Moving Toward Value-Based Financial Systems

(Originally written: 11.13.2018)

I’ve been thinking cross-culturally about finance institutions and how we can reinvent the modern systems in a value-based investing approach.

The growth of finance made civilizations possible, as the role of finance and institutions – money, bonds, banks, corporations, helped urban centers to expand and cultures to flourish.

Finance was at key moments of history as different apparatus, as products were developed and reinvented in the course of history. Finance innovations emerged to solve economic problems of time and geography. An example – a religious institution like Templar that became a legal system in Europe to adjudicate disputes and rights became a theoretical foundation for Europe’s unique financial architecture. While its extensive geographical network provided for an easier transfer of money through space, Templar dissolved. Its distribution of wealth made it a political target, a loss of its original mission.

Chinese financial system was different from the Greco-Roman to be more nimble – the political context determined its solution. For Europe, its reliance on capital market lies in the fragmentation and weakness of medieval states.

Finance markets and political context today coexist and complement, but the past gives us lessons on how we can risk share and adapt variations of the tools to different kinds of societies. Discoveries of financial solutions led to its civilizations most important achievements – writing, mathematics, how we save and invest, and how to harmonize global economy. It also created problems like slavery, imperialism, and other crises.

Financial thinking in a modern economy is difficult – as crashes and bubbles always take people by surprise – and I think it is because we rely too much on specialized tools from legal arguments to modern portfolio theory. As we move toward a collective global civilization with a greater proportion of the population in complex societies, finance needs to keep up.

The market is driven by spontaneous, mutual hope, often irrationality or optimistic dream. Businesses play a game of skill and chance, where it relies on average results of many investments through ebbs of hope and cold calculation. A large portion of it depended on spontaneous optimism than mathematical expectation.

Gambling investors based on hopes of new technologies enabled technological progress. Companies that harness the spirit – enable the markets to overcome the financial inertia – a force in the economy. The market sentiment that often holds the economy back because of irrational fears, managed correctly with public expectations, could become a force for good.

The risk in individual investing is often inside us – how well can we ride out plunges and the market – how much experience do I have or confidence do I have and go against the current? Could I make a lot of money? Can I rely on my willpower to endure the probabilities and consequences?

Progress is based on optimism. Good innovation can be celebrated where modern economies reward activities that create value than extract them. The shared values – where creating of value can be more collective – based on a dynamic division of labor focused on problems that 21st century are facing – can be more sustainable and preliminary to an economy where we create value than extract them.

It’s an essential thesis that optimism has and continues to drive financial markets and fund economic growth, and that optimism can be tied to higher motives and collective goals.

Investments with Political Vehicles

(Originally written: 10.12.2018)

American leadership promotes of governance, democracy, human rights, and global stability. How does this translate into social investments overseas?

Businesses consult political risk, such as power structure and roots of political legitimacy, to make decisions on overseas investments. Democracy, which involves social systems, tax laws, and a regulatory environment, enables a positive, sustainable, and local growth for social enterprises.

Economic growth often provides legitimacy to dictatorship, but democracy provides a stable political environment, with less corruption or government seizures of business. Therefore, it protects financial return with the discipline of the market by supporting our key allies under diplomatic turmoil.

For instance, India is an economically independent country with aims to enhance its strategic space and capacity for independent agency. If the objective of bilateral economic engagement is to accelerate the integration of the two economies, only a resolute defense of the free market with an open focus on increasing FDI – would allow it to overcome its vast development deficits to liberalize the economy while strengthening state capacity.

India can increase the use of digital payments and support digital finance technology projects to not only scale its technologies, but strengthen its resilience.

The most important task in strategic logic of each bilateral relations is the success of the affiliation, and how its benefits are to be conceived. Especially in a country where geopolitical rivalry coexists with economic interdependence.

Investment readiness remains a key issue for ventures. It requires understanding of risk and how to price it. Transaction and reporting requirements can be quite high. By opening up the private capital to solve difficult foreign policy challenges fundamentally guide critical capacity building and equip allies to support strategic priorities. Therein, it responds to on-the-ground conditions targeting specific vulnerabilities for sustainable and scalable growth of enterprises. I hope we can provide a role in development – the social impact investment ecosystem – to create liquidity in the market incentivizing a genuine strategic partnership with deep-rooted shared interests.

A Life of Meaning and Ambition

(Originally written: 10.6.2018)

The life of ambition eventually wears out. Life endlessly unfolds, and it is a process of self-discovery, an unpredictable dialogue between our potentials and our situations – potential as in our capacity for loving, learning, sensing, wondering, and aspiring for more.

We want to believe that there may be a scoring system to say we’re successful. And maybe getting to speak. But as we scramble to climb what we think is the goal, at the top, we may feel a little empty. We can build meaning into your life, through your commitments, religion, ethical order, your life’s work, to people you live. The identity is what we commit ourselves to.

Meaning is not something you stumble across, like the answer to a riddle or the prize in a treasure hunt. Meaning is something inside you. Hike into your life. You build it out of your own past, out of your affections and loyalties, out of the experience of the humankind passed on to you, out of your own understanding, talent, things you believe in, people you love, and values you are willing to sacrifice something.

You are the only one who can put them into a pattern that will be your life. Let it be a life that has meaning and dignity for you. If it does, the particular definition or balance of success and failure is of less account.All seek happiness. Not only is our desire for happiness universal, but our inability to find it as well.

Translating Risk for Social Impact

“Successful private equity needs macro-economic and micro-economic factors. These include political stability, sophisticated capital markets, corporate governance, strong entrepreneurial structure, and proper benchmarking. Other factors include fragmented markets, low competition, and comparability of funds.”

— Markus Ableitinger, Director of Capital Dynamics

(Originally written: 10.12.2018)

Businesses did not begin to champion social impact or corporate social responsibility until they were truly faced with understanding counter risk to global operations – the effects of environmental, social, and governance in networked operations and stakeholder management. They saw that portfolios with “impact” or ESG indicators have outperformed those during the 2008 downturn, and found impact investing as a method to mitigate short-term risk for long-term value creation. Essentially then, risk tolerance becomes to what extent do we want our dollars to be philanthropic and the type of risk to a portfolio, climate, technology, etc., are equivalent to the opportunity of innovation in the portfolio companies.

However, there is substantial lack of language of risk mitigation in impact investments or studies of political determinants of venture capital investments. Yet, VCs include political stability among the important determinants of receiving VC funding.

The supply of VC comes from the share of risk capital provided by private investors. Along this line, the macro factors are mainly general economy, technological opportunities, entrepreneurial environment, and political risk.

Markus Ableitinger, Director of Capital Dynamics says, “successful private equity needs macro-economic and micro-economic factors. These include political stability, sophisticated capital markets, corporate governance, strong entrepreneurial structure, and proper benchmarking. Other factors include fragmented markets, low competition, and comparability of funds.”

Moreover, venture capitalists and investors are growing in Singapore taking advantage of the country’s political stability, highly educated workforce and strategic location. Despite the fact that micro, macro and even legal determinants of VC financing have more or less been analyzed; changes in political stability of countries have received little attention.

VC investment intensity is the total value of stocks traded, the significance of IPO in a fixed effects model, GDP growth (GDP) as well as inflation, labor market rigidities, and some of the political risk variables – investment profile, socioeconomic conditions, corruption and other determinants.

Given the increasing frequency and intensity of political/economic crises, a more systematic method of measuring political risk and evaluating its impact on market prices is required for emerging markets. Businesses can successfully mitigate and manage macro-political risk in emerging markets with targeted preventive investments into portfolio companies.

For instance, with Khashoggi, the United States is about to sanction specific entities and France and others could also back sanctions, which would affect countries with commercial deals with Saudi Arabia and have a certain number of days to wind down the activities depending on the products being sanctioned – that would translate into – from relying exclusively on export products to opening up domestic companies and technologies less variable to political activities.

For VCs, where we’re concerned with risk in maintaining profits, sustaining economic growth and protecting investments from market fluctuations, we have to manage threats in regulatory relationships, overall legal environment, and geopolitics critical to smooth operations.

Today’s environment requires innovation by companies by both sensing and understanding these risks and in adapting risk management to include networked-based models of information sharing. Each area of risk management is becoming a strategic value for an enterprise, and must be mainstreamed into the entire organization’s value proposition – beyond philanthropy and the CSR paradigm.When portfolio companies are scanned for threat and vulnerability for types of risk, we’re also able to measurably predict the role of companies with business processes that can conduct mitigation potentially as a supply chain partner. We can effectively then incentivize companies for mergers and acquisition, monitor its capacity for IPOs, and others – by geopolitical prediction.