EY - The Master CFO Series: A tale of two markets

High Performing CFO

Managing an investment portfolio across diverse markets

Telling the story of investment across developed and rapid-growth markets

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In light of sluggish performance in many developed markets, business leaders are increasingly looking to rapid-growth markets to sustain growth.

This fundamental shift of resource allocation requires the CFO to master the attributes of ambidextrous management. Not only do they need to manage a portfolio of investments that combine very different risk and return profiles, time horizons and characteristics, they also need to be able to distill this complex, and sometimes contradictory, strategy into a clear and coherent narrative for investors.

To tell a tale of two very different markets will require the CFO to rethink traditional communication strategies and reporting frameworks.

  • Many companies struggle to find the optimal balance of investments across markets

    In balancing investments across markets, the CFO has to constantly manage contradictory forces: the drive to capture the growth opportunities in rapid growth markets, despite inadequate data to evaluate these opportunities, as well as the need to protect sources of profitability from mature markets. Few CFOs believe their company is effective at managing investments across markets that are growing at such different rates.

  • CFOs struggle to build a robust and objective rationale for allocating resources to rapid-growth markets

    Two-thirds of CFOs agree that inadequate data and poor transparency mean that it can be difficult to build a robust evaluation model for investing in rapid-growth markets. This puts added pressure on the CFO when addressing tough questions from investors seeking evidence for a rationale that shifts resources to rapid-growth markets.

  • CFOs neglect developed market assets at their peril

    87% of CFOs agree that it is difficult to build a rationale for increasing resource allocation to developed markets when other parts of the world are growing more quickly. But long-term growth must be funded by short-term profitability, and this is currently more likely to be greater in developed markets.

  • The CFO’s focus on investor communication needs to increase

    98% of CFOs have changed the way they communicate with investors as a result of increased exposure to rapid-growth markets. And yet the majority lack confidence in this aspect of their role, with over two-thirds reporting they find it difficult to convey an over-arching narrative when balancing investments across these markets.

  • Traditional reporting frameworks are in need of a rethink

    Almost three-quarters of CFOs agree that increased investment in rapid-growth markets means that they need to communicate more frequently with investors. Investors are also looking for greater immediacy, citing regular trading updates as the form of communication they find most useful for gathering information about investments in rapid-growth markets. This suggests that traditional channels, such as the annual report, may no longer be enough to satisfy the increasingly time-sensitive needs of investors.

  • Companies need to manage the balance between a need for more granular information and insight that is concise and relevant

    Almost two-thirds of investors say that they would like CFOs to provide more granular information about the prospects for rapid-growth and developed markets. Investors say that they would like to see more narrative reporting that explains how the business intends to create value and provide greater clarity on key risks.

  • Increased allocation to rapid-growth markets could change the investor profile

    84% of CFOs and 63% of investors expect that the higher risks and more volatile returns associated with investing in rapid-growth markets will trigger a churn in the investor base and attract investors with different risk appetites.

In this report, we look at:

This study includes findings from interviews with leading CFOs and investors, as well as two surveys conducted with the Economist Intelligence Unit – one of 759 CFOs worldwide and one of 244 professional investors.