The document discusses the requirements for corporate performance management systems to support public investment funds in the new global economy. It outlines how investment fund managers need visibility into market dynamics and the ability to balance risks and rewards through strategic formulation, execution, and portfolio controls. Effective corporate performance management relies on methodologies, systems, and practices to provide fund managers with integrated, timely information from a variety of external and internal sources to support decision making.

1. Corporate Performance
Management for Public
Investment Funds
Sustaining Profitability and
Growth in a Volatile World
Part 1: Requirements

2. Executive Summary
• The rapidly changing global market presents both new opportunities
as well as challenges to the Investment Fund Manager
• New economic realities give rise to fresh value creation drivers
determining the risk/ reward balance of Investment Portfolios
• To survive and prosper in this new age, Investment Fund Managers
need to adopt innovative disciplines in Fund Management practices
• Corporate Performance Methodologies augmented by
computerized Corporate Performance Systems provide systematic
planning and control frameworks for Investment Fund Management to
face the new Economy.

3. Corporate Performance
Management Requirements For
Investment Funds
In The New Global Economy

4. Market Dynamics
Those Generals
who are utterly
dependent on
fortune will come to
grief when their future
changes, but those
who strategize and
plan according to the
times will prosper.
Prosperity is
ephemeral, if time
and circumstances
change, he will be
ruined who does not
adapt his strategies.
- Sun Tzu,
The Art of War

5. Public Investment Fund
• A Public Investment Fund manages
investment funds on behalf of the public
• The investment fund may be owned by
the Government
• The investment fund may be owned by
government owned companies
• The investment fund may also be owned
by the general public in the form of unit
trusts, pension or social security funds

6. Investment Objectives
• Investment Funds manage savings and
reserves with an aim of maximizing returns.
• Returns may be in the form of capital
appreciation as well as income streams.

7. Social Objectives
• Public Investment Funds are sometimes also entrusted with
social obligations such as to fund strategic national
infrastructures
• When evaluating the performance of Public Investment
Funds, it is important not to overlook their achievements in
meeting these social obligations

8. Investment Risks
• Investment Funds face risks in the form of
erosion in capital and business losses.
• Investment funds also face risks in the form of
the opportunity cost of not investing in better
opportunities or not executing investment
decisions at better timings.

9. New Economic Fundamentals
The Capital Appreciation and Income Streams sought
after by Investment Funds are affected by new Economic
Realities behind Value Creation
Past Value Drivers New Value Drivers
• How much land and building • Our knowledge and
do we own? understanding of the
• What is the amount of marketplace
inventory we are carrying? • The intelligence that we have
• What is the book value of our gathered about our
plants and machineries? competition
• How many vehicles, vessels • The accumulated operational
and aircrafts do we have in know-how of our
the fleet? management, personnel and
partners
• The effective pool of
coordinated information
shared along our supply and
value chain

10. Balancing Risks/ Rewards
Formulating Executing Controlling
Balancing
Investment Parallel Investment
Risks/Rewards
Strategies Strategies Portfolios
• Public Investment Funds need to balance their Investment Risks
against the achievement of their Investment and Social Goals.
• Investment Strategies are formulated to balance Investment
Risks against desired Investment and Social Gains
• Since it is not possible to know the future outcome of any
Investment Strategy in particular, a Public Investment Fund may
pursue several feasible Investment Strategies in parallel.
• These Parallel Investment Strategies may be organized into
separate Investment Portfolios for monitoring and control
purposes.

11. Investment Strategy
Formulation Implementation
Monitoring/
Control
• Formulating and controlling the
implementation of Investment Strategies
are key activities in managing the
performance of Public Investment Funds
“Great warriors take their stand on ground where they cannot lose. Therefore a victorious
army first wins then seeks battle; a defeated army first battles then seeks victory.”
- Sun Tzu in The Art of War

12. Strategy Formulation
• Review of
Vision, Mission and
Driving Principles
• Defining desired future
value to various
stakeholders
• Charting
directions, milestones
and tactical
objectives

13. Execution
• Implementation
Program
• Organization and
Coordination
• Progress Monitoring
• Control/Re-alignment

14. Controlling and Monitoring
Making Conclusions
• Developing a clear
and thorough
understanding of the
basis of enterprise
value from both
external and internal
perspectives
• Pinpointing critical
issues requiring
strategic attention

15. Controlling and Monitoring
Situational Analysis Present Value Positions
• Market Intelligence • Assets Position
• Environmental • Risk Profile
Assessment • Debt Obligations
• Core Competencies

16. Covering All Angles
Market
Research/
Human Business
Resources Development
Product/
Finance
Portfolio
Risk/ Investor
Compliance Relations
• All aspects of the Investment Fund need
continuous attentive management

17. The Fund Manager
• The management of investment
strategies is entrusted to a Fund Manager
• The Fund Manager is accountable to the
public on the performance of the
Investment Fund

18. The Investment Team
Fund
Manager
Investment
Traders Finance Others
Analysts
The Fund Manager is supported by a well-
organized Investment Team, comprising
• Analysts, who analyze and monitor factors that can affect
investment outcomes and help to formulate/ revise investment
strategies
• Traders, who execute investment strategies
• Finance, who manage the financing of the Investment Fund
and keep the accounting records of the trading activities
• Others, such as Human Resources and Administration

19. Benchmarking
The Investment Team’s performance is
often objectively benchmarked against
•Pre-determined performance targets such as
Investment Plans and Budgets
•Performance of other Investment Funds
•Industry benchmarks such as market indices

20. Corporate Performance
Management
• Corporate Performance Management
is a framework for managing
performance in an organization
• The framework consists of
Methodologies
Systems
Practices

21. Methodology
Investment Methodologies provide methods to
formulate and implement Investment Strategies, and
to evaluate performance in Public Investment Funds.
Examples of Investment Methodologies include
The Capital Asset Technical analysis is In the field of Value Investing is a
Capital Asset Pricing
Technical Analysis Models
Model
Value Investing Model
Economic Value Model
Pricing Model a financial markets corporate methodology
(CAPM) is used in technique that finance, Economic popularized by
finance to claims the ability to Value Added is a Warren Buffet which
determine a forecast the future way to determine generally involves
theoretically direction of security the value buying securities
appropriate prices through the created, above the whose shares
required rate of study of past market required return, for appear
return (and thus the data, primarily price the shareholders of underpriced by
price if expected and volume. a company. More… some forms of
cash flows can be More… fundamental
estimated) of an analysis. More…
asset . More…

22. Systems
• Corporate Performance Management may be
implemented manually, but manual methods are
usually not feasible in large and complex
organizations.
• Computerized
Performance
Management
Systems are
implemented in
complex
organizations to
ensure
timeliness, accuracy
and security of
information.

23. Practices
• Practices refer to how the Fund Manager actually
manages the performance of his Investment
Team, including the following factors
• Standard Operating Procedures
applied at the Investment Fund
• The Management Culture at
practised by the Investment
Team
• How members of the
Investment Team are rewarded/
penalized for good/ poor
performance
• The Management Style of the
individual who is the Fund
Manager
• The level of competency of the
Investment Team
• Etc

24. Success Factors/Indicators
The Corporate Performance Management of an Investment
Fund is concerned with managing success factors driving
investment outcomes and reporting performance indicators
reflecting investment results
Currency and
national
Market robustness Regional and
conditions and global
sentiments robustness
The type of
Competition in
investment
other markets
instrument
The profitability
of the Risk/ Financial
Return
underlying Obligations
investees
Investment
Outcome

25. Risk/Return Profile
• The Risk/Return characteristic of an Investment Fund
depends on the mixture of exposure to various Success
Factors experienced by its Investment Portfolios
• Each Investment Fund may have a different Risk/Return
characteristic compared to other Investment Funds
• The level of exposure experienced by each portfolio is
influenced by the underlying Investment Philosophy and
Strategy embraced by the portfolio
• The Fund Manager need to monitor all factors affecting
his Investment Fund’s risk/return levels diligently, and
respond to changes in these levels with the right timing

26. Financial Obligations
• An investment fund may obtain loans or issue its own debt
instruments to raise finance
• Such instruments may include loan papers, call options
(warrants) etc
• These obligations may be secured by assets owned by the
investment fund
• The investment fund may buy back its own instruments when
opportunities arise, for example to take advantage of lower
costs of refinancing
• The Fund Manager need to consider the state and direction of
his investments vis-à-vis his Financial Obligations in order to
ensure that his Investment Fund continues to be financially
sound and viable

27. Planning and Budgeting
• The Fund Manager will also need to consider
information generated by his strategy formulation and
investment planning activities, including budgeted
figures and the results of investment simulations under
various operating scenarios.
• Additionally, the Fund Manager need to ensure that his
investment plans are updated to reflect the current
state and possible future directions of the Market.
• He may do this by
• Maintaining progressive budget versions to track revisions and
reviews
• Running rolling budgets and forecasts reflect the latest positions
• Conducting financial simulations under new scenarios to test his
investment strategies against changes in the economic
environment

28. Non-Financial Success Factors
• Public Investment Funds are sometimes evaluated on its
achievement of non-financial social goals as well, such as
• Provision of employment to locals
• Support of government initiatives for the people, for example in
the provision of public utilities at affordable prices
• Powering domestic business activities during slack periods
• Support of government policies to develop strategic sectors
• The Investment Manager needs to monitor performance in
these areas as well.

29. Financial Consolidation
• An investment fund, and especially a government-linked one, typically is also responsible to set up special purpose
vehicles to fund strategic assets of the country, for example to finance significant investments in telecommunication
infrastructures.
• The Investment Fund typically shares ownership of these associate and subsidiary companies with joint venture
partners such as technology providers or subject matter experts. The impact of the financial performance of these
associate companies and subsidiaries must take into account the composition of minority interests (such as joint
venture partners for technological or financial purposes) in their shareholding structure.
• As such, the investment fund may hold in its stable a dynamic and constantly changing set of associate companies
and subsidiaries formed as special purpose vehicles to pursue specific objectives.
• These associate companies and subsidiaries may hold shares in one another and the shareholding structure may
frequently change as part of value creation plans.
• Typically, the associate and subsidiary companies conduct significant amount of trade with on another.
• These conditions give rise to a need for a tool to handle and automate the process of producing consolidated
financial reports across groups of companies with complex and rapidly changing shareholding structures.
• Other considerations that may create added complexity and create greater need for the tool include having
multiple currencies of transactions, calculating goodwill created along every step of acquisition (in a staggered
acquisition scheme), and the need to produce consolidated reporting on financial performance across alternative
consolidation paths, for example by common Lines-of-Business or geographical location of operations. In such
cases, it is not appropriate to determine overall profitability by simply aggregating the profits of these associate and
subsidiary companies, since it is necessary to apply accounting consolidation rules in determining accurately the
investment fund's share of the profit. A Financial Consolidation Module performs this operation in the overall
Corporate performance Management System.

30. Investment Choices
• Fund Managers face a myriad of investment choices every day. They
need tools to help them make the best investment decisions
consistently.
• For example, Investment Portfolios place investments in the form of
investment instruments
• Each type of investment instrument has a unique set of characteristics
and conditions attached to it
• These conditions impacts the risk/return characteristic of the
investment

31. Information Types
The information needed by the investment
fund manager for vigilant monitoring include
Market/ Transaction •Investment prices, bids and offers, transaction volumes, derived
Statistics measures including Price-Earning Ratios, Dividend Yields, etc
Financial News and •Financial and non-financial reports on the performances of
investee companies such as company news and
Reports announcements, periodic financial reports
•Market indicators that reflect investor sentiments
Economic and •National, regional, and global economic indicators such as interest
Market Indicators rates, currency rates, inflation rates, employment
statistics, consumer spending reports, property reports, etc
•Statistics on the health of the investee industry such as production
Industry Statistics outputs, size of stockpiles and inventories, outstanding book orders
•Internally generated information on the size and book value of his
Accounting and trading positions, trades done, his realized and unrealized
Other Records profitability and the availability of additional funds at his disposal
•Investment plans, budgets and financial simulations

32. Visibility and Information
• In order to be effective, the Fund Manager must constantly assess
and evaluate the state of all his critical success factors.
• Since these success factors can change rapidly, even a moment's
lapse of attention can bring significant loss to a large investment
fund.
• The Fund Manager need to be supported by a Corporate
Performance System that keeps him updated with the latest
information

33. Information Integration
• Due to the inter-relationship and cross-dependency of these
factors, the fund manager needs to have access to a
consolidated view of the total situation.
• He may critically be blind-sided if, for example, he is only looking at
the activities and positions held by his trading team without having
simultaneous access to current market information.
• Similarly, whenever he is reading on economic news and
announcements, he needs to have access to market indicators to
know how the market is reacting to these news and how, how
much and when he should react to them.

34. Business Continuity
• Due to close inter-dependencies
between global markets, the
Fund Manager needs
• Ready access to market
information 24 hours a day, 365
days a year
• The information need to be
summarized and presented in easily
understandable forms
• The summarized information need
to be supported by detailed
information that is instantly
accessible from the summaries
• The integrity, accuracy and
consistency of information in all its
forms and degrees of detail must be
assured at all times
• To meet these requirements, the
Fund Manager needs an Alert
and Instant Messaging System
that is integrated into his
Performance Management
System

35. Information Formatting
The information needed by the investment manager comes
in textual and unstructured formats as well as numerical and
structured formats
Textual/ Numerical/
Unstructured Structured
• News Articles • Financial Reports
• Corporate • Economic
Announcements Indicators
• Analysts’ • Market Prices/
Consensus Indices

36. Information Delivery
• As market factors can swing the
profitability of investment positions
within a split second, the timeliness of
information delivered to the
investment manager is critical.
• Also, since other investment
managers around the country are
accessing the same information, the
ability of the investment manager to
act on an opportunity against other
competing investment managers
depends on how fast pertinent
information is relayed to him.
• As the investment manager may
often be away from his trading
desk, he need to be reachable and
should be able to be alerted on
important events via mobile modes of
communication such as PDA alerts
and SMS messages.
• Many of these alerts need to be
raised automatically by the system
without requiring manual intervention.

37. Information Sources - External
Externally generated information used by the Fund
Manager originates from a myriad of sources such as
News Agencies Investee
Market Feeds
and Aggregators Companies
• Market Indices • Interest Rates • Management
• Trading Results • Currency Accounts
• Bids and Offers Exchange Rates • Operations
• Company Statistics
Announcements • Planning Figures
• Published and Budgets
Financials
The Fund Manager need a Performance Management System
that is capable of collating information from multiple sources
automatically and with minimum manual intervention.

38. Information Source - Internal
Investment Funds typically rely on a number of critical
internal systems for their operations. These systems include
•To manage the investment funds' internal finances
ERP and cash clearings
•To provide record of fund profitability and liquidity
Trading & •To manage trading activities and positions
Portfolio •To account for revenue streams from investment
assets
Management
Debt
•To manage debts and repayments
management •To manage debt servicing
System
Financial •To collect unpublished financial and operational
performance reports from investee companies at
Reporting System periodic intervals such as monthly management
(usually manual) accounts

39. Standardization of Information
• Also of great importance to the information integration process, is
the need to standardize information content across the myriad of
information sources.
• For example, shares on the stockmarket may be categorized into
a particular set of industries which is not conducive for the
formulation of the investing fund's sector-wise investing strategy
(e.g. the industry groupings may not lump business with similar
risk/reward characteristics together).
• The stockmarket may, for example, group various types of
industries together under one sector called manufacturing, but the
investment fund manager needs to know his exposure into sub-
industries such as petro-chemicals, building materials, food, etc
since each of the sub-industries may be exposed to a different risk
profile.
• In such instances, the information presented to the investment
manager need to be represented both in the way the stockmarket
categorizes it as well as in the way that is in accordance with the
investment strategy pursued. This calls for the adoption of a
common Information Standards within the Investment Fund.

40. Information Security
• The Performance Management System of a Public Investment Fund
contains sensitive information that can be misused by unauthorized
persons.
• For example, the system may store data pertaining to the stocking up of a
particular share counter. The information may be used by a competitive
party to outguess the impending liquidation date of the build up position
and benefit from declining prices over the period of sale.
• Thus, the Fund Manager needs a system that is secure and will only allow
authorized users to access the information that they are authorized to
view. For example, if the Fund Manager has assigned separate teams to
manage portfolios in different companies, each team should only be able
to access information pertaining to their investee companies.
• Furthermore, the Investment Fund may already have other security
systems in place. The Performance Management System should be able
to integrate with existing security systems, for example by using LDAP to
enable a single sign-on process for each user, to enable centralization of
security administration work and avoid duplication administrative efforts.