Investment Decisions for Pension Funds
By
Intangible Value Capital
OECD Study on Pension Funds:
Recent OECD study on Pension Funds of USD20.1 trillion reveals the crack in its corporate equity investment strategy and its very future. My report pinpoints the lacuna and suggests how it can be rectified by investment decisions made, based on IBCM© Research’s Intangible Value Capital.
Investment decisions have to go deeper in identifying where to invest so as to have a long term benefit for both the parties – Investor and Investee, where Value System takes precedence in measuring to the expectations. Equity portfolio of the investor will remain the driver to accelerate towards higher rating by Intangible Value Capital that measures the value system of the Corporate. Same is true for banks on credit risks. It is inevitable IBCM© Research’s Intangible Value Capital would remain as the one foremost Rating methodology necessary for any investment decision.
Jayaraman Rajah Iyer
In response to the above: William Miller President at 4G Innovation LLC, writes:
Quote:
Jayaraman – I like your thinking that intangible capital (IC) is energy, but the focus fo my thinking is that IC needs to have a focus on the capability to create and deliver innovation that creates value for customers and all stakeholders. You are absolutely right that current financial accounting that guides investment doesn’t consider IC and that’s wrong. What is your thinking on IC affects innovation that drives economic development and valuation?
Bill
Unquote:
My reply:
Three factors of sustainability I have indicated are – efficiency, value system and profits. Profits ab intio, I convert the Quantitative elements into Qualitative terms to arrive at the rating system by relative efficiency. If EPS budgeted is $10 and the results are $8 or $15 then the rating would be merged into other ratings systematically. Hence financial balance sheet as such, in terms of dealing with financial terms as Intangible Assets are completely ignored.
Value system I have put as secondary to efficiency as efficiency is a prerequisite for sustainable value system.
Coming to efficiency being a primary factor of an organization, Innovation would top the list. Manufacturing companies have contributed immensely in this sector and is the number 1 factor of corporate leadership (US) to the economy.
Fact however remains innovation per se is not followed by Banking and finance sector. e.g. Risk Appetite is considered by me as innovation in banking but not followed, despite a major review in IIF Report.
A company can have 5, 5, 5 optimized rating for efficiency, value system and profits that many companies from US would qualify for, like Intel, IBM etc. Despite profits being down in some years they can have an average rating of 4 (5e,5v,4p). Whereas Banking and Finance would get only (0e,0v,5p) in many cases because i. lack of efficiency they pass on to their customers, ii. without value system and iii. create enormous profits by any means such as CDOs. Their average rating would be only 1 (0e,0v,5p) (only integer).
My contention in Pension Funds should keep investing in companies rated 4 consistently like IBM or Intel even if the profits are down and ignore companies like Goldman Sachs even if their profits are high sometimes. So USD 20.1 trillion if invested in companies Rated 4 then support to Innovation becomes the hallmark of economic recovery with a huge funds encouraging them. (It is their opportunity or else they would continue to have -3% (for US) RoI as OECD reports reveal.) Without innovation as the primary aspect of company development there is no hope for future economic development. Pension funds must know how to differentiate between companies that sustain efficiency, value system and profits, that Intangible Value Capital ratings bring to fore with granular data of Knowledge Base. Jayaraman Rajah Iyer