A Don't Miss NYSSA Event: Careers in Fixed Income
One of the great benefits of the SEMI program is that you also become a student member at a 50% discount. Membership enables you to go to a lot of NYSSA events for free, including the Career Chats. This month's Career Chat is "Careers in Fixed Income".
|Note: Change of Date
Wednesday, February 15, 2006
|5:45 p.m.-6:30 p.m. Networking
6:30 p.m.-8:00 p.m. Presentation
New York University
|SPEAKER||Margaret Cannella, Managing Director and Director of Americas Corporate Research, JPMorgan Chase & Co.|
William A. Hayes
Members Free | Nonmembers $20
|Wednesday, February 8, 2006 |
Walk-ins cannot be accepted.
Check out other great NYSSA events on their webpage.
SEMI Wraps Up 2005 with Annual Dinner at Reuters
This years SEMI program finished up strong with an enjoyable dinner at the Reuters offices in Times Square. Students, internship supervisors, speakers and mentors all got a chance to share good conversation over good food and mark the transition from SEMI and their internships to upcoming classes.
Awards for the Steeplechase stock selection contest were given out to both the winner and the person with the toughest luck. The winner received a DVD copy of Wall Street and the loser received Reality Bites, but it was all in good fun.
The best part of the dinner was that it was obvious that a lot of relationships made over the summer will be continued. Many of the internship supervisors hadn't known about the program beforehand and indicated interest in recruiting SEMI students next year. Mentors and students alike seemed intent on continuing their summer conversations.
Here are some photos from the event:
NYSSA Golfing @ Chelsea Piers
One the biggest advantages of the SEMI program is the option to participate in any of NYSSA's programs for FREE over the summer. There's a lot of great educational seminars out there but I opted instead to take advantage of the NYSSA-hosted driving range event on July 20th.
While I was hacking away at the driving range I was able to meet a number of professionals in the finance industry. Golfing was a great way to break the ice and network with a lot of interesting people. The event was actually a great learning experience for me too. If I had to take away one common theme it would be that it's important to make a conscious effort to be outgoing and confident at these type of social events. At first it was a little intimidating being the youngest kid there but I made an effort to meet people and it paid off. You'd be surprised (at least I was surprised) how receptive people can be if you have a personable attitude.
It also didn't hurt that I improved my golf game in those two hours. They had instructors going around offering quick 5-minute lessons which were really helpful. After continually hooking balls into the net the instructor was able to work on my grip and straighten my shots out.
All in all the event was a fun and constructive outside-the-classroom experience. Communication skills are so important in the business world and even something as fun and trivial as golf was great exercise in this regard.
Krish Daftary, SEMI 2005
July 6th- Semi Meeting
On July 6th our feature speakers were Tom Durkin from Bear Stearns and George Bodine, the Director of Trading for General Motors Asset Management, which has over $150 billion in pension and 401K assets for GM, Delphi, Xerox, and DirecTV. Tom was the first to speak and he started off by going into detail about what he does everyday.
Early in the meeting Tom introduced GSEs. Government sponsored enterprises (GSEs), which are created by the United States Congress. Their function is to reduce interest rates for specific borrowing sectors of the economy, more commonly, students and homeowners. The mortgage borrowing segment is by far the largest of the borrowing segments that GSEs operate in. These GSEs have created a secondary market with the securitization of loans in order for the primary market debt issues to be able to be traded. These securities directly affect the interest rates of loans inversely. In a sense the secondary market gives household borrowers low fixed rates on long term loans. The advantage to banks is the obvious reduction of credit risk on their balance sheets. Keep in mind none of the GSEs are government owned, rather some are public and others owned by the corporations which use their services.
Now that GSEs are understood we are lead to Mortgage backed securities (MBS). MBS are debt obligations which represent claims to the cash flows from pools of mortgage loans, most commonly on residential property. Mortgage loans are purchased and then pooled by either a governmental or private entity. The entity then securitizes; a process which issues claims on the principal and interest payment that is made by the borrower. The most common MBS are known as Government National Mortgage Association (Ginnie Mae), a U.S. government agency. Others are the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The difference is that Ginnie Mae is backed by the full faith and credit of the U.S government. The last form of an MBS is referred to a ‘private-label’ mortgage security, which are issued by private institutions and banks.
During the presentation the term “Tranches” was commonly used. In French Tranche means a slice, which is a perfect way to correlate its use in finance. A Tranche is a piece of structured financing. The term is used to describe a certain class of bonds, where each tranche can offer a different degree of risk/reward. In relation to MBSs, mortgage tranches, offered through a CMO, may have different maturities which each having different risk/rewards based on the date of maturity (the longer maturity, the higher the risk and the greater the return). Collateralized Mortgage Obligations (CMOS) tend to offer low return due to the extremely low risk and common government backing. The repayments of the securities are used to pay the bonds on the bases of their predetermined maturity. Considering that the security is repaid in order of maturity it is clear to see that risk is virtually eliminated.
George Bodine gave an acronym for the work market:
Monitor (supply and demand)
Anticipate events (how may they react)
Reaction (how do they actually react)
Knowledge (which market should you go to)
Execution (Buy First)
Timing (Take advantage of information)
After discussing the market he moved on to explain a tool which his company uses to reduce risk from error. Algorithmic trading is described as ‘a system that utilizes very advanced mathematical models for making transaction decisions in the financial markets. The strict rules built into the model attempt to determine the optimal time for an order to be placed that will cause the least amount of impact on a stock's price. Large blocks of shares are usually purchased by dividing the large share block into smaller lots and allowing the complex algorithms to decide when the smaller blocks are to be purchased’.
In general I understand this model as a way to monitor the spread of a security without constantly watching what can be sold and bought at the current market price. Evidently, the use of algorithmic trading is used by large institution investors due to the large amount of shares they purchase everyday. Essentially, this complex algorithm allows investors to derive the best possible price without affecting the stock price and unnecessarily increasing purchase costs. In short, it makes life simple and puts to rest the fear of flooding the market with demand which fills sell orders and makes the price of the stock go through the roof.
-George Bruk, SEMI~2005
Structuring the Deal: M&A Transaction Analysis Class
This crash course on M&A (mergers and acquisitions) transaction analysis covered everything from the reasons for acquiring companies to legal issues to M&A structural issues. It is only offered through NYSSA, and I was able to take it for free as part of the SEMI program for students interested in finance. The prerequisite class dealt with the nitty-gritty numbers-crunching part of how to value the company being acquired. Jargon in addition to new concepts being introduced made the class tough to follow at times, but the general ideas were easy to grasp, and I feel like I have a good understanding of M&A deals.
What made the class very interesting were the contributions of a few experienced professionals who heatedly debated topics like goodwill and the tax implications of goodwill. I also learned the inner workings of deal types like stock sales versus asset sales. Stock sales (the acquirer offers the seller stock of the acquiring company) are better for sellers since the sellers are taxed once at the capital gains rate while asset sales are better for buyers since buyers will not need to accept the target firm’s liabilities. Acquirers (buyers) can also depreciate the newly acquired assets in an asset sale transaction to lower tax liabilities. In practice, the deals are often 50% stock and 50% asset, or a tax election code can be selected to benefit the buyer and the seller by offering the benefits of both stock and asset sales.
Although I will not be structuring M&A deals anytime soon, this class has allowed me to peer into M&A banking and assess my interests. This class has been a great supplement to my finance education due to its more practical coursework.
—Buo Zhang, SEMI ‘05
SEMI Breakfast June 29, 2005 - Equity Research
Arrive at 7:30 to find the same thing for breakfast as last week. Bagels and assorted baked goods to munch on for breakfast cover the platters. We all grab a bit for ourselves and take our seats. A little bit of chitter chatter was going on until out speaker came in.
The morning’s speaker was Jeff Evans, a man who had several different careers in business and eventually found his way to being a regulator. The topic for discussion was equity research. We’d eventually diverge from the main topic to careers in general, but the conversation got started off with a lesson about the buy-side vs. the sell-side. Jeff went into how the two sides differed and what kinds of skills were necessary in each type of position.
The discussion then moved into equity research. A take home point of the morning was, in his opinion, that sell-side equity research can’t be a long-term career given the current environment. He also told us a story about a 50 year-old friend of his who was laid off from his buy side research position and has yet to find a new job for 3 years. Equity research is supposed to be a bridge to other careers in finance such as portfolio management.
The other take home point of the day was probably this controversial statement. Jeff explained how he felt he would take a lesser job with a big name over a great job with no reputation “in a heartbeat.” The reputation, he says, is “so valuable to have down on your resume.” This personally surprised me, but his opinion does have some validity given his industry experience.
Running a bit overtime, some of us had to run to our jobs and others stayed to chat with Jeff a bit more. All in all, it was another valuable Wednesday in SEMI.
- Patrick Chatkupt, SEMI '05
SEMI kicks off: The Steeplechase Competition
On June 15th, the 2005 SEMI program kicked off with the Steeplechase portfolio competition report, hosted by Amit Grover. Testing the students’ speculative wit and luck in a fantasy $100,000 portfolio, the objective is to maximize the returns over a three month period. I saw a plethora of trading strategies, from technical trading to traditional diversified blue chip investing to hedge fund-esque long / short trading with outlandish strategies involving derivatives and other exotic securities.
As the president of NYU’s Investment Analysis Group (“IAG”), I’ve seen a lot of different investing strategies and their effectiveness. Because of the short term nature of Steeplechase, I felt that value investing will not generate the ridiculous returns required, and in order to maximize upside, one really has to make use of options and leverage. Technical analysis is definitely useful, but I find that in the past it has always stopped me from losing money rather, than making me a lot of money. Diversification is good up to a point – and then your portfolio reflects the market; given Steeplechase constraints, I decided to abandon my usual investing style and tried something new.
I had originally created an arbitrage possibility around ‘carry trades’. By shorting short U.S treasuries, I was effectively borrowing money at around 2.9%, and earning 4% off that (courtesy of Steeplechase rules). Although a small spread, by shorting enough amount of treasuries, the return on my original $100,000 portfolio was enormous.
As this was a tad unrealistic, I amended my portfolio and adopted a long/short strategy used by the majority of hedge funds today. Rather than bet on the outright direction of the price of a security, I decided to bet on the price of one security relative to another. In essence, this gives me a market-neutral portfolio which I can leverage up to my heart’s content. The individual securities were chosen because of short-term catalysts: for example, Embraer would go onto win new contracts because their product line fit the market demand; American Airlines, like many large airline companies, are sinking faster than the Titanic ever did.
I also used a similar ‘fixed income’ strategy based on dividend payouts rather than price appreciation. Assuming prices don’t change (or change very little), if I am long a higher dividend-yielding security and short a lower dividend-yielding security, I stand to make the spread between the dividend yields. But by investing in high dividend yielding securities (REITs and MLP’s, which are required to pay out more than 90% of their profit in dividends, but aren’t taxed at a corporate level) I was able to maximize the spread
Investing and trading is an exciting world where there’s lot to be learned (unfortunately, sometimes at high prices). It’s a hobby for me now, and unlike most hobbies, actually makes money rather than draining it…who knows, maybe someday it’ll be my job, too.
- Ken Wee, SEMI '05
Fixed Income Breakfast
Every Wednesday morning SEMI invites a professional from a given topic to come in to speak to current SEMI students, each professional gives a brief overview of their field and describes their daily roles. On Wednesday, June 22, the topic was Fixed Income and the speakers were Ana Arsov, a SEMI alumna, from Lehman Brothers and Katie Lynch from Merrill Lynch, and the following were my impressions...
In all honesty, when I used to hear the words "fixed income" the only synonym to come to mind was bonds. Bonds always seemed the safe bet that usually cater to the retiring population. After hearing Anna and Katie talk about their role within the fixed income industry, I realized there are many creative combinations that can arise from those two simple words, "fixed income". They both touched upon the CDO product, which essentially is an investment grade security backed by a pool of assets, and their contact with these CDOs. Anna deals with the credit risk involved in originating, selling, and buying CDOs, and mainly hedges risk for her company against default. On the other hand, Kate's interactions with CDOs are more general and involve distributing her research and opinion on what the CDO market and credit risk's, of the underlying asset, look like by industry. Overall, I will still tend to associate "fixed income" with bonds, but it was interesting to see a different aspect of the typical, safe bet, "bond" market.
~Irina Novoselsky, SEMI '05
What is the SEMI program?
SEMI stands for Scholarship, Education, Mentoring, and Internship. That's the acronym.
But what is it? Quite simply, its the best educational and networking opportunity you can possibly have if you are a NYC-area undergraduate finance major. Plus, it gives you the opportunity to win a significant scholarship.
What does it consist of?
- The program gives sophomores and juniors a chance go get paired up with a NYSSA professional in a mentoring relationship over the summer. NYSSA members are recognized as ethical, knowledgeable members of the investment decision-making community. With more than 9,000 members, NYSSA is the largest of the more than 125 financial analyst societies worldwide that comprise the CFA Institute.
- During the program, students will also attend weekly educational breakfast sessions on finance topics ranging from investment banking to trading.
- Students are expected to get an internship on their own, but many students feel as if their educational experience at SEMI enhances their internship experience. Having a mentor outside the office provides students with guidance on getting the most out of their summer positions and the breakfasts give the students an upperhand when it comes to their finance knowledge.
- Scholarships are awarded to selected students at the end of the program. These scholarships can be used to supplement a student's finance education, or get them started on professional training like the CFA exam.
How did SEMI get started?
In 1996, NYSSA established the Heloise S. Ham Education Scholarship and in 1997 launched its summer SEMI Program. Heloise S. Ham, for whom our Scholarship Fund is named, led an impressive career in finance for over four decades and was one of the few women in the field when she graduated from Northwestern University in 1951. She began her career with Stein Roe & Farnham in Chicago handling industry research in electronics, consumer goods, retail and other industries. She then worked as a fund manager and investment counselor, earning her CFA charter in 1966. In 1968, she joined an investment company in New York where she managed a hedge fund, a venture fund, and individual and corporate portfolios. From 1971 on, she operated H.S. Ham & Co. in New York, specializing in financial consulting for individuals, corporations and financial institutions. In her private life, Ms. Ham was a racing sailor, a friend of New York’s parks, an avid reader and a gourmet cook.
NYSSA's SEMI blog is offered as a resource to Student Members in the SEMI Program to discuss their experiences and impressions of the program. NYSSA makes no representation concerning the accuracy, completeness, or timeliness of information conveyed by the SEMI blog. Opinions stated in the SEMI blog are statements of the individual making the post, and do not constitute statements by NYSSA.