VinaCapital has launched one of VietnamÆs first fixed-income funds. The VinaCapital Vietnam Fixed Income Fund hopes to take advantage of current high interest rates to invest in an actively managed portfolio of sovereign, semi-sovereign and internationally rated corporate bonds issued in Vietnam.

Vietnamese bonds currently command significantly higher spreads compared to Libor and US rates. Government bond yields have peaked at over 20% in recent months, with current yields hovering in the high-teens.

The open-end fund will invest primarily in government bonds with sovereign risk (S&P BB rating), semi-sovereign risk (bonds issued by state-owned enterprises) and top-tier deposits denominated in US dollars and Vietnamese dong.

VietnamÆs bond yields compare favourably to regional countries with similar credit ratings, such as the Philippines and Indonesia, where yields are lower at 7%-10% and 10%-12%, respectively, VinaCapital says.

The launch of the fund comes after Roy Fong joined VinaCapital as its director of fixed-income investments. Previously, Fong worked at commercial banks including SouthQuay Global Markets and London Forfaiting in Hong Kong, where he traded fixed income, convertible bonds, syndicated loans and derivatives.

Andy Ho, VinaCapitalÆs head of investment, will manage the fund. Ho is the manager of the London-listed Vietnam Opportunity Fund, a diversified closed-end fund that has beaten the Vietnam Index 10 of the last 12 months. Previously, Ho was director of investment at Prudential VietnamÆs fund management company, where he helped launch two funds including the countryÆs largest domestic mutual fund.

There are very few options for international investors looking to invest in VietnamÆs debt market, which doubled in size during 2007 to reach a total of $9.8 billion in bonds outstanding, and VinaCapital hopes to make that work to its advantage.

ôVietnam is in a virtually unique situation as the governmentÆs tightening of monetary and credit policy, to control inflation, has resulted in corresponding rises in domestic interest rates, for both Vietnamese dong and US dollar deposits and consequently created a very attractive environment for investment in fixed-income instruments,ö Ho says. ôThe bond market in Vietnam is emerging as a strong source of capital, as an alternative to the securities market.ö

Ho expects the fund to attract investors seeking the potential for net returns from high yielding bonds alongside the potential for additional capital gains.

Since VietnamÆs foreign debt is relatively low at approximately 25% of GDP and the currency is not freely traded, Ho says the risk of a currency downturn that could affect the fundÆs performance is relatively limited.

VinaCapital manages three closed-end funds trading on the AIM market of the London Stock Exchange. These funds, with a combined NAV of more than $1.8 billion, are the $701 million Vietnam Opportunity Fund, the $790 million VinaLand Limited real estate fund, and the $338 million Vietnam Infrastructure Limited.

VinaCapital also co-manages the $32 million DFJ VinaCapital technology venture capital fund with Draper Fisher Jurvetson.