Careers in FinanceOctober 4, 2007

Agenda

• Overview of Career Paths:– Corporate Finance (Finance Club)

– Investment Banking & Capital Markets (IBCM)

– Investment Management, Research and Hedge Funds (IMC)

– Private Equity & Venture Capital (PEEK)

– Strategy & Business Development (SBD)

• Comparison Between Paths

• Internship Panel

What is corporate finance?

• Corporate finance serves to maximize shareholder wealth through investing and financing decisions– Investment governance: project valuation and financing resources

– Capital structure: working capital management

– Risk assessment: real options and decision tree analysis

• Financial Manager positions span diverse roles across treasury and business development

Financial Manager

InvestmentDecisions

FinancingDecisions

Cost of capital

OperationsFinancial Markets

Characteristics

What do corporate finance roles entail?

Typical Activities

Typical Lifestyle

Typical Personality

TreasuryFinancial Planning / Corp. Development

FAP/FMA

• Domestic and international funding

• Foreign exchange and commodity risk management

• Cash portfolio management and capital planning

• Pension funding analysis• Audit and internal controls• Employment cost analysis• Pricing and market analysis• Product cost development

• Business case development to support investment decisions

• Investment governance and diversification

• Communication of company and share price performance to employees, investors, and other key stakeholders

• Decision coordination across operations and marketing

• Mergers, acquisitions, and strategic alliances

• Typical rotations:–Planning & Analysis–Strategy–CFO’s Office–Treasury–Investor Relations–Chief Investment Office–Internal M&A–Audit–Tax

• High level critical financial issues… from grit to glamour

• Typical hours: 50-80 hours per week (Weekends common)

• Typical hours: 40-60 hours per week (Weekends rarely)

• Exceptions during: deal transactions, capital restructuring, and quarter/year-end budget closing processes

• Typical hours: 50-55 hours per week (Weekends rarely)

• High-energy and educational• “CFO School”• Recent MBA graduates

• Family/lifestyle-oriented• Passion for industry and

operations• Investment banking graduates

• Intelligent, motivated financial managers who value their personal lives

How do you get a job in corporate finance?

• Focus your research on an industry or geography– Attend corporate presentations and speaker events

– Meet Finance Conference attendees

– Coordinate a trek, i.e. Tech Trek or New York City Trek

• Leverage our Kellogg network– Contact alumni

– Search the second-year internship database

• Study the essentials– Interviews test basic finance, industry interest, and company knowledge

– Business/investment case questions (“relaxed” consulting case)

– Most internship offers extended February - April

– Informal opportunities arise in May/June

What is investment banking & capital markets?

Investment Banks…• Advise companies on financing and merger alternatives

• Raise capital for companies

Roles of an Investment Bank• Investment Banking – M&A Advisory and Underwriting for Debt and Equity

• Sales – Develop business relationships with large institutional investors

• Trading – Buy and sell stocks, bonds and other securities for provide liquidity & proprietary trading

• Research – Follow stocks and bonds and make recommendations buying, selling or holding

• Private Wealth – investment management services to high net worth individuals

Investment Banks are Organized by Industry, Product, Roles, Geography

CompaniesInvestment

BankingSales & Trading

Institutional Investors &

Hedge Funds

ResearchPrivate Wealth

Private EquityInvestors

Investment Bank

What do investment banking roles entail?

Typical Activities

Typical Lifestyle

Typical Personality

Sales Trading Investment

BankingPrivate Wealth

• Client meetings, conferences, and social obligations

• Coordination of IPO, new issue & new product sales

• Partnership with clients to support and help tailor investment strategies

• Generalist role covering range of industries / products

• Transaction execution • Work closely with Sales

and Sales / Trading to meet client needs

• Increasingly, Trading is a role that involves mainly quantitative tasks

• Prepare or review financial analysis

• Gathering info from clients, lawyers, accountants

• Preparing and communicating analyses to clients

• Coordinating the "deal team“

• Prospecting and acquiring clients through cold calls, networks, socializing, etc.

• Advising clients on how to manage wealth

• Following the market and performing analysis to find new investing opportunities for clients

• Early Mornings!• Typical hours: 6am-7pm

• “Stock Market” Hours• Typical hours: 7am-5pm

• Must be "on call"• Typical hrs 9am -10pm

+ a few hours on the weekends

• More flexible hours• Not uncommon to leave

the office early to entertain clients (golf, dinners, etc.)

• Assertive & Outgoing • Quick-Thinking & Decisive

• Driven & Analytical • Clear communicator & good at networking/socializing

How do you get a job in investment banking?

Investment Banking Recruiting Process• Networking before the interview itself is vital

• Showing commitment is the key – Attending all company events, importance of having a story of why banking, etc

• Investment bankers are first to interview and the interview process is complete by the end of January

• Attend company & IBCM events as well as weekly training sessions

• Start to learn about the industry - WSJ, vault guides, CNBC, etc.

• No case interviews, but expect fit, technical and industry questions

• Kellogg is a great place to do investment banking – (generally) more positions than available students, great finance preparation and personality fit needed for career progression

• Remember, bankers know you are learning, so relax but don’t slack!

What is investment management?

• Asset Management Firms– Buy-side: purchases investment securities (stocks, bonds, real estate,

currencies, options, futures, etc.) with the goal of increasing assets

– Sell-side: provides recommendations and transactional support for buy-side clients

• Career Opportunities:

– Sales & Trading

– Private Wealth Management

– Sell-side Equity Research

– Mutual Funds

– Hedge Funds

– Fund of Funds

– Insurance Companies

– Pension Funds

– University & Non-profit Endowments

What do investment management roles entail?

Typical Activities

Typical Lifestyle

Typical Personality

Mutual Funds Hedge Funds Sell-side Research

• In depth company analysis• Financial modeling• Meetings with company

management & sell-side• Recommendation of

investments to portfolio managers

• Preparation of detailed company & industry reports

• In depth company analysis• Financial modeling• Meetings with company

management & sell-side• Recommendation of investments

to portfolio managers• Preparation of company reports• Screening for new ideas

• In depth company analysis• Financial modeling• Meetings with company

management & buy side• Recommendation of

investments to portfolio managers

• Preparation of detailed company reports

• Specific industry expertise

• Flexible hours• Earnings season (increased

hours)• Typical hours: 8am to 6pm

• Flexible hours (but firm specific)• Earnings season (increased

hours)• Typical hours: 8am to 6pm

• Client driven (buy-side)• Dictated by earnings releases• Typical hours: 7am to 8pm• Traveling common as become

more senior

• Analytical, Skeptical, Ability to work in an independent fashion, Strong communicator

• Analytical, Skeptical, Creative, Ability to work in an independent fashion, Strong communicator

• Ability to communicate and sell your ideas (Salesman)

• Comfortable in public forum

How do you get a job in investment management?

• Preparation!– Start now

– Stay informed: follow the capital markets, read the Wall Street Journal, Barron’s and anything else you find useful, follow specific stocks/sectors, invest on your own…

– Have a well thought out opinion: Where is the market heading? Where is the price of oil heading? Why is the selloff in homebuilders overdone?...

– Attend IMC Club meetings and pitch stocks

– Share ideas and news articles with friends

– Take Finance and Accounting courses

– Take advantage of everything Kellogg and the IMC has to offer: CMC library resources, resume review, mock interviews, speakers, alumni network, lunch/meetings with 2nd years…

What is private equity?

What is private equity…• Private equity is a broad term that refers to any type of equity investment in an asset in which the

equity is not freely tradable on a public stock market. Categories of private equity investment include leveraged buyouts, venture capital, growth capital, angel investing, mezzanine capital and others.

• Alternative asset class favored by university endowments, insurance companies, corporate pension plans, public employee retirement plans and high net worth individuals

Role of the private equity or venture capital firm…• Sourcing: This involves identifying the companies in which the fund might invest. Firms often

review 200+ investments opportunities per year yet invest in just 2-3 annually.

• Due Diligence: Once a qualified target is identified, it is vital to conduct a thorough due diligence process to ensure that the target company will meet the fund’s expectations in terms of growth, operations and ultimately, equity returns.

• Execution: Getting the deal done – coordinating with the bankers, consultants, lawyers, and target company staff to drive the deal to funding.

• Portfolio management: Portfolio companies need to be actively managed following the initial investment. This is often done through board of directors positions, but level of involvement varies from fund to fund.

• Exit: Managing the sales process, either as an IPO, a sale to another fund (secondary) or sale to a strategic buyer is the final step. Funds typically seek to exit investments within three to five years.

What do private equity and venture capital roles entail?

Typical Activities

Typical Lifestyle

Typical Personality

Private Equity Venture Capital

• Development of industry investment theses• Financial modeling and portfolio company

management• Review of new investment memorandums

prepared and distributed by intermediaries (investment banks)

• Attendance at board meetings for portfolio companies

• Recruitment of new managers into portfolio companies

• Fund administration

• Development of industry investment theses • Review of trade rags and participation in industry

trade shows to identify new investment opportunities

• Meetings with entrepreneurs looking to raise venture financing

• Networking with peer venture capitalists• Attendance at board meetings for portfolio

companies• Financial modeling and portfolio management

Recruitment of new managers into portfolio companies

• Fund administration

• Typical hours: 8am-8pm• Moderate weekend work• Late nights when pushing to close a deal

• Typical hours: 9am-7pm• Regular “off-the-clock” networking activities• Weekend work is rare• Face time is not a concern

• Assertive & Outgoing• Analytical• Work well with limited guidance and imperfect

information

• Entrepreneurial / Self-Starter• Analytical• Assertive and outgoing• Work well with limited guidance and imperfect

information

How do you get a job in private equity or venture capital?

Private Equity Recruiting Process• Long, unstructured recruiting process that ramps up in the Spring

–85% of 2006 internship offers accepted in March, April or May–Parallel path approach to banking, consulting, marketing, etc. is not

feasible–High level of self selection among students

• Highly competitive, low yield activity–Firms will post at each of the top 5 schools for a total of 1 intern

• Difficult to crack without prior experience• Start networking with fellow students and industry contacts now!• Apply for the Kellogg Private Equity Internship Program• Actively monitor trade publications

–PE Week Wire (Thomson)–Venture Wire Alert (Dow Jones)

What is Strategy & Business Development?

• Function expanding rapidly within corporations• Strategy vs. Consulting

– Strategy is an internal corporate function, not a client function– Strategy is about innovation and implementation, not exclusively one or the other

• Strategy vs. General Management– Strategy is a support function, not a cross-functional P&L / line management role– General Management thinks about today; Strategy thinks about the future

There are a spectrum of jobs available within Strategy & Business Development that cut across functional areas:

FinancialFocus

MarketingFocus

Internal Consulting

Corporate StrategyM&A

New Product Development

Strategic Planning

CustomerAcquisition

Focus on Corporate Development

• Scope– Analyzes potential acquisitions, joint ventures, alliances, and other strategic, value-creating

opportunities for the Corporation (e.g., share repurchases).

• Responsibilities– Work closely with operating group members to assess organizational fit and projections as

to the impact of transaction.

– Develop presentations and recommendations to senior management, executive committee and the BOD.

– Support the strategic planning process by providing senior management with economic, competitive, industry and financial evaluations.

– Monitor corporate strategy with respect to minority equity positions.

– Maintain sensitivity to consumer trends and preferences, industry merger activities, the financial objectives of the Company.

• Qualifications: – Preferably a concentration in Finance.

– Excellent quantitative and valuation skills reflecting sound grasp of financial theory.

– Previous experience with the merger/acquisitions or corporate finance

Agenda

• Overview of Career Paths:– Corporate Finance (Finance Club)

– Investment Banking & Capital Markets (IBCM)

– Investment Management, Research and Hedge Funds (IMC)

– Private Equity & Venture Capital (PEEK)

– Strategy & Business Development (SBD)

• Comparison Between Paths

• Internship Panel

Corporate FinanceInvestment Banking &

Capital MarketsInvestment

ManagementPrivate Equity & Venture Capital

Location• All cities • Live & Work in major cities

(London, NY, Chicago, San Francisco, Tokyo)

• Primarily major cities (Boston, NY, LA, Chicago). Smaller cities as well.

• PE primarily in major cities• VC concentrated in Bay

Area and Boston

Workload

• Predictable• Not a “face-time”

profession• Capital budgeting season

and deal transaction periods require late nights

• IB: Several deals (~3-5) at once, all in different stage of completion

• CM: Closely follow market movements, with research focused around earnings season

• Idea driven• Not a “face-time” industry• Earnings season requires

late nights

• Peaks and valleys driven by deal flow and portfolio activity

• Less focus on face time in VC vs. PE

• Limited daily structure or supervision; emphasis on self-starters

Compensation Structure

• Primarily base salary• Bonus represents 10%-

20% of salary• Stock grants grow with

seniority

• Compensation based on performance

• Variations amongst peer groups and from year to year

• Compensation driven by big bonuses

• Truest meritocracy• Combination of base salary

and bonus• Variations among firms

(hedge funds vs. mutual funds). However, all are performance driven.

• Combination of base salary and bonus

• Bonus can represent up to 50% of cash compensation

• Long-term incentive through carried interest

Advancement• Performance-dependent

career path from Finance Manager to Vice President

• Defined career path from associate to Managing Director

• Undefined career path• Truly based on

performance

• Loosely defined career path• No set timeframe

Team Interaction

• Management-oriented with need to lead diverse teams comprised of members across the organization

• IB: Tend to be very team orientated

• CM: Tend to be less team orientated

• Tends to be a very individual working environment

• Team oriented with focus on personality fit

• Largest firms can have less than 20 professionals

Recruiting• Early/mid start and finish• Show commitment• Mix of on-campus and off

• Early start and finish• Show commitment• Nearly all on-campus

• Highly unstructured vis-à-vis banking or consulting

• Most offers made in Spring

• Long and unstructured• Most offers made in the

Spring

Comparison

A “Day in the Life”

Exposure to Clients

Exposure to Senior Staff

Travel Desktime Hours

Corp Fin Low High Low High Low

Sales High High High Low Medium

Trading Low Low Low High Low

Inv. Banking High High Low High High

PWM High High Medium Medium Medium

Buy-side IMC Low High Medium High Low

Sell-Side IMC High Medium High Medium Medium

Private Equity High High Medium High High

Venture Cap. High High Medium Medium Medium

Agenda

• Overview of Career Paths:– Corporate Finance (Finance Club)

– Investment Banking & Capital Markets (IBCM)

– Investment Management, Research and Hedge Funds (IMC)

– Private Equity & Venture Capital (PEEK)

– Strategy & Business Development (SBD)

• Comparison Between Paths

• Internship Panel