A recent PACE Survey asked the above question. The PACE found these results very interesting and useful, but we were a little concerned about the low interest in what we titled “investment management”. This discussion defines the PACE perspective on Investment Management.
First, I googled “investment management” and found:
Investment management refers to the handling of financial assets and other investments—not only buying and selling them. Management includes devising a short- or long-term strategy for acquiring and disposing of portfolio holdings. It can also include banking, budgeting, and tax services and duties, as well.
This is not how PACE looks at Investment Management, though we understand the confusion; and we may need to consider some modification in terminology.
The Profitability Analytics Framework focuses on the investment in productive and value creating assets that are non-financial. This could be called Capital Asset Investment, but PACE also considers investment in Intangible Assets to be a critical and growing area of investment to create value. Last I heard, over 86% of the value of stock market value was not on balance sheets as capital assets. Intangible assets are clearly driving today’s business and market value.
PACE thinks the strategic planning for investment in resources and capability (tangible and intangible) is critical, and it is often the area of strategic planning that requires the longest timeline to plan and implement. Because the money must be spent often well in advance of results, it is a significant risk assessment and management focus.
The idea of reassessing how investments (or expenditures) on intangible assets are handled for cost, profit, and performance management also merits significant thought and further investigation. Is an investment in something like employee training a period expense in an economic sense or is it an investment in the future? How should it be amortized to reflect its impact on performance? The same question can be asked for brand investment, research and development, data collection and improvement, and many other areas of business that are typically expensed under accounting rules.
The whole question of measuring ROI takes on a new dimension when intangible assets are viewed as an investment. PACE’s goal is to rethink and re-energize internal decision support to reflect the dynamics of long-term value creation. We think re-evaluating “investment” and investment management is an important part of achieving this.
Would you agree or disagree? We welcome your thoughts.