Revamping strategy for a heavy industry portfolio
OWNERS’ STRATEGY
Context
The family-controlled holdings board of an industrial processing and resources portfolio found itself repeatedly investing at the wrong points in the economic cycle. Members shared a qualitative understanding that performance was suboptimal, but there was no unified strategy or reliable data to support better decision-making. As a result, they often felt constrained by the businesses they owned – in the passengers’ rather than drivers’ seat.
Work
Our partner initiated a comprehensive performance review of the portfolio, analysing 15 years of financial data. This analysis brought clarity to long-standing concerns: capital allocation by the Holding Company board had been consistently poor, and the portfolio was concentrated in high-volatility, capital-intensive, low-return sectors.
To move from insight to action, we facilitated:
Portfolio modelling: Simulations showed how a more diversified set of asset classes could achieve lower volatility with an uptick in returns.
Owner mandate development: The Owners’ Council, with input from the Holding Company Board, developed a formal Owner Mandate (similar to an Investment Policy Statement). A central component of the mandate was a significant reduction in local market exposure.
With a shared strategy in hand and better data driving decisions, the Board were able to become more active as owners. They were now in the drivers’ seat.
Impact
The adoption of the Owner Mandate marked a turning point. The Holding Company embarked on a strategic reconfiguration of the portfolio, exiting several high-capital, commodity businesses and increasing exposure to sectors such as utilities and real estate. To support this new strategy, a New York-based investment office was established.
Five years on, the results speak for themselves: dividend payments have been consistent, volatility has fallen relative to the market, and capital growth has begun to compensate the real portfolio risk.