This is the first part of a series of posts leading up to our sessions in the Value Track in the Innotribe sessions at Sibos next week. Sibos is the annual conference of SWIFT (the Society for Worldwide Interbank Financial Transfers), an organization of more than 10,000 banks in 212 countries that facilitates secure, reliable intrabank transactions)
The conversations are going to be around the question of value. What creates value and what are the assets and capabilities that create value? The truth is that value is changing. And it provides both risks and opportunities to the investment management business.
I have to look no further than my own backyard here in Boston to see this happening. This was a center of industrialization that began over 150 years ago. In those days, companies required large amounts of capital to buy and build factories. The financial system provided that capital and companies were organized to reward capital. Investors, shareholders were put first. Externalities were not given much consideration. The model was extractive. Capital had the rights to all the excess value after the costs were covered. This is still the norm today but the dynamic is shifting.
Today in Boston, our economy continues to be quite vibrant but it’s different from the past. Today, companies don’t require the large amounts of tangible capital to get off the ground. The brick and mortar industrial buildings have largely been converted to creative spaces for cutting edge knowledge companies. To succeed, these companies need access to smart people, good partner networks and fresh knowledge. You can’t buy and control this kind of capital the way you can a machine. You have to attract this kind of capital and keep it connected to your company. Attraction versus extraction.
So thinking about management and ownership in classic ways has to change. You have to think more broadly about stakeholders. You can’t just put shareholders first or you can’t get the resources you need. The model is no longer extractive, it’s attractive. Can you attract the people and partners and resources you need? How do you keep them engaged and contributing to your organization?
The answer to these questions is relevant to investment managers (and all kinds of financial investors) in two ways: 1- How should you be analyzing your portfolio companies and also 2- How should you be managing your own businesses? We’ll look at both these questions in future posts over the coming week.