Industry Update
Opinion Article22 May 2020

Why Asset Management is essential at Board level in a post-COVID world?

By Anne-Marie Auriault, Founder & Managing Director at Pimlico Asset Management, and Independent Board Member

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Today's COVID-19 is without precedent and requires us to adapt very quickly to ensure business sustainability. The impact on the hospitality industry has been severe and forcing the closure of many hotels and restaurants due to a lack of demand.

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In crisis management, the Board plays a unique role and acts as a safeguard. The aspects related to good corporate governance and to management are different: the senior management may not necessarily have a strategic view of the stakes. Indeed, overwhelmed by unforeseen operational tasks, management tends to take an overly optimistic view of reality and not think ahead to make big decisions that have a significant impact on the future of the company. As a result, the Board must directly step in. For this purpose, the Board of Directors can call upon external advisor to play a supportive role and allow owners / shareholders to benefit from the necessary skills to make crucial decisions.

When appointing an external advisor, also known as a "Trusted Advisor" or "Asset Manager," one should always place emphasis on his/her independence, impartiality, the results obtained, and mastery of best industry practices (intelligence and benchmarking).

Why Hotel Asset Management is an asset

In theory, asset management essentially consists of representing the interests of the hotel owner around constructive dialogue to maximize return on investment over the asset life cycle.

In practice, an external advisor plays a role of facilitator between the Board and the hotel operator or management to ensure adequate and timely communication with stakeholders. It is crucial to build trust in the professional relationship, which takes time and effort on a human level. But in a crisis, do we really have enough time to do this?

In addition, the Asset Manager must be able to confidentially raise all ideas and information, including signs of both weakness and strength in the company's governance. S/he must propose solutions to problems in a constructive and collaborative manner, while bringing her/his expert knowledge to allow the necessary transformations in the organization.

The concerns for the coming months will mainly focus on cash management and the minimum profitably threshold required to operate hotel assets after several months of closure. Hospitality business can survive the crisis and recover!

To reboot the hotel business after the outbreak and prepare for the coming changes, corporate management distinguishes itself from management to establish the strategy to restart business activities. The pace at which things are moving means that the cost of delay is much greater than it was before.

How Asset Management can help shape a business's recovery profile

With a gradual relaunch of activity ahead of us and hotels beginning to reopen over the next few months, we must overcome some major challenges, which will result in a continuous change in the hospitality landscape. There are short-term and long-term considerations for businesses:
  • Global: Consider any political decisions to open or close borders and the ability of clients to travel.
  • Financial: Liquidity management, credit facility, cash flow management, working capital and forecasts for a gradual restart, a ramp-up and stabilization, which may take several years.
  • Cost Management: rethink the share of fixed costs in favor of a more variable structure to benefit a hybrid model.
  • Operational: Adapt and reinvent the operating business model and identify new opportunities including the alignment of business volume with the right scale of workforce costs. It will require an unprecedented degree of versatility.
  • Innovation: innovate and implement new technologies (colocation of infrastructure, digitalization, contactless transactions, automation of check-in/check-out, etc.)
  • Cleanliness and Sanitation: management of social distancing and implementation of imperative hygiene measures to successfully reopen, restore customer confidence, and generate demand. As announced by the World Travel and Tourism Council, it would be useful to anticipate a global protocol for the 'new normal' and adopted by international hotel operators and independent hotels.
  • Strategic: as long as a vaccine or cure is not available, develop a new sales and marketing strategy to attract a new segment of customers, in particular a more domestic clientele.

As the situation evolves, other challenges will be faced over the coming weeks and months that will compel us to build operating model resilience. The crisis may not be behind us, but finding and pursuing new opportunities will undoubtedly drive change and help to better navigate this crisis.

Anne-Marie Auriault

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    Anne-Marie Auriault
    Managing Director | Pimlico Asset Management
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