Why investors must look beyond the numbers
THE eFishery case is a timely reminder that even established safeguards can fail when the information beneath them is deliberately manipulated.
The Kumpulan Wang Persaraan (KWAP) investment in an Indonesian aquaculture technology company serves as a stark reminder that established safeguards can be compromised when information is intentionally misrepresented. Even thorough verification by international audit firms cannot guarantee the integrity of the data presented. The lesson extends beyond whether a prescribed process was followed, questioning whether the evidence truly supports an investment.
While financial due diligence examining performance, cash flow, position, and projected returns remains crucial, it primarily scrutinizes the financial records provided. In sophisticated fraud scenarios, these records might seem consistent, but the underlying customers, contracts, transactions, assets, or operations may be misleading.
The solution is not to reduce financial scrutiny but to enhance it through qualitative research. This involves independently verifying key customer relationships, contracts, banking arrangements, operational data, and the investment thesis itself. Valuations must be supported by the balance sheet, assets, and operating evidence.
Unreasonable pressure to make an immediate decision should be treated as a red flag, prompting deeper examination rather than expedited approval. When verifying the business behind the numbers, investors must establish the origin of documents, confirm their authenticity, and ensure that financial and non-financial information aligns.
Engaging external research capabilities, such as universities bridging academic research with industry needs, can provide valuable evidence. Governance scrutiny should also be thorough, reviewing board composition, the effectiveness of the board in practice, and the resolution of any discrepancies in board papers. Institutional investors must maintain their independent judgment even when major international firms are involved.
While audits are essential, they should not replace investors' own verification efforts. Credibility in due diligence and financial reporting is non-negotiable. However, institutions must go beyond the report's surface, rigorously testing the substance and evidence beneath, with ongoing governance and periodic verification before and after investment.
Written by urgent.news from New Straits Times's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
