Christoffer Enemaerke, Portfolio Manager for EM Equity, looks at management quality and long-term value creation.
Assessing and evaluating management quality has always been a key part of our EM Equity team’s investment process. In 2023, we decided to develop our focus on management quality even further, by trying to identify key areas where management teams of successful EM companies have excelled.
Through team discussions, offsite work and analysing case studies, we found that culture, return focus, clarity and execution of strategy and investing for the future are particularly crucial elements when it comes to assessing management quality. In our piece, we discuss:
Culture: from our experience, one of the most important aspects in evaluating management is in its ability to instill a strong culture and create a good company to work for. Having a winning culture can be a significant competitive advantage for a company.
Return focus: we have found that some of the most successful companies in EM over time have been those that have had a sharp focus on generating consistently high returns, in metrics such as Cash Flow Return on Investment, Return on Invested Capital or Economic Value Added.
Clear strategy and strong execution: management teams that have been able to set out a clear, transparent, and well laid out long-term strategy and diligently execute on this year after year have generally been rewarded by investors in EM.
Investing for the future: although we see disruption in every industry, the technology sector is and likely always will be at the forefront in this area, most often being the industry that sets the conditions for disruption and where disruption occurs at the fastest rate.
We also give examples of management’s ability to innovate and stay at the leading edge into the future, by highlighting four companies that demonstrate these qualities.