“A crisis like no other” and “The Great Lockdown”—as IMF Managing Director, Kristalina Georgieva named it—is the end of an era. The challenge now is to write a new chapter in history, and it is one that falls to all humanity.
These are uncertain times and once in a while, it is wise to question everything—have certainty of nothing—and one of the questions we should be asking ourselves in writing this new chapter is What do we value?
Valuation professionals have a responsibility in the “optimal” allocation of scarce resources as these will seek to maximize value. But, should that focus on the short-term maximizing of individual gains, or instead on more resilient ‘global’ gains sustainable in the long-term? Just as important as questioning where to place the value is to question where to place the risks.
At the same time, valuers also have the opportunity to discover value. Crises produce price differentiation and value adjustments. After 2008, the market agents are no longer indifferent to the price of liquidity across tenors. It is also said that value is in the eye of the beholder and COVID19 has undoubtedly changed our perspectives. For example, in 2020 ESG value was clearly revealed in the S&P500 Index performance.
For a sustainable post-COVID19 recovery of our economies, the International Valuation Standards (IVS) provide a base of comparison among value measures across assets and geographies, facilitating the allocation of world resources between competing markets. Reliable valuations also reduce uncertainty and promote stability for our economies.
I have witnessed in the front lines what financial crises do to people in my home-country, Mexico, and in Europe in the aftermath of the 2007/8 crisis with the debacle of pension funds. Building a sound financial environment has been my main motivation to join the Financial Instruments board at the International Valuation Standards Council (IVSC), as I share the IVSC’s mission to raise standards of international valuation practice.
The first Exposure Draft of IVS 500: Financial Instruments provides an opportunity for financial specialists to offer their perspectives and contribute towards globally adopted standards. If you perform or use financial instruments valuations, please take this chance to participate in the consultation. Your comments and feedback on the exposure draft will have an impact; please, send them to [email protected] by April 19th.
“Never let a good crisis go to waste” said Winston Churchill in the 1940s and this pandemic is indeed a health crisis and an economic shock. But most of all—as IVAS President, Harsha Basnayake, defined it—it is a social test and as IVSC Chair, Alistair Darling, reminds us, “we prosper best when we get on with each other.”