By Chuka Okafor
There are moments in history when the illusion of stability evaporates overnight. Presidents are kidnapped from within their own borders.
Missiles fly across regions markets once labelled “contained.” Alliances fracture. Supply chains seize. Liquidity disappears. In such moments, tail risks stop being theoretical line items in risk models. They become front page news.
That is the nature of cycles. The unthinkable does not announce itself politely. It simply arrives. And when it does, Investment Committees discover whether they were underwriting resilience or extrapolating comfort and consensus.
Over the years, doing deals, developing projects, serving on Boards and in Investment Committees across credit, infrastructure and private equity, I have observed a consistent pattern. Extraordinary energy is devoted to the upfront investment , entry-valuation, internal rate of return (“IRR”), sponsor credentials, upside cases with some scenario analysis. Models are refined, sensitivities are debated, assumptions are defended and excel is better than reality. But far less time is spent on what happens after the deal closes, unless perhaps you’re on the deal team (if at all).
An investment is not a transaction. It is a sequence of decisions across a lifecycle: origination, underwriting, structuring, monitoring, restructuring when necessary, and ultimately exit; which may even be an organised liquidation. Most committees are setup to approve investments and policies, while very few are built to manage them across cycles. That distinction matters more than we admit.
Second-Level Thinking and Where We Are in the Cycle
One of the most influential investors in shaping my thinking has been Howard Marks. His distinction between first-level and second-level thinking remains foundational.
First-level thinking asks: “Is this a good asset?” Second-level thinking asks:
“What is already priced in? What assumptions are embedded? What must go right? What happens if conditions deteriorate?” In booming markets, first-level thinking dominates early-on. Deals look compelling. Capital is flowing, exit multiples appear rational. Risk feels remote.
But risk rarely materialises at entry, that just where you buy your ticket to the game. It materialises in year three, or four etc… When refinancing costs have doubled, tenants have vacated, when liquidity tightens and covenants that felt theoretical become binding. It materialises when projected growth fails to offset fixed obligations, or when oil supply is threatened.
Being early can look indistinguishable from being wrong. Leverage amplifies this illusion.
Second-level thinking requires committees to ask uncomfortable questions:
- What is fragile in this model?
- What is the base rate for assets like this across cycles?
- Are we considering all the ‘knowables’ or simply favourable conditions?
- What happens if the capital cycle turns before our exit window?
When the music is playing, everybody dances, but who/what controls the asset when the music stops?
Decision Quality Versus Outcome Quality
Another framework that has shaped how I think about committees comes from Annie Duke and her work on probabilistic thinking.
A good decision can produce a bad outcome. A bad decision can produce a good outcome. This means that one cannot tell the quality of a decision purely from its outcome(s).
Yet investment committees often evaluate decisions and are judged purely by outcomes. When performance is strong, we attribute success to insight. When performance weakens, we attribute failure to unforeseeable events or find a scapegoat. Rarely do we rigorously assess whether the decision process itself was sound.
Capital allocation should be probabilistic. Forecasts are distributions. Cash flows are scenarios, not guarantees and you can’t eat IRR. But committee discussions often treat projections as commitments from the future.
Decision quality should be judged on:
- Clarity of assumptions.
- Explicit articulation of downside.
- Awareness and limitation of biases.
- Use of base rates.
- Transparent probability weighting.
- Willingness to update views as evidence changes.
If outcomes alone define success, overconfidence becomes institutionalised during favourable cycles and hesitation during adverse ones. As investment professionals in a cloudy market environment, it is our job to intelligently bear risk until the world actually ends. We are to invest and carry on. The strongest committees document their reasoning, and not just stamp “Approved.” They make assumptions explicit so that three years later they can evaluate not just what happened, but why they believed what they believed.
Bias in the Board / Committee Room
Investment committees are human systems. Bias is inevitable. Confirmation bias shapes diligence to support preferred theses. Authority bias allows dominant personalities to anchor discussion. Recency bias extrapolates recent returns into the future. The sunk cost fallacy is particularly destructive. After months of work and significant advisory fees, walking away feels like loss even if it is rational.
Escalation of commitment follows. Capital is deployed not because forward returns justify it, but because past decisions must be defended or because some voices are louder than others. Narrative bias compounds the problem. A compelling sponsor story often feels safer than a sober probability assessment.
I have served in committees where the entry memo ran hundreds of pages and the restructuring plan was a paragraph. That imbalance is rarely accidental. It reflects where emotional energy is concentrated. Two of the most expensive phrases in any investment committee are: “Let’s give it time,” And “This is how it is on average.” Averages do not guarantee safety, only consensus. A two-metre man can still drown in a river that averages one and a half metres in depth.
The Most Neglected Phase: Dealing with problems when (if) they come
Restructuring is not an anomaly. It is part of the lifecycle. In private credit and hybrid capital, structure determines survival. Covenant design, governance rights, intercreditor mechanics and capital stack positioning are not technical footnotes they are control mechanisms.
Capital is deployed at entry. Character is revealed in restructuring. Discipline is proven at exit. Committees that optimise only for entry IRRs often discover that they have underwritten optimism rather than resilience.
Exit is not a spreadsheet assumption and is frequently treated as a terminal multiple and a neat liquidity event. But exit is not a formula. It is a market-dependent transaction. Who exactly is the buyer? Under what cost of capital environment? With what leverage appetite? Under what regulatory or geopolitical backdrop? An exit multiple is not an entitlement. It is a function of capital market conditions at a specific point in time. If the committee cannot articulate a credible buyer and credible financing environment, the exit case is theoretical. Robust committees interrogate exit assumptions with the same intensity as entry enthusiasm.
Designing Better Decision Architecture & Thinking in Full Cycles
If decision architecture determines outcomes, then it must be deliberate. Several mechanisms strengthen committee quality:
- Formal pre-mortems. Assume failure three years forward and articulate why.
- Rotating dissent. Institutionalise constructive challenge (no anchors and loud voices dominating).
- Base rate discipline. Study historical outcomes across comparable cycles and extremes.
- Probability ranges rather than single-point estimates.
- Written downside playbooks with defined trigger points.
Why? Because markets expand and contract. Liquidity tightens and loosens. Political shocks emerge without invitation. Events previously labelled “tail risks” become front-page news. The mandate of an investment committee is not to approve deals. It is to protect capital and compound it prudently across time. Removing bias does not require eliminating conviction. It requires building systems that challenge conviction before markets do. The objective is not to be right every time. It is to avoid being catastrophically wrong when the cycle turns.
Ultimately decision architecture matters wherever capital, policy or power is allocated. From corporate boards to national cabinets and government; resilient institutions are not defined by personalities but by systems, systems that recognise bias, institutionalise challenging assumptions and are grounded in cycle-aware thinking.
Most investors (and leaders) think in quarters. Some think in years. The best think in cycles. That, in my view, is the real art of decision making.
*Chuka Okafor is the Executive Chairperson of Value Growth Capital and Infrastructure Partners. His work sits at the intersection of alternative investing, M&A, financial markets development, and entrepreneurship, connecting capital and capability across Africa’s real economy.
