Educational Series Careers on Wall St. Wednesday, October 7th Justin Van Vleck Felix Popescu Co-President of Operations VP of Analyst Program Ruoting Sun Jeff Smith Stock Selection Committee Head of Educational Series Investment Banking (Corporate Finance) Student Investment Association Wednesday, October 8th, 2008 Presenter: Felix Popescu Climate on Wall Street • Colbert Report - Formidable Opponent Abridged List of Investment Banks Full Service Independent Moelis & Company Main Street America’s Perception of Banking • Offer depository services such as checking, savings and CDs • Financing in the form of credit cards, auto loans, student loans, and home mortgages • Well-known brands like Bank One, Wells Fargo, Bank of America, Chase and Citibank Today’s Agenda • What is Investment Banking? • Investment Banking Structure • Investment Banking Hierarchy • Where Do You Fit In? • Why Investment Banking? • Recruiting • The Interview • Helpful Notions Overview of Investment Banking • Assists Corporate Clients to raise capital • Sell side vs. Buy side Structure of Investment Banking Division • Industry Groups • Product Groups – Consumer and Retail – Mergers and – Energy and Power Acquisitions – Technology – Leveraged Finance – Health Care – Equity Capital Markets – Real Estate – Debt Capital Markets – Media and Telecom – Restructuring – Financial Institutions – Financial Sponsors Hierarchy • Director and Managing Director • Vice President • Associate • Analyst • Intern • Word Processing, Research Support and Other Secondary-Support Divisions Analyst Responsibilities • Financial analysis • Industry and company research • Developing client presentations • Valuation (Financial Modeling) • Marketing materials, management presentations and road show involvement What You Should Expect • 12-15 hour days • Very high stress • Multi-tasking • Lots of menial grunt work and micromanagement • Meetings and conference calls throughout the day • Sacrifice your personal life and health for this career • 3 meals/day at work • Very common to be forced to cancel vacations and miss holidays/birthdays when needs arise Typical Day • 9:00 A.M.: Arrive in office, Check e-mail, start work on valuation model • 11:00 A.M.: Finish up pitchbook for upcoming presentation • 1:00 P.M.: Conference call with deal team, which may include people from other product and industry groups who work in conjunction on a project with you • 3:00 P.M.: Put together a set of trading/transaction comparables Typical Day (Continued) • 5:00 P.M.: Gather industry reports and put together a working group list for a deal team on transaction • 7:00 P.M.: Put together a few public information books and balance out discounted cash flow model • 9:00 P.M.: Make changes to pitchbook before sending it to Managing Director • 11:00 P.M.: Go Home Recruiting • Recruiting Timeline • For Full-Time Positions • For Summer Analyst (Intern) Positions Benefits of Investment Banking Analyst Program • Significant Learning Opportunities • Learn all elements of corporate finance • Wide variety of industries and transaction types • Significant impact early in your career • Integral part of the transaction team • Dynamic and exciting environment • Entrepreneurial environment rewards excellence • Culture of Teamwork and Partnership Getting In • Most banks recruit analysts exclusively from ivy league colleges and select masters programs • Unless you’re exceptional or have a connection in the business, getting in from MSU will be extremely difficult Interviews • Interviews usually consist of: – Two first-round interviews • Either phone or in-person – Superday interview • Consists of 8-10; 30 minute interviews • Usually on a Saturday Sample Questions • General – Walk me through your resume – Why did you choose Michigan State/ your major? – What do Investment Bankers do? – What is the most striking thing you’ve read today in the WSJ? – You don’t seem like a very driven person. How will you handle a job in banking? – Say you are supposed to meet your girlfriend for dinner, but the MD asks you to stay late. What do you do? Sample Questions • Technical – What happens to the three financial statements when you change capital expenditures? – In what ways can you value a company? • Walk me through a DCF – All else equal, should a public or private company garner a higher valuation? • Other – What stocks do you like? – How many Northwest planes will take off in the next hour in the United States? – If I shrunk you down to the size of a nickel and placed you in a blender, what would you do? Useful Courses/ Resources • Classes – FI 311- building block of Corporate Finance – FI 414- case studies and modeling skills – FI 455- Excel skills and financial modeling – ACC 201, 300, 301, 305 • Resources – Vault Guide for Finance Interviews – Wall Street Journal/ Financial Times – New York Times DealBook Fact vs. Fiction • NOT like Wall Street & Boiler Room – Not spending evenings on the yacht & weekends in the Hamptons • Rarely traveling to meet clients • Yes, the hours are just as bad as you’ve heard…but the compensation is just as high as you’ve heard, too • You don’t have to be a genius to be a good i-banker… • Connections matter Things To Do Now • Solid precedent internships with known firms • Accreditations/standardized test scores help open doors • Reach out to MSU alumni • Leverage all personal connections you may have • Be willing to jump on a plane to interview/ network • East Coast undergrads have Wall Street in their backyard Summary • Investment banking is an intense, life-absorbing career path that’s not for everyone • Potential rewards attract the brightest and most competitive individuals from the strongest backgrounds, so getting in is difficult • It’s definitely worth doing if you get the chance • Decide if it’s for you: – Work/life balance – Family vs. career – Geography • Life will go on even if you don’t land a Wall Street job! Fun Resources: • Wall Street Oasis • Dealbreaker • BankersBall Sales & Trading Presenter: Ruoting Sun Student Investment Association October 9th, 2008 “Wages make you a living, Profits make you a fortune.” And the story goes… Mantra • EMH and Sales & Trading Agenda • What is Sales & Trading? • Why Sales & Trading? • A day in the life of a S&T Analyst • Becoming a Sales & Trading Analyst • Personal Experience and Advice What does the position entail? • S&T Team originates and transacts • Sales: distribution arm for the Investment Bank’s products – Sales force's prime responsibility is to build and maintain effective relationships with institutional investors. • Trading: handles the risk management of the firm’s positions in various financial instruments – Make markets for buying and selling securities Sales • Client coverage and relationship management • Knowledge of client asset or liability needs, as well as industry trends • Knowledge of current economic environment and market conditions • Knowledge of market opportunities and firm’s product capabilities • Promotion of the firm’s products and capabilities • Pricing and execution Trading • Providing liquidity to firm’s clients • Portfolio management (hedging) • Knowledge of current economic environment and market conditions • Knowledge of flows being executed in the market • Maintaining views on potential movement of underlying instruments • Pricing and execution How is money made? • Client driven (Flow Trading) — bid/ask spread, or market making • Proprietary trading • New security issuances Why Sales & Trading? • Global market driven job • BIG firm, SMALL teams • Steep learning curve • Fast-paced, intense atmosphere • Instant gratification • Performance-Based Pay • Work/life balance Day in the life • S&T Analysts help engineer innovative and sophisticated financial products • As an Analyst you will work closely with senior members on your team to attain these goals by: – Creating client presentations – Participating in client calls/meetings – Assisting in trade execution – Disseminating weekly marketing material to internal/external clients • As you work to support senior members on the team you will develop market and product expertise Schedule of a Junior Trader • 6:30 am: get into the office, confirm all previous day’s trades and cross-check with the details generated by back office • 7 am: confirm starting positions, be informed of any news regarding held positions; plot strategy • 7 am – 8:30 am: relay noteworthy trades on ECN’s made throughout the night to sales-force; morning meeting • 8:30 am – 9:30: economic statistics are released, breakfast, post indications • 9:30 am: markets open; must be uncrossed and unlocked • 9:30 am – 4 pm: open market hours; take orders, work the orders, build relationship with sales-force, make good prices • 4:30 pm: head home Sales & Trading Analyst Program • Comprehensive training • Organized by sector (equity derivatives, high- yield bonds, etc.) • Example: Sales – Daily interaction with trading desks’ banking team to relay client needs Important qualities of a S&T Analyst • Insightful, creative, quantitative thinker • A genuine interest in financial markets and in political and economic developments • Strong communication skills • Strong teamwork skills • Attention to detail • Strong academic and professional backgrounds • The ability to perform well under pressure • A strong stomach • Ability to manage risk • Ability to perform multi-task • Ability to think on the fly • Understand that trading is as much an art as it is a science • Understand how closely integrated different industries are How to break in? • Starting early is key – VSE Competition • Read newspaper and business publications to stay current with the markets • Choose classes that will expose you to different business disciplines • Choose a specific niche market/strategy you can be a specialist in (options, high-yield, vol-trading, bottom- fishing) • Network, Network & Network – SIA is a good start Questions? Equity Research Justin Van Vleck Agenda • Principles of equity research • Equity research products • Hierarchy • Earnings Season • Lifestyle • What will it do for you? • Formula for success What is Equity Research? • Produce research ideas (reports) and distributes it to their clients – Buy Side: • Money Managers at – Hedge Funds – Mutual Funds • Individual Stock/Bond buyers – Sell Side • Internal salespeople (sales and trading desks) • Proprietary trading desk = Think Tank Equity Research Department Hedge Funds/MM Sales & Trading Desk Equity Research Products • Industry research reports • Company-specific reports • Notes on importance events – Industry and company related Industry Research Reports • Overview summary of the industry – Market trend/conditions • Past and future outlooks – Current industry leaders and lagers • Quality of the report shows the firm’s and analyst’s expertise within the industry • This product will usually be associated with an initiation of a group of companies Company-Specific RR • Company-specific RR fall into three categories – Initiation of coverage • Company information, forecast model, and risk factors – Update • Explain movement in the stock, change/confirm earnings estimate, news from management – Change in rating Company Specific Notes • Deal with short term events – Earnings release • Update the forecast for model, qualitative trends – News item • Could deal with lawsuit, legislation, spinoff, stock repurchase plan, etc. – Short-term trade recommendation • Increasingly becoming popular due to HF client demand • Will often times differ from long term rating on company Ratings • Downgrade (Underperform) – Lower expected earnings power, diminished growth, turnaround plan suspect • Hold (Neutral) – Do not expect much growth, potential problems, analyst and market is wary, perform in line with group • Upgrade (Outperform) – Better expected earnings, smart acquisition, beneficial long term trends starting to develop Hierarchy • Basic Structure – Associate is junior to Analyst – Who gets their name on reports? – Analyst runs the group • Is the one in charge of making investment recommendations • Within the Equity Research Department – Structure looks similar to banking – Not all analysts are MD’s – Most regarded talent sits on SSC Earning Season Lifestyle • Travel for research analysts – Meet w/ buy side clients, comp. management teams, assist with road shows – On average, work less than CF I-Banking – Initiations, earnings season are long hours • Associate Salary (est.): – $60K (more if MBA perhaps) + 10-15K signing bonus + 35- 75K year end bonus What a Career in Equity Research Will Do for You • Strong training programs provide – Terrific Excel, Powerpoint skills – What the important information is – Writing to grab investors’ attention • Modeling – Building initiation reports from scratch – IPO Model from scratch – Updating models • Most importantly, you’ll learn how very smart people think about stocks and the market Formula for success • Work hard & learn quickly • Comp skills (Word, Excel, PP) • Good writing skills are mandatory • Good communication skills • Good listeners and ask good questions • MBA is not mandatory to advance • Enjoy analyzing companies and trying to outsmart other people Questions? Private Wealth Management Simon Yu and Jeff Smith What do financial advisors do? • Assist client in constructing investment portfolio strategy • Assist Clients in obtaining financing, selling assets, tax efficiencies • Recommend and place trades on behalf of client • Estate and retirement planning • Helping clients obtain financial goals Sales and Interpersonal Aspect •Success is heavily dependent on interpersonal and sales skills •Client meetings, phone calls, conferences, networking generate business •Talking clients out of making bad decisions just as important Downside • One of the most stressful jobs available • Market takes away gains, hurts your pay and angers clients • Very hard to get established, high rate of failure • Highly competitive work environment, competitors in same office Upside • Very entrepreneurial business with nearly unlimited upside • Work/Life balance, especially once established • Relationship focused • Geographic flexibility • High demand for wealth management services Day in the Life 7:30am: Arrive at office and read up on the markets, WSJ, etc. 8:30am: Enter in tasks for the day, adjust some asset allocation models, conduct Monte Carlo analysis for a client’s portfolio 10:00am: Make some client calls, buy and sell securities on clients behalf 11:30am: Meet with new potential client to discuss financial goals, risk tolerance Day in the Life Cont. 1:00pm: Watch a wholesaler (Vanguard, Fidelity, etc.) present over their complimentary lunch 2:00pm: Meet with potential referral partner at their office 5:00pm: Analyze client portfolios after market close, touch base with a few clients 6:00pm: Team meeting to discuss day’s activities and prepare for the next day, administrative tasks Day in the Life 7:00pm: Grab a drink with a client and head home How to Get In • Network • Speak to regional office • Read the WSJ regularly • Take a lot of finance/accounting • Getting Involved (SIA, FMI, SCNO) • Pursue an internship • Build connections by starting in another career and switch to PWM League Tables 1) UBS - $1.6 trillion 2) Citigroup - $1.43 trillion 3) Merrill Lynch - $1.2 trillion 4) Credit Suisse - $642 billion 5) JP Morgan Chase - $465 billion 6) Morgan Stanley - $450 billion 7) HSBC - $408 billion 8) Deutsche Bank - $249 billion How Money is Made • Clients give assets to wealth management expert • Managers are paid commissions and fees for selling certain products, achieving gains, etc. • More assets under management and gains results in more fees • Portion of fees goes to parent firm Questions?