With only very few exceptions the global infra and port investors have been flip-flopping over the last 5-10 years when it comes to investment and asset management and strategic decision-making in that regard.
At the mercy of market volatility they spend massive resources to secure one investment only to spend the same amount of resources to get rid of it a few years later.
It would be fair to say that a good deal of this behavior is inherent from the volatility of global trade and with that the local markets we invest in. But it would also be fair to say that a significant component is self-induced.
The focus, still seems to be primarily on using prediction as a means to deal with strategic decision-making rather than attacking the models we employ to work better with the volatility that is inherent in the markets.
There is a missing link – which is what we explore in this article with a view to set out a better framework for investment and asset management and related strategic decision-making.
For the full presentation: Strategy Re-work.
The missing link
Again. All gathered together in the meeting room. Various reports and paper scattered on the table and most likely some power point going on in the background with various market assessments and return calculations. It is time again to make another strategic decision about potential investment “x” or asset “y”.
Very meaningful if it was not for the fact that decision-bases keep changing from session to session. One investment a star one year, the next a dog.
How can anyone make meaningful strategic decisions in an environment like that? Frustrating at best – root cause of immense shareholder value destruction at worst.
But it’s not for lack of good people on the case or hard work for that matter. No, the solution lies elsewhere.
And the good news is that with that solution also comes the potential to substantially improve your return exposure.
The foundation for strategic decision-making is broken. As illustrated in below diagram most decision-makers are using a set of forecasted value drivers as base for their decision-making process. This turns the strategy on its head every time the markets shift.
The central problem is reliance on precision forecasting. For whatever reason it seems to stick, despite ample proof that we can can’t predict much even for the next year, let alone a 50 year concession…
And come to that, neither can the World Bank or the IMF. And they employ an army of PhD’s to work day and night on forecasting. So who are we to believe we can do any better?
No, we do not believe the solution lies in getting better at forecasting. We are convinced it lies in becoming less reliant on forecasting – or at least in not deceiving ourselves with forecasting.
With that guiding principle we have created this framework to deal with the missing links we observe in the behavior of many global investors.
The purpose of this framework is of course ultimately to work towards shareholder value creation. And in that regard we see much untapped value that be tapped into by working with the previous blind-spots.
What comes next?
We have laid out the key components we think are necessary for establishing this new framework in the presentation enclosed. Below diagram gives a brief overview of what we cover in that presentation.