Be Prepared for Change

Our recent election constitutes a call to action filled with energy and promise. Yet the call for change is also daunting since it means moving from the known to the unknown. On an historic day, American voters made it clear that they want change - a change in leadership, policy and vision for our future. Now, with a soon to be formed Obama Administration and a Congressional Democratic majority, change is certain but its dimensions are unformed.

While the question of political leadership in the U.S. has been decided, the world remains in a highly uncertain global environment that will continue to be characterized by volatility and systemic risks. With some U.S. unemployment projections approaching 8% and GDP predicted to decline in the next two quarters, the most urgent challenge is to confront the deterioration in the economy. Deleveraging in the developed markets has only just begun and credit will remain tight despite recent government and central bank actions to lower rates and to provide liquidity. Consumer spending declined precipitously in the past two months due to highly leveraged personal balance sheets, consumer loss of confidence and a bleak employment picture. Housing prices continue to fall and the corporate sector is taking pre-emptive action by reducing capital expenditures and cutting jobs. It is prudent to expect that the U.S. and European economies are likely to face a protracted recession that will last well through 2009 and possibly well into 2010 and it is best to plan accordingly. Maintaining one's core businesses, managing for cash, and acting prudently should be the basis of management during turbulent times. Opportunities will present themselves, but in our view it is better to wait than take any unnecessary risks, as the downturn is likely to be a protracted one. 

It will take several months to translate the President-elect's call for change into action and to determine the impact of these actions on the global economy. With broad Democratic control, an aggressive and more substantial fiscal stimulus package is a possibility, with a focus on spending and less near-term concern for resulting fiscal deficits. TARP is still a work in progress with $250 billion already committed and no clear indication yet of how or to whom the remaining $500 billion will be allocated. An overhaul of the financial regulatory system is certainly on the agenda. Other major areas of expected change per Obama's platform include healthcare reform, energy and environmental efforts and a movement to a more progressive tax code, all of which will take some time to develop and achieve a Congressional consensus, but which will have profound implications for business.

Perhaps President-elect Obama's greatest challenge will be to restore a sense of confidence and optimism among Americans and more broadly worldwide. Certainly this enthusiasm and energy were evident on election night and Obama has inspired many to be more engaged and involved in our political process. Bridging divides, translating broad principles into concrete actions and rebuilding our global reputation will all require time and effort.

Adjusting to these changes will be a challenge faced by GA itself and all of our portfolio companies in the coming years. The impact will vary across sectors and geographies and opportunities will arise, but for all of us the politics of change underscores the need to be informed, adaptable, and most of all, to be financially and operationally strong.