Wall Street Irina Zilbergleyt
My Background • Graduated with a Finance Major December 2002 • Merrill Lynch Investment Banking Analyst (Chicago) • Allied Capital Private Equity Associate • Oct 2004 - Present (Chicago and New York)
Why Work in the World of Wall Street? • Challenge / Responsibility • Be in a position to provide advice and guidance to people whom, if you worked in a corporate setting, you would probably have no exposure to • Compensation: 2006 Investment Banking Average First Year Compensation • $60K salary + $70K bonus = $130K • Opportunities after Investment Banking • Private Equity / Venture Capital • Hedge Funds • Corporate Finance • Business School • Networking • Direct Promotion to Associate
Sell-Side / Buy-Side Sell-Side INVESTMENT BANKING CAPITAL MARKETS SALES & TRADING RESEARCH strategic advisory underwrite and place securities CORPS: Abbott, GE
Sell-Side INVESTMENT BANKING CAPITAL MARKETS SALES & TRADING RESEARCH sell equity and debt securities, provide research strategic advisory underwrite and place securities MUTUAL FUNDS (Buy-Side) CORPS: Abbott, GE invest directly
Sell-Side INVESTMENT BANKING CAPITAL MARKETS SALES & TRADING RESEARCH sell equity and debt securities, provide research, financial planning sell equity and debt securities, provide research strategic advisory underwrite and place securities MUTUAL FUNDS (Buy-Side) INDIVIDUAL INVESTORS CORPS: Abbott, GE invest directly
Sell-Side INVESTMENT BANKING CAPITAL MARKETS SALES & TRADING RESEARCH sell equity and debt securities, provide research sell equity and debt securities, provide research, financial planning strategic advisory underwrite and place securities MUTUAL FUNDS (Buy-Side) INDIVIDUAL INVESTORS CORPS: Abbott, GE invest directly invest directly institutions invest indirectly by buying mutual funds, insurance policies, etc.
Publicly Traded Investments Privately Traded Investments Money Flow • InstitutionalInvestors: • Insurance Companies • Pension Funds • College Endowments IndividualInvestors: High Net Worth Individuals InvestmentTypes: CashEquivalents DebtSecurities Stocks RealEstate Private Assets Other: Metal, Oil Buy-sideFirms: Mutual Funds Hedge Funds Private Equity
Private Equity Fund • Private Equity Fund: is an investment company that provides equity capital in exchange for an ownership position in a private company (not traded on a public stock market post transaction). • Venture Capital: invest in start-ups and early stage deals (Technology) • Leverage Buyout Funds: invest in buyouts, usually of mature companies (Allied Capital) • Leverage Buyout (LBO): is the process of acquiring a company using a significant amount of debt, which helps increase the acquirer’s equity return.
Leverage Buyout: Ultimate Goal • Buy low, sell high! • An equity investor expects that the Company will grow in value. • How does Private Equity Firm create value? • Cost cutting (outsource to Asia) • Selecting operating executives and boards of directors • Industry consolidation or acquisition strategies
Power of Leverage • Why borrow capital (debt) to fund buyout transaction?
Private Equity Firm Structure • General partners (GPs) The private equity firm employees that manage the firm’s investing activities • Receive a 2% management fee and 20% of profit • Limited partners (LPs) The pension funds, college endowments, etc. that provide capital to the private equity firms but do not actively manage the investments • Receive their initial investment and 80% of profit Recent MBA’s often with related experience • Undergrads with 2-3 years experience as: • Investment Bankers • Management Consultants • Big Four Accountants
Development Allied Internal Process Deal Execution Meineke hired investment bankers to help them sell the Company Investment Bankers put together a book describing the business (Offering Memorandum) and submitted it to Allied and other interested parties Allied performed financial analysis to determine the value of the Company and submitted it to Meineke through Investment Bankers Allied met Meineke management Investment Bankers compared all the offers and decided that Allied’s offer was the best Work with Lawyers to prepare acquisition documents, debt documents, management employment agreements Finally work with Allied’s treasury department to make sure that the money wires go to the right recipients Celebrate • Financial Analysis of Historical information • Determine the appropriate Capital Structure (How much debt should the company hold) • Hire Third Party providers to perform additional investigations: • Accounting • Tax • Insurance • Legal • Industry (Customer Calls) • Background Checks of Management • Present the deal to Allied’s internal Investment Committee for approval Deal Process: Allied acquisition of Meineke
Insurance Diligence • Allied hired Marsh (risk management consulting firm) to perform Insurance Due Diligence: • Review existing policies and provide recommendation to Allied concerning uninsured and underinsured risks • Project estimate of annual cost of Meineke insurance program going forward • Insurance policies reviewed: Product Liability, Pollution Liability, Auto liability, Property, Directors and Officers Liability, Workers’ Compensation, & Franchisor Liability • Marsh’s issued a 30 page report summarizing their findings. They recommended additional insurance that would increase the current annual premium by 85%. • Marsh is an insurance broker and gets commission for any additional insurance that the Company buys from them. • Allied’s and Meineke’s role is to figure out what additional Insurance is truly necessary.
Risk Management • M & A Insurance solves deal specific liability concerns • Tax liability • To protect against changes of tax treatment of the transaction • Environmental Liability • To protect against pollution liabilities arising post transaction close • Litigation • To insure against a lawsuit or threat of litigation
The Private Equity Summary Insurance Companies • Private Equity Firms: • 25% Returns • Work with: • Investment Bankers • Lawyers • Accountants • Insurance Consultants $ College Endowments $ Pension Funds LBO Structure: $ Portfolio Companies Equity 30% Wealthy Individuals $ Exit 3-7 Years Debt 70% Debt Providers • Value Creation: • Strategic Direction • Cut Expenses • Acquisition Strategy • Managing Oversight
My Job: the Good and the Bad • Good: • Interesting and challenging work • Enjoy learning about different businesses and every deal has different issues • Interaction with upper management both at Allied and at portfolio companies • Good compensation • Bad • Work long hours and difficulty making plans • Spend many hours doing work that might not go anywhere
Overview of Investment Banking Jobs • Investment banks provide financial advice for corporations, trade and sell stocks and other securities, and develop research and opinions on all financial markets and economies. • They hire college graduates each year into two- to three-year analyst programs. Entry level positions on Wall Street that have active recruiting programs are as follows: • Investment Banking • Debt and Equity Capital Markets • Equity Research • Sales and Trading
Investment Banking Analyst • Typically organized into Industry (Consumer Products, Healthcare, Energy and Power, etc.). However, role of the analyst doesn’t change much across groups. • Marketing • Preparing presentations (“Pitch Books”) • Industry research • Financial modeling (Projecting the Company’s Financials in Excel) • Live Deals • Valuation work (Determining the value of a Company) • Writing offering documents (SEC Documents) • Expect to work 90+ hour weeks • This means 13 hours every day of the week…
Debt and Equity Capital Markets Analyst • Overall work is a little less technical than in investment banking and the hours are generally better. However, expect to start work early in the morning. • Trading floor environment - need to be able to focus despite innumerable distractions • Gather market intelligence; talk to traders • Keep market transaction database • Work with Investment Bankers to prepare presentations and pitches
Equity Research Analyst • Work will typically include a lot of writing and less technical than investment banking. The hours are better than banking, but very busy around earnings releases. • The role of the equity research analyst is to assist the senior analyst to conduct research on a particular industry segment, such as the “Healthcare Industry.” Research analysts usually work with only one or two supervisors. • Conducting industry and company research (talking with companies, suppliers, customers, and other industry experts) • Writing research reports • Developing models to project the future financial performance of specific companies • Listen to Company earnings calls • Keep Sales and Trading informed on industry developments
Sales and Trading Analyst • Typically work around market hours (no weekends) and expect to be on your computer and phone every minute the stock market is open. • As a sales analyst you will be supporting the work of senior sales people as they provide investment recommendations for their clients. The main responsibilities of this job are: • Work with research to collect information and tips on investment opportunities for your group’s clients • Record and process “buy” and “sell” orders from clients • Talk with the Trading group to execute sales on behalf of clients • The trading group is in charge of executing all trades on behalf of the bank’s clients. If a client wants to sell a particular stock at a certain price, the trader must find someone interested in buying the stock at that price. • Booking and processing all transactions that you or your senior trading associates execute in a day • Receiving orders from sales people or directly from clients who need to execute trades
How Do You Get There? • High GPA • Relevant / Challenging Classes • Preferred majors: Finance and Accounting • Good Internships • Extracurricular Activities • Leadership Roles • Meeting Recruiters Early • Read Wall Street Journal • Network with Alumni / Faculty