It’s Time to Rethink Investment Promotion
To be successful, Investment Promotion Agencies must differentiate between investors, put companies before country and be open about critical challenges in desperate need of solutions.
I’ve lost count of the number of Investment Promotion Agency (IPA) presentations I’ve sat through over the past 10 years or so. I think one of the reasons why I’ve lost count is that they always seem to be the same. To be honest, I always get the impression that the presentations were identical to the previous year with simply an extra year added to the charts. However, perhaps there’s a bigger reason why they’re so unmemorable. The IPAs don’t fully comprehend who the investors are and what they really want to hear. This problem appears to be rooted in three widely-held assumptions within the IPA community:
1) All investors want to hear the same story
Before the IPA roadshow comes to town, they generally reach out to ALL investors to attend a SINGLE presentation. Whenever I go to an IPA presentation I’m always amazed at the different types of investors in the room. There are high yield bond investors, sitting next to mutual fund investors, across the aisle from private equity guys.
The problem is that all these investors are interested in very different things.
Bond investors are looking for stable macro environments. Mutual fund investors are looking for broad-based equity returns and liquidity. Private equity funds are more interested in the companies themselves and are willing to take a long-term view. Trying to develop a presentation to please everybody ends up pleasing nobody.
2) Investors are interested in the country more than the companies
This problem leads on from the first and is a very easy trap for IPAs to fall into because after all they are supposed to be promoting the country. Yes, if you’re a bond investor or looking for exposure to broad index-based equity then your priority may be the country. However, for many equity investors, in particular private equity investors, they are far more interested in the companies themselves. To quote the private equity firm the Abraaj Group, “invest in companies, not countries.” These investors want to see the companies up close. They want to see the opportunities first-hand. Unfortunately, even when IPAs bring companies to speak they seem more intent on telling the audience about how great the macro environment is rather than presenting actionable investment opportunities.
3) Investors only want to hear about the good things
The presentations are always filled with statistics that this country has the 1st best this in the world or the 2nd best that. Everything just sounds fantastic. As a former private equity investor, the presentations always led me to the same thought:
“If everything is so great, why do you even need to speak to me in the first place”.
As a bond investor, I might want to hear about how wonderful everything is, but equity investors think differently. If everything is so great, equity investors see little opportunity for value appreciation. By presenting a perfect scenario, IPAs are turning these investors off.
Reversing Your Assumptions
So how can IPAs improve these presentations and increase investor appetite? The best place to start may be to simply reverse these widely-held assumptions to stimulate a different approach.
1) Start with tailoring the story for specific investment communities. If you are issuing government bonds, then feel free to focus on the macro environment. However, if you’re pitching to equity investors let’s focus on what’s most important to them. Yes, this will mean that you’ll have to hold more than one event for investors, but it will pay dividends (terrible pun I know).
2) Now we’ve split investor audiences, we are free to focus on companies as well as countries. For equity investors, present specific opportunities that require investment. Bring those companies with you on the roadshow. Investors will feel that they are gaining proprietary information specifically about the companies rather than general macro information that they could find for themselves on Google in 2 minutes flat.
3) Don’t just focus on the good things, focus on problems investors could solve. Rather than saying you have the world’s best copper resources, focus on the bottlenecks that are stopping the industry realizing its full potential. Perhaps in booming mine areas, they are struggling to supply sufficient food to the workers due to poor logistics. Maybe local accommodation is inadequate to host the influx of new workers. Now you are presenting real actionable intelligence and value creation opportunities.
IPAs can play a critical role in promoting foreign investment. However, it’s time to rethink the model. By reversing some of their most fundamental assumptions, they can provide investors with the knowledge and insights they so desperately need. It requires confidence and honesty on behalf of the IPA, but the response from investors will be well worth the risk.
Originally published at www.thelatlabs.com on February 14, 2017.
