and that’s a dollar-based fund and we get whipped around by the sterling market. So there’s some very real impact. More generally the evolution of the UK, if I’m honest, that’s not of great import.
Britain does have considerable soft power and a lot of skills: education, English language, finance, professional services, oil and gas, renewable energy, iron engineering, construction expertise. Those will always be relevant and play a role. But the nation of Britain, I don’t know, I think there’s basically been surprise here at Brexit and ever since. Britain was seen as the sure-fire footprint into Europe and a reliable way of looking at the USA – and that’s been shaken up. I don’t think people quite know how to view it. It’s going to take time.
Square Mile: From a market perspective, how have things settled down after the pandemic? Is investment on the rise again?
Dominic Scriven: Vietnam actually came out of Covid with a slightly better reputation than when it went in because they took a very serious approach to controlling it, to vaccines and to reopening again, so its credibility has improved, compared with their neighbours. But we move onwards and look forward. The big thing now is how does everybody position for this slightly dysfunctional world we’re in? Vietnam doesn’t like to be asked to choose its friendships, it’d like to be a friend of everybody, so that will be interesting. It was a member of the Nonaligned movement many years ago, and I think that concept of being nonaligned is going to come back and hopefully that’s going to be the model for the country.
Photo by Ciaran McCrickard
Square Mile: I wanted to talk to you about your art collection, which is something that I didn’t know about prior to this. I believe the focus is on Vietnamese propaganda art?
Dominic Scriven: Yes, the Dogma Collection. It’s got two parts to it. One is an archive, a really big archive of material, visual art material from 1945 to 1985. So covering really the birth of modern Vietnam, which is combat art and political art and philately and photography and stuff, so it’s very cool. And then there’s a more modern angle which is centred around an art prize, which is focused on self-portrait.
It’s the art form that’s, shall I say, the least inhibited of all the various art forms. So writing, filmography, photography, et cetera. Fine arts, the visual arts were relatively uncircumscribed. How artists see themselves in a time of rapid change, it’s a fascinating viewpoint and I think they’re quite brave. Simply reflecting on themselves, that requires some courage.
And then the archive material is really just because political art was everywhere when I was here and nobody’s really bothered to focus on it. It’s more a function of Vietnam and its history.
Square Mile: The dissonance between the military themes and the national symbols of Vietnam, I thought was staggering.
Dominic Scriven: If you’ve studied political arts, Chinese art is full of people with big tummies and happy smiling faces. And Russian is very socialist, realist, graphic, magnificent, but very much a style. Cuba and Poland are remarkable. I think they’re probably my favourites. But the Vietnamese was real-life shit. Pull the people together, mobilise them, that type of thing. It’s very real. And an important part of the country’s history.
Really that’s a stewardship thing for me. It’s for Vietnam, not for anybody else. Work out the relationship with the people, don’t impose. That is a key part of how we’ve managed to keep going in Dragon as long as we have.