Tag Archives: Strategy

The Future of Asset Management in the GCC (Part 2)

March 26, 2015 By in Asset Management Tags: ,

In the second of a two part series, this column outlines a vision for the future of asset management in the GCC.

The asset management industry in the GCC has blindly followed developed market dictates. The main focus is listed equities. But the GCC markets have neither the depth or breadth to allow an active strategy to flourish. A passive strategy does not need asset managers.

The only other truly active asset class in the region is private equity (PE). PE managers have focussed predominantly on what they call late stage investing: buying shares of companies shortly before they list. This strategy has performed well on a few now famous deals. However, fund performance has been abysmal.

The problem here is where is the value creation? A firm that buys a company and quickly IPOs it is not an asset management firm but rather an investment bank that is providing underwriting and equity capital market services.

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Crisis Response Strategies

March 10, 2015 By in 1feautred, Strategy Cornerstone, Strategy Tags: , ,
This entry is part 3 of 3 in the series Strategy

In a world of uncertainty management is constantly evaluating potential risks as they unfold and deciding how to respond.

At one end of the response spectrum is what might be called the Anglo-Saxon Fast & Furious model: ignore all risks until they become an existential threat of such dire proportions that there is only one available response and it is blatantly clear to all involved.

At the other end of the spectrum is what might be called the Asian Ancient Wisdom model: treat everything as an existential threat at all times and avoid taking any proactive decisions whatsoever lest it lead to greater danger.

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Who Wins, the Trader or the Investor?

March 2, 2015 By in Trading, Investments Tags: , , , ,

The perennially favourite discussion topic is trading versus investing. What’s the difference? Is it short time horizon versus long time horizon? Is it growth versus value? Is it Soros versus Buffet?

This post is a continuation of my 2007 article in The National. Reading the previous article is not necessary to benefit from this post, but looking at the ideas across an eight year period might be helpful.

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The Family Holding Company: More Than Just A Legal Structure

February 25, 2015 By in Family Business Tags: , , ,

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With generational change increasing, the idea of institutionalising family businesses has gained wide spread acceptance. The magic formula seems to be create a holding company to hold the shares of the operating companies, a shareholder agreement, a terms of reference for the board and maybe add some independent directors to the board. Focussing on the holding company aspect, there quite often is no strategic plan let alone business plan. The holding company direction is set by the agenda of the constituent operating companies. Talk about the tail wagging the dog.

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Second Order Questions and Sterilising the Oil Price Effect

February 5, 2015 By in Oil Tags: ,

Consider, if you will, an oil exporting nation. Consider further those nations whose commodity exports far exceed their budgetary needs. What is a nation to do with such excess wealth?

There are two main approaches to this. The first is the more conventional strategy inherited from central banks, in many ways the precursors to SWFs. This method, which I will call risk-off, seeks simply to hold foreign exchange reserves, usually the US dollar, in the form of high quality, low risk assets, usually US Treasury bonds.

The second strategy, which I will call the risk-on, borrows heavily from pension and endowment funds. Investments are made not to protect value, but to create value so as to meet future obligations. Not only is public equity as an asset class targeted, but all manner of alternative investments including but not restricted to private equity, hedge funds, real estate and high yield debt.

So as not to confuse the point that I am trying to make, I would like to clarify that there is no right or wrong to which method a government chooses, as the choice is driven by policy considerations not investment considerations.

Back to our story. If an oil exporting country with a risk-on strategy suddenly faced oil prices dropping by 50%, what is the net effect to its revenue? Using Norway as an example, their circa 1.7 million barrels per day of export would lose USD 85 million per day in revenue or USD 31 billion per year.

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Adaptive Strategy Construction

November 16, 2014 By in Strategy Cornerstone, Strategy Tags: ,
This entry is part 2 of 3 in the series Strategy

In a previous post, Deconstructing Strategy, I discussed some of the difficulties in developing a strategy. In this post I present a method that has worked well for me. The philosophy behind this method is based on the two ideas that the Pareto principle, also known as the 80/20 rule, applies to business strategy and that strategies must adapt to new information and changes to the business environment.

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My Zawya Story: Global Financial Crisis

November 5, 2014 By in Strategy, Strategy Cornerstone Tags: ,

This post is part of the My Zawya Story series.

The global financial crisis that broke in the latter half of 2008 was painful. At Saffar we had concluded negotiations on a partial exit of Zawya at a fantastic IRR but the crisis put an end to that transaction. The bad news continued as the crisis decimated Zawya’s core client group, financial services, and impacted revenue in multiple ways including a big decline in online advertising. We built the company and reached dizzying heights of success, where we about to now ride it all the way down again?

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My Zawya Story: Strategic Growth Decisions

November 2, 2014 By in Strategy, Strategy Cornerstone Tags: ,

This post is part of the My Zawya Story series.

If negative cash flow the main characteristic of the foundation phase of a start up and break even cash flow represents the institutionalisation phase then the third phase is growth represented by increasing positive cash flows. This is where the fun begins. All stakeholders are basically happy, assuming a lack of greed, and strong excess cash flow growing at close to a triple digit rate really opens up the options in achieving your vision. The three main choices, not necessarily exclusive, are pay dividends to the shareholders, invest in organic growth and grow via acquisitions.

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Deconstructing Strategy

October 27, 2014 By in Strategy, Strategy Cornerstone Tags: , ,
This entry is part 1 of 3 in the series Strategy

I think that it is safe to say that most people entering the work force view strategy as some kind of mystical plan developed by all knowing executives using arcane skills. At the other end of the spectrum I don’t think that there exists a C-level executive who at least once didn’t wonder whether strategic planning wasn’t a ritualistic sham, a cosmic joke played on executives the world over. I know that I have experienced both feelings.

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My Zawya Story: Deciding the Business Model

October 27, 2014 By in Strategy, Strategy Cornerstone Tags: ,

This post is part of the My Zawya Story series.

As an investor I have seen many entrepreneurial mistakes and one of the greatest misunderstandings has to be the difference between a market opportunity and a business model. A market opportunity is a gap in demand and supply, in particular a demand for products or services which is not met by current supply. This creates the potential for profit but does not guarantee it. To get from the what, potential profit, to the how, actual profit, requires a business model. I have seen many promising entrepreneurs fail even after identifying lucrative market segments simply because they jumped in without planning how they were going to convert the opportunity into revenue let alone profit.

In terms of Zawya the opportunity was clear: there was a high demand for Middle East data and information with little comprehensive supply. Ihsan and I were on opposite sides of the two main issues: how to source the data and information and how to generate revenue.

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