Über die Autorin bzw. den Autor

Leo M. Tilman (NY, NY) has been named Young Global Leader of the World Economic Forum for his professional accomplishments, commitment to society and potential to contribute to shaping the world.  As the Chief Institutional Strategist and Senior Managing Director at a leading investment firm, Tilman is known for providing institutional clients with advice and solutions regarding strategic decision making, corporate finance, investment strategy, product design, asset/liability management, and risk management.  Tilman is also a lecturer in the financial engineering program on foundations of finance at Columbia University.  He is co-author of Risk Management and editor of Asset/Liability Management of Financial Institutions, as well as contributing editor of The Journal of Risk Finance.  He makes regular TV appearances and is often quoted in the financial media such as The Wall Street Journal, New York Times, Forbes, Bloomberg, and Barron’s among others.  He earned his B.A. and M.A. degrees from Columbia University.

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Praise for FINANCIAL DARWINISM

"The best business management tool is common sense. While such a timeless truth remains indispensable, it takes new thinking to navigate the astonishingly complex and rapidly changing world of finance. Over the years, I have personally witnessed leading organizations' reliance on Leo Tilman's advice and insights to deliver consistent profits and manage risk. I hope the readers of this smart, original, and practical book will benefit in kind."
Alan C. "Ace" Greenberg, Vice Chairman Emeritus, J.P. Morgan

"Responding to earnings pressures with outdated concepts and tools or, worse yet, blind risk-taking has an unhappy ending in every case. Get your organization's costs under control and staff it with highly competent professionals. Then use Financial Darwinism to prosper in the world of globalization and deregulation."
Jamie B. Stewart Jr., President and CEO, The Federal Farm Credit Banks Funding Corporation Past Acting President and COO, The Federal Reserve Bank of New York

"A masterful treatise on piloting complex financial institutions through the newer and tougher challenges imposed on them by the evolving marketplace. Tilman presents a unified conceptual framework that not only resonates with one's intuition, but also offers specific structural approaches to the decisions made by financial executives. This book is a must for anyone interested in improved strategies for risk management and economic performance."
Dr. Darrell Duffie, Dean Witter Distinguished Professor of Finance, The Graduate School of Business, Stanford University

"Tilman has distilled the larger pattern from the seemingly endless reorganizations of financial institutions, some strategic and others quite foolish. Financial Darwinism articulates a framework for understanding and, for financial executives and practitioners, initiating strategic choices."
Dr. Bennett W. Golub, Vice Chairman, BlackRock, Inc.

"Financial Darwinism explains the tectonic shifts now underway in the investment world far better than any book I have seen to date. Those who are interested in really understanding how financial markets have dramatically changed in the past few years and how they are likely to change again in the next few years would do well to read and absorb this important work by Leo Tilman."
David M. Rubenstein, Cofounder and Managing Director, The Carlyle Group

Aus dem Klappentext

The world of modern finance presents a landscape of significant uncertainty, but also of rapid innovation and opportunity. Once-comfortable financial business face increased competition and lower profit margins. Time-tested investment and business strategies are being threatened by disruptive technologies and globalization. Once-in-a-lifetime financial crises seem to be occurring with an alarming regularity. More than ever before, success rests on the ability to make sense of the profound changes, link up seemingly unrelated phenomena, and understand the global forces at play. In Financial Darwinism, author Leo Tilman analyzes the tectonic financial shift that has taken place over the past quarter century and then comprehensively explores the challenges facing financial institutionsas well as the entire universe of their potential responses.

Financial Darwinism explores why and how financial firms must continuously evolve amidst genuine complexity and uncertainty in order to survive and remain competitive. It analyzes the strategic, investment, regulatory, and public policy implications of a future that has already happened and identifies actionable ways of putting new ideas into practice in risk-focused manner.

This book starts by introducing Dynamic Financeand evolutionary thesis about the origins, the drivers, and the implications of the ongoing financial revolution. After examining how financial institutions used to create economic value in the past, Tilman offers a concise new risk-based approach to thinking about economic performance. He then develops a practical decision-making framework he calls Financial Darwinism that is designed to help financial institutions navigate the dynamic new world.Financial Darwinisma blend of business strategy, corporate finance, investment analysis, and risk managementgives financial executives and investors a menu of broad choices on how to create economic value. In the process, a new kind of strategic vision, the breadth of global perspective, and command of advanced financial tools are shown to be essential ingredients of success.

This book is about change, and change is always difficult, indeed wrenchinginstitutions must be redesigned, outdated paradigms discarded, and corporate cultures redefined. However, the alternativethe Darwinian failure to evolveis far more painful, particularly when capital markets, clients, and competitors beat you to the punch and make difficult choicesfor you. Financial Darwinism is an invaluable road map to the new financial order and an essential guide to adapting and succeeding in it.

For more information, visit www.FinancialDarwinism.com

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Financial Darwinism

John Wiley & Sons

Chapter One

Introduction: The Need for Transformational Thinking

The world of modern finance is beset with complexity, dynamism, and risk. On a path of ever-intensifying evolution, it presents a landscape of significant uncertainty but also of rapid innovation and opportunity. More so than ever before, success rests on the ability to make sense of the evolutionary changes, link up seemingly unrelated phenomena, and understand the global forces at play. There is a lot to absorb indeed. Once-comfortable financial businesses are confronted with the increased competition and lower margins. Time-tested strategies are being threatened by disruptive technologies and globalization. Financial crises that are deemed "once-in-a-lifetime" by financial models seem to be occurring with an alarming regularity. Sensationalist news headlines and prognostications of financial pundits are obscuring, rather than illuminating, the reality. Worse yet, there is no coherent paradigm to help financial executives, investors, practitioners, and regulators around the world wrestle with these universal challenges and navigate the ongoing tectonic financial shift.

During a recent Harvard Business School seminar, a well-known investor observed that "traditional asset-allocation strategies are having trouble in today's world." A Wall Street executive echoed the sentiment during a TV interview: "being a great M & A advisor alone doesn't cut it anymore. Unless you can also provide a client with a [multibillion dollar] financing package, you're irrelevant." "If you want to stay alive in the asset management business," an equity analyst wrote in a research note, "you have to go into unique products and go out on the risk spectrum." "We've had a tremendous golden age of [commercial] banking, and we are not going to continue to see that kind of performance," concluded the head of a government agency in the United States. Similar urgency is often conveyed behind closed doors of executive offices and boardrooms-in relation to lending activities, the fight for bank deposits, secular fee compression, declining margins of traditional financial businesses, tougher global competition, and increasingly discerning and informed consumers. The resistance to acknowledge the dramatic and permanent structural transformation of the world of finance-along with the seemingly accelerating pace of change and innovation-is entirely understandable: Change is hard work. Deep down, however, executives and investors know-some more viscerally than others-that the new financial order demands decisive actions on the part of those who want to avoid becoming casualties of financial natural selection.

My purpose in writing this book was to make sense of this new realm in which financial institutions and investors find themselves and to describe-in both theoretical and practical terms-how they can adapt and prosper. The more conceptual portion of this work is Dynamic Finance-an evolutionary thesis about the origins, the drivers, and the implications of the ongoing financial revolution. The practical part of this work is Financial Darwinism-an actionable decision-making framework that draws on this evolutionary perspective to help financial executives and investors navigate the dynamic new world. This chapter is a nontechnical overview of the entire book that is designed to introduce the underlying ideas in broad conceptual strokes. Figure 1.1 presents this book at a glance.

The Transformation (Chapters 1 and 2)

Today, huge pools of capital freely roam about the global financial system in search for investment returns. Capital markets and financial institutions play an increasingly important role in the lives of consumers and real economies. Financial markets are more efficient and interconnected than ever before. Financial instruments and financial institutions are opaque and complex. The static, fragmented, heavily regulated, simpler, comfortable, and accounting-based financial regime has given way to a dynamic, chaotic, globalized, heavily interconnected, deregulated, complex, uncertain, and risk-based realm.

The Evolutionary Thesis (Chapters 2 and 3)

It has been argued that financial services represent an evolutionary system in which no formula works forever: "today's successes will be tomorrow's failures unless they adapt and innovate." In this spirit, Dynamic Finance endeavors to comprehensively explain the process of economic value creation by financial institutions. With the ultimate objective of guiding strategic decisions, it examines how financial institutions used to created economic value in the past and then uses financial theory to offer a concise new approach to thinking about economic performance in today's world. In the process, as the multitude of drivers that put pressures on traditional financial businesses is discussed, I argue that many of these forces are secular in nature i.e., expected to last over very long time frames. This makes the return to the comfortable old world of finance highly unlikely.

The Decision-Making Framework (Chapters 4 and 5)

By drawing upon this evolutionary perspective, Financial Darwinism blends business strategy, corporate finance, investment analysis, and risk management to give financial executives a menu of broad choices on how to create or enhance economic value. Complexity is filtered out, while the richness of unique circumstances and institutional landscapes is preserved. Throughout, I argue that the strategic vision of today's executives must encompass business strategy, dynamic risk taking, and business model transformations-the new concept introduced in the book. This, in turn, requires an expanded skill set on the part of senior decision makers as well as their command of the entire arsenal of advanced financial tools. Importantly, many leading companies are already adapting to the changed financial landscape in the general spirit of this book's ideas, even in the absence of a comprehensive framework. These desirable evolutionary responses pose a stark contrast to the notable failures to recognize the new realities and adapt accordingly, as demonstrated by modern financial crises and other institutional experiences with sad endings.

The Conceptual Anchor

In the center of it all-linking the seemingly disparate macroeconomic and financial market phenomena as well as institutional behaviors-is the concept of economic performance and its own evolutionary transformation. The old-fashioned, accounting-earnings-inspired formula for economic performance was reflective of the buy-and-hold nature of traditional financial businesses. I propose that the basic key to understanding the behavior of modern financial institutions and capital markets lies in the recognition of the fact that the process of economic value creation in finance has undergone a fundamental transformation. More specifically, due to significant margin pressures on basic financial businesses, active risk taking has begun to play an increasingly dominant role in how financial institutions create and destroy shareholder value. Therefore, the analytical expression for economic performance should change accordingly. The introduction of the risk-based economic performance...