Investors Need To Manage Value in the New Economy

In the tough new investment economy, investors need to look for signs that management is focused on creating value.

LOS ANGELES, CA - The primary investment strategies of the last three decades won’t work going forward, says Frederick W. Croft, Managing Partner for Los Angeles-based performance improvement firm PVM Partners LLC. Speaking to a group of PRC-based investors in City of Industry, Croft cautioned “Since the Eighties, US investments have been driven by leverage and accounting choices. That works in an environment with low capital costs, but fails in the debt-constricted market we’re facing now.” This outlook is shared by other recent observers. PIMCO’s Bill Gross observed that “Staying rich in this future world will require strategies that reflect this altered vision of [lower] global economic growth and delevered financial markets”. Former Quantum Fund principal Jim Rogers notes that “The world, in my opinion, is changing and is shifting away from the financial types to producers of real goods, and this is going to last for several decades”. Asian investors at the meeting concurred, with Ether Electronics chief Xiao Ping noting that “we don’t expect a full economic recovery until mid-2010”. Croft notes that effective investments will demonstrate management skills in three areas: analysis of information, project execution, and effective decision-making. “You don’t want your money with a management that doesn’t understand how to put it to work. They need tools that identify operating risk, target non-performance, create continuous improvement and increase the yield of goods and services for dollars committed.” How do investors know a company is on the right track? “Look in their quarterly and annual filings. The more they’re talking about things like economic value, the more you see factors like reduction of inventory as a percentage of sales – they show you’ve got a management that’s paying attention and isn’t living off accounting gimmicks. Mentions of Lean or Agile Operations techniques are also good signs.” Croft notes that Chinese and European investors remain interested in US investments, but approach them more cautiously. “We’ve worked with several foreign groups recently, and all of them are concerned about economic weakness damaging US companies’ revenues, and all of them are concerned about possible drops in the value of the dollar”. However, he advises that Asian firms in particular remain interested in US companies with strong market channels. “There’s general recognition that American companies lead the world in sales and marketing skills”. Contact: Frederick W. Croft ‘fwcroft@pvmpartnersllc.com

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PVM Partners LLC is a Los Angeles-based performance improvement firm supporting US and foreign corporations, private equity firms and infestment groups in maximizing investment value through performance improvement in portfolio companies.