Investment portfolio review for DIT

Review of the criteria against which a £24Bn worth portfolio of land development deals of the DIT were prioritised, to enhance foreign equity rising. Design of process to optimise the portfolio, divesting deals with less chance of equity financing

Our Consultant who worked on this project: Cristina

THE MANDATE

The Regeneration Development Organisation (RIO) of the UK Department of International Trade (DIT, formerly called UKTI) gave a mandate to EY to find a solution to its under-target foreign investment on their promoted land development deals in the UK.

The work was approached by the Director of this project in a similar way to how EY delivers portfolio programme management engagements:
RIO had a portfolio of 100+ proposed land development deals that required equity financing. According to the Director who led this engagement, each Investment deal could have been considered a project or program in a PPMO's portfolio (a collection of projects and programs that a Project Portfolio Management Officer has to prioritise according to their benefits and costs for the organisation, to increase return on investment by allocating more resources on the most beneficial programs and projects, and terminating the lest valuable ones). The mandate was viewed by the director as a responsibility to help the RIO’s leadership to realise the maximum benefits on the portfolio, by selecting the investment deals (considered as projects and programs) in which RIO had to invest resources - by including them in the portfolio and promoting them to investors - as well as those it had to exclude, by eliminating the deals with less potential of securing overseas equity within 5 years. This review had to be done in consideration of the potential appeal of the deals to foreign investors, while at the same time trying not to disadvantage the regions outside of London and the South East, which naturally attracted less investment.

Our resource, Cristina, was initially involved in this mandate by the director who sold the project to the DIT, and to start with she was asked to provide some input about which were - according to her - the best advisable metrics and criteria to select the most valuable land development deals (to keep them in the RIO’s portfolio, or to add them, when there were new candidate-deals to assess agains her advised conditions for inclusion).

THE SOLUTION

Cristina's first contribution was to provide a matrix of her proposed set of criteria for the investments to be included in the RIO’s portfolio, based on her knowledge and experience in real estate and land development and urban planning policies. She considered the prioritisation criteria under a ‘public policy point of view’ - assuming the government also had the mission to achieve economic, social and environmental benefit through these investments - as well as under the ‘higher-benefit and lower-risk’ point of view of the land development investors - whom she considered interested in various factors concerning the land location, starting date and timeline and scale of development, equity required and already secured, risk involved, deal structure, perspective return on their invested equity, reliability of appointed construction and design companies, developers and subcontractors credentials and other criteria. She also categorised the proposed criteria into subsequent levels of detail.

After analysing the RIO portfolio of deals at the time of the EY advisory on it, our resource Cristina also realised some land development presentations lacked essential information, such as their equity demand, and metrics normally used by investors to evaluate development deals financial attractiveness (some proposals were showing little more than the proposed development design and location). She then suggested a mandatory provision of some key metrics and other information that each deal must have had to submit when applying for inclusion in the RIO portfolio of the DIT, or to be assessed for being kept in the portfolio.

Her proposed criteria for deciding weather to assess a candidate investment deal - for maintenance or new inclusion or divestiture from RIO’s portfolio - proposed the mandatory provision of necessary information to enable foreign investors’ decision making, such as equity value required, time metrics, financial return metrics and risk metrics. (For example: considering what could have caused delays in the deal timeline, eroding return, and what plans were in place to avoid or reduce the risk liability and mitigate its impact in case of occurrence, to enhance the probability to achieve the expected benefits.)

Her initial hypothesis on criteria were confirmed by the leading Director and by a Senior Manager who joined the engagement, then further refined by interviewing Partners and C-level land development investors. A few of these senior stakeholders' interviews were done by our Evolution’s resource Cristina (individually, when contacting her own business connections among investors in land development, and in the presence of the Senior Manager and Director, when contacting their own connections by phone).

Cristina’s other contributions consisted in defining the main steps of the process and the decision-gates criteria, to reassess the investment deals in the portfolio (the criteria to chose which deals to divest, and to decide which ones of the new proposed deals were to include).

Our resource proposed to simplify and streamline the selection process of the deals that was then in use, which consisted in an inclusion phase called “Go, No-Go”, an “Absolute Prioritisation” of the deals, and a “Relative Prioritisation”, according to different types of investors. She proposed to skip the absolute prioritisation of the deals selected for inclusion, and to filter out the deals that scored lower in relative prioritisation by investor categories: in this way it was possible to simplify and accelerate the decision of which deals RIO had to invest in marketing material (such as a pre-investors’ meeting online and paper brochures, and in efforts by the team in charge to find and meet prospective foreign investors).

She also proposed to create a database with the information on each investment deal at the time of their application for assessment consideration: automating this through digital forms which the applicants who proposed new deals had to fill out. Having this database would have facilitated the assessment and prioritisation ranking of all deals to evaluate for new inclusion and maintenance or divestiture. After reducing the number of included deals, the database would have also permitted a more refined prioritisation to be conducted before each meeting with foreign investors, or via a live filtering of opportunities according to the investors' risk appetites, target metrics and requirements, once having met with them.

Unlike a PPMO engagement, management of portfolios of projects and programmes, at this stage there were no dependencies among projects, as each deal was self-sufficient, and the deals had nothing to do with business-as-usual operations or organisational change: no investment deal project was essential for the delivery of the other deals, they were all stand-alone opportunities, both in terms of construction, as well as investment.

Also, unlike PPMO, this engagement only set the strategic plan to re-prioritise the portfolio of deals. Therefore, it did not arrive to a level of detail where it had to specify what additional training (aka, change L&D) was required if some DIT employees needed to be shifted for the re-prioritisation implementation, and for the change and BAU initiatives around it, to make it possible (such as the production of new marketing material and of a new pitch book, and for the efforts to contact investors, meet them and close deals). However, our resource had proposed the digital change tools that were necessary for this and prepared a mock of the interface for a database, in order to assign weights to the criteria according to different types of investors (institutional, PE, etc) and to live-filter opportunities according to demand at investors meetings.

Cristina reviewed the work of the Senior Manager working on this EY project for the DIT far beyond the time she was a chargeable resource, by providing support throughout the year also when she worked on other engagements. She reviewed, for example, the Senior Manager’s document called "Northern Powerhouse Prioritisation Pilot - Draft Criteria For Peer Review Post Workshop Revision”, which was used to implement this strategy on which she worked, starting with a pilot-project in the Northern Powerhouse region, to test the process before scaling it UK-wide.

THE BENEFITS

The proposed solution helped RIO in its progress towards the achievement of the strategic objective of increasing foreign investment on the deals that were proposed by RIO, while also increasing RIO’s return on invested resources in promoting these deals. It also facilitated the delivery of the construction of projects and programs for land regeneration, to realise the public and economic benefits the Central Government expected from RIO.

The work was also appreciated by the RIO leadership so much that it led to the sale of three subsequent phases of work to implement the proposed Portfolio Optimisation strategy that was delivered with this engagement. Therefore, this work also benefited EY, who sold the three new contracts to RIO for about £300,000 GBP (as far as our resource was informed).

Once RIO closed, the portfolio of deals was managed directly by the DIT. The new pitch book for the investors, prepared after the third phase of the engagements that followed this, is not publicly online as the old pitch book was.

LINKS

DIT’s (former UKTI) presentation about its executive agency, RIO, informing RIO's team had expanded to include proposed investment deals in infrastructure projects, and so its team was renamed DfIT Capital Investment Team (CIT), directly part of the DIT. https://www.nhsconfed.org/~/media/Confederation/Files/public%20access/UKTI%20Regeneration%20presentation.pdf

The pitch book for RIO’s investment deals, before this EY engagement to establish a strategy to prioritise again the deals to include in order to optimise the portfolio, asking also for the provision of mandatory data for each deal to evaluate for inclusion:
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/600615/RIO_Pitchbook_May_2016_withdrawn.pdf

Value of the RIO portfolio of investment deals in the Northern Powerhouse (£24 billion GBP) at the time the portfolio was first presented to foreign investors:
https://www.gov.uk/government/news/chancellor-opens-book-on-more-than-24-billion-of-northern-powerhouse-investment-opportunities-in-china

£24Bn GBP

Deals value in Northern Powerhouse

£300K c.

Value of EY sales to implement the prioritisation

£100m GDV

Minimum expected value of deals to assess for inclusion

Abstract from a DIT publication that mentions the EY advisory on RIO's portfolio inclusion criteria
The prioritization criteria in this online publication (in the public domain) are only some highlights of the EY advisory about them
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What People Say

All testimonials are about our consultant Cristina, as  we are initially launching Evolution Consulting with her as our key resource, experienced in all the services that we offer.

 

All the 30 written feedback are evidenced in writing by their original MS Outlook files, and/or Subject Access Requests received via email, archived in the original delivery email.

“As a project manager Cristina has consistently worked at Senior Consultant level.

She has managed the rollout of our biggest process improvement project.

The training guide she produced for the process improvement project was excellent and will be a key enabler for the transition phase.

I have been particularly impressed with her analytical skills and her ability to break problems down into key components and identify workable solutions.

Her briefings have been well researched and to a very high standard.”

— Stuart Bourn, Managing Director at Ernst & Young LLP

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