Friday, April 10, 2009

Political risk and the fat tail

Having a degree in poli sci, I've been especially interested in The Fat Tail: The Power of Political Knowledge for Strategic Investing (Oxford, 2009) by Ian Bremmer and Preston Keat of Eurasia Group, a political risk consulting firm. The so-called "fat tail" is a bump in the end of a distribution curve in which the probability rises that something highly unlikely - and therefore often ignored by managers - may actually occur. The book makes a strong case that political risks often reside in the fat tail and that global companies must identify and manage these risks (although the details on how that is done are less well documented). There's a short Harper magazine Q&A with Bremmer posted here.

There's also an article by Andrew Rice on South Africa and Jacob Zuma, who may well become that nation's leader later this year, in the latest issue of Portfolio that reiterates the importance of recognizing and managing political risk. In it, Rice describes Zuma's rise to control the ANC party and the major implications it may have for the business environment in South Africa.

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