Organisation of Uncertainty

As a private equity firm, it is our trade to assume the risk of assessing projects and businesses, then financing them with the aim of getting a capital gain thanks to our ability to select the right businesses. It is also our trade to offer our guidance in the matters relating to business development and management.

 

While assuming that risk, we have to follow a pathway and a manner of carrying our business that will lead us to a successful exit given our risk profile.

 

At Fikula, we have developed a conceptual model that includes all the aspects – both operational and financial – of a successful investment process. Our risk model is a full part of our overall conceptual model and it is comprised of five building blocks: our allocation of resources between different methods of risk treatment, our policy of prevention, our responses to the specific problems of private equity investment, our application of the “Organisation of Uncertainty”, and our application of the “Labyrinthine Management of Uncertainty”.

 

A Classical Risk Analysis

 

The first building block to be included in our risk model is the result of a classical risk analysis in which one seeks to allocate the resources between different methods of risk treatment and the cost of prevention.

 

Fikula Capital Management has naturally considered many parameters and scenarios before making its final decisions regarding the equilibrium it looks to reach.

 

We have first made decisions about the equilibrium after an analysis of the parameters – choice of activity, choice of financing method, and opportunities of hedging – that affect the expected profitability and risk of our prospective ventures.

 

We then have given a priority to those projects whose expected commercial profitability is highly likely and whose level of debt funding is low enough to limit the effect of leverage. Through a close look at the market of opportunities of investment, the capital market, and the hedging markets, a close analysis of the price of risk on the different markets in which our firm looks to operate has also been helpful in the determination of our ultimate risk equilibrium.   

 

In order to reach an even more realistic conclusion, we have taken into account the imperfection of the markets, the possibility of increasing our room to manoeuvre thanks to hedging operations, and the likelihood of having the specific skills required to make our decisions.

 

It is worth mentioning that the Founder will have an active role in the risk management team in order to offer his broader view of the portfolio of assets and allow, for instance, a good comparison between the expenses associated with our prevention policy and the applicable opportunity cost.

 

The Special Case of Private Equity Investment

 

Our conceptual model has introduced innovative responses to the difficulties we face as a private equity investor: the nature of firm assets, uncertainty, asymmetric information, and the conditions in the concerned product and financial markets. We have also deemed appropriate to give a special importance to asset illiquidity in our model.

 

In our integrated risk model, those responses are part of the decision and adjustment variables that have been subjected to a tuning in view of reaching the equilibrium faithful to our vision. We have retained two sorts of variables: those relating to the investment process, and those relating to the interactions with our portfolio companies.

 

Variables relating to the investment process:

 

ü Sources of capital – to acquire the needed capital from the appropriate source

 

ü Form of financing – simple debt, equity or hybrid securities

 

ü Division of profits – cash, stock, or options to align the incentives of the protagonists

 

Variables relating to the interactions with the portfolio company:

 

ü Monitoring – to establish appropriate control mechanisms

 

ü The nature of the assets – to obtain financial flexibility through the protection of assets or certain strategic decisions

 

ü Evaluation – to keep financing a portfolio company or to stop doing it

 

The Organisation of Uncertainty

 

Among the many challenges we have to take on as a private equity firm, we have chosen to give an extra-thought to the subject of uncertainty and to the innovative responses we could bring forward to address this issue. To that end, we have tapped into the extensive and deep research that Professors Chantal Delvaux and Jacques Defrenne have carried out on the subject of uncertainty in the management of a business entity and, more generally, of any organisation. Their theory having a general scope, Fikula Capital Management has had to apply the theoretical framework proposed by these professors to the specificities of a private equity organisation.

 

The result of this application is a comprehensive conceptual model built upon the concepts of Partnership-Based Adherence and “Partnership-Based Relationship of Reciprocal Reliance. Our risk model is a direct corollary of that conceptual model.

 

Labyrinthine Management of Uncertainty

 

Standing on the shoulders of his publications with Professor Delvaux, Professor Defrenne has taken farther his reflections on the subject of uncertainty. He has subsequently introduced, among others, the concept of “Labyrinthine Path and Daedalean Experience” as well as the one of “Labyrinthine Management of an Organisation”.

 

 

The Founder has then enriched our conceptual model and the risk model attached to it with the findings relating to the “Labyrinthine Path” in order to design a proprietary pathway to capital preservation and successful exit.

Immanence!

Our private equity firm is built around human identity and behavioural psychology.