Capital Markets Seminar 2019 by Aalto University and PwC: Creating Value that Counts

How should we prepare ourselves and our companies for the inevitable downturn? Well that is the basic question – and not very interesting one.  A more strategic question is this: How to systematically improve your competitiveness and accelerate your business transformation throughout different economic cycles? 

This year’s Capital Markets Seminar delegates were lucky to hear four distinctive views on this theme from our keynote speakers.

Tuuli Koivu, Chief Economist at Nordea, painted a big - and pretty grim - picture about the state of the global economy. 

The stock market is inhaling its last gasps of fresh air, as the long boom, which started after the financial crisis over 10 years ago, is bound to end. Central banks have pretty much exhausted all their means of supporting the growth via monetary policy. 

At the same time, the political risk for companies is extremely high. Trade war is raising its ugly head between China and the US and has global ramifications on investments and manufacturing across the globe.

But, as Koivu pointed out, President Trump needs to secure his re-election in 2020 and has to mitigate the risk on the US economy. That is why a full-blown trade war between the EU and the US is very unlikely. The tougher stance on China, however, will remain as a new US doctrine regardless of who wins the next presidential election. 

The time of economic uncertainty has implications on how a globally diversified investor buys, owns and sells companies. Partner Vesa Koskinen presented how EQT Group makes its portfolio ”recession-proof”.

There is a solid method to ensure companies’ financial viability through different business cycles. Koskinen emphasized how critical it is us to understand the “recession-readiness” of portfolio during good times: ”When correcting issues is easier.” 

A value-adding owner is fully tested in the market turmoil. Koskinen challenged  investors to demand more from their companies facing hardships. EQT’s instruments include shrinking board size, ensuring its restructuring experience and even closer monitoring of management’s execution.

CEO of Outokumpu, Roeland Baan, shared his vast experience on how to lead a company in a turbulent economic and political environment. As one of the largest stainless steel producers in the world Outokumpu constantly finds itself under pressure from trade wars and regulation. 

He listed four management principles that help Outokumpu to navigate these uncharted waters. 

First, by keeping the company most cost competitive in its chosen business model. Secondly, by creating a culture where people can articulate the brutal facts. Third, by keeping the company’s focus clear and fourth, by continuously scanning the environment for new opportunities and threats. 

By citing big historic business failures in many industries Mr. Baan had identified a common denominator in these, now extinct companies, from PC maker Compaq to video rental chain Blockbuster. They were all blinded by their legacy, ie. the old success which prevented them from adapting to the new paradigm. 

In the Closing Remarks, Aalto’s Professor of Finance Vesa Puttonen put the current uncertainty into perspective in his peculiar, insightful style. 

Market uncertainty is a built-in feature in our financial system. Puttonen reminded the audience that the economist community’s historic record in forecasting the next downturn or recession is extremely poor. 

However, the Professor is concerned about some phenomena in the finance world which are quite unique to the present time. The debt levels are extremely high in a global scale and the central banks’ loose  monetary policy has created a situation where even the poorest companies can keep operating due to zero-level interest rates. There is not enough creative destruction. 

The root causes are deep in human nature and capitalist system. People are selfish and short-sighted by nature and we need to protect them from themselves. 

Consequently, capitalism in its current form needs even more regulation from governments, Puttonen says. Now, that is a big statement from a Professor who is a well-known advocate of the free market economy. 

Antti Oksanen

Chairman, Capital Markets Seminar 2019