8th Annual Industry Roundtables for Investment Professional

By Calvin Chung, CFA, Bob Cohen, CFA, Peter Vinzani, CFA and Don Duncan, CFA

On Feb 10th, the Career Management Advisory Group organized the 8th Annual Industry Roundtables for Investment Professionals event.   This event is an opportunity to hear about different careers in investment management and to ask CFA Chicago members about their career paths and the challenges of working in their respective fields.

 

Business Valuations – Paul Clark, CFA; Houlihan Capital.

Paul Clark focuses on business valuations. His undergraduate degree in engineering taught him to focus on problem solving.  90% of what he values does not have a public market price, so the values they come up with are based on financial fundamentals. The end users of his services are not the public, but rather boards of directors, the SEC, hedge funds and the IRS.  The keys to success in his field are organization, preparation and being analytical. Their deliverable is a valuation with a tight range typically + or – 10%.

 

Consultant Relations – Rebecca Smith, CFA; SouthernSun Asset Management

A testament to the power of the Industry Roundtables event and membership in the CFA Society Chicago is that one participant made a connection at last year’s event that resulted in landing a job in the individual’s field of choice. Rebecca Smith led an engaging discussion around the consultant relations position within an investment management firm. Within a smaller firm the consultant relations position expands beyond strictly sales and distribution and has evolved over the past 10 years. Whereas at one time the role was all about relationships, now it is a distinct advantage to have the breadth of knowledge and analytical skills that go along with the CFA curriculum. It is also helpful to have had a diversified experience on the other side of the table working in manager research, due diligence and having exposure to asset management. It was recognized that especially in small firms there are a few people who are really making an impact. A consultant relations representative who has a well-rounded background in other areas of the investment management business might have an advantage when it comes to placement in the databases, communicating regarding style box fit, articulating how the fund invests, identifying areas of differentiation and making suggestions to the investment managers about what works and does not work. Analytic and other experiential skills can especially be helpful in areas of institutional sales, customer relations and retail sales.

 

Emerging Markets – Casey Preyss, CFA; William Blair

Casey Preyss outlined his career as having started at William Blair right after college as a trading assistant before moving to quantitative research and then becoming the global industrial analyst within the fundamental equity research group.  In addition to covering industrial companies globally, Preyss manages the William Blair China A Shares Fund ($300m AUM), and is a member of the emerging markets portfolio management group. Preyss described the China A Share market as the second most liquid equity market in the world, after the U.S., with over 1000 companies having a market cap larger than $1b.   Although the China market is dominated by large cap bank, real estate, and industrial companies, sell-side research is still in its infancy with only 4-5 U.S. investment banks publishing research on Chinese companies. William Blair has a deep international research team with 15 international analysts. William Blair’s investment strategy is quality growth, looking for companies with accelerating earnings revisions.  The investment process starts with a top down view by sectors, looking for industries in countries with a favorable regulatory environment. Questions from attendees included the challenges of language when conducting research on emerging markets companies, the quality of data and financial statements, and trading costs affecting returns.  Preyss remarked that most international companies will present in English either with a translator or with an English speaking investor relations representative. William Blair does have 2 local analysts in Shanghai to facilitate local research.  China A share companies must report to IFRS standards, which is a major difference from listings on other Chinese exchanges. Trading costs are a factor in every country, with the transaction costs for China A shares being very transparent while exchanges in Russia would be an example of some of the most uncertain and opaque.

 

Equity Analysis – Brian Langenberg, CFA; Langenberg & Company

Brian Langenberg has had a 25-year career in equity research, starting as a sell-side analyst and eventually landing at Credit Suisse First Boston, from 1995-2001 where he made the Institutional Investor All-America research team covering conglomerates.  Langenberg was also a research analyst on the buy-side at Ohio Public Employee Retirement System before starting Langenberg & Company, an independent provider of equity research. Langenberg entertained Roundtable attendees with several anecdotes throughout his career working on different aspects of equity research and highlighting the differences between sell-side and buy-side research.  He outlined Chicago area asset management firms with fundamental research groups and also gave examples in the mutual fund industry where research has fallen short of expectations. One of the challenges for equity research is that financial information has become widely available and that the gap in data between professional analysts and the investing public has become narrower. However, there will always be a role for fundamental research focusing on the non-quantifiable intangibles of company strategy and evaluation of management teams. For people early in their careers, Langenberg advised that the path to the sell-side begins with networking with people who already work at brokerage firms. Often, entry level positions are obtained via a personal referral from someone who knows the hiring manager.

 

Equity Portfolio Management – John Jostrand, CFA; William Blair

John Jostrand is a Partner at William Blair where he is Portfolio Manager for the William Blair Funds All-Cap Growth team. Jostrand began his career in 1978 as a research analyst for a regional bank.  He has been with William Blair since 1993. Jostrand strongly believes that portfolio managers need to be able to express themselves clearly. This expression needs to be through writing and speaking. Clients must know what the deliverable is and know why the portfolio is behaving as it is. The message to the client needs to be interpreted in the right way, and their questions need to be answered in a direct manner that is easily understood. He believes a successful portfolio manager must be able to have a “good conversation” and be able to collaborate with other professionals on many facets of the job.

 

Family Office – Stephanie Szymanski, CFA; Sawdust Investment Management.

Their family office staff is heavy on accounting and less on investments because of their utilization of funds.  They focus on asset allocation. They use products they can understand and do their own due diligence on.  For this reason they do not invest in quantitative hedge funds. The skill set to be successful in this setting is a wiliness to learn and attention to detail.

 

Fixed Income/Bank Loan Trading – Bill O’Connor, CFA; Neuberger Berman      

Bill O’Connor is a Senior Vice President with Neuberger Berman Fixed Income. Specifically, he is responsible for the firm’s bank loan capital markets activities. According to O’Connor, as an asset class, bank loans are highly inefficient requiring additional due diligence and monitoring not required in more liquid and standardized markets. Additionally, each bank loan can subject to a myriad of structuring idiosyncrasies which requires a thorough reading of loan documents. This additional oversight often requires O’Connor to being his work-day around 6:30am and work a full twelve hours in order to properly monitor the portfolio. He spends much of his day on the phone negotiating with various stakeholders and counterparties. On new issuances, he is often negotiating with the bankers that are working to structure the loan offerings for clients. On the secondary market, O’Connor negotiates with other investors to agree on terms to acquire or liquidate positions, in line with the strategy of the portfolio. Neuberger Berman has a variety of investment vehicles that hold bank loans, including retail funds, collateralized loan obligations and separately managed accounts. The Chicago finance community has a strong reputation for bank loan expertise, given the breadth of lending experience established in the Loop. Over the years, some of this talent has migrated to other parts of the country, further expanding the appetite for bank loans. For a role in bank loan capital markets, a solid understanding of credit analysis is essential. Ultimately, the value of the loan is determined by an issuer’s ability to make interest payments and return the borrowed principal at maturity. An understanding of credit risks provides insight into the future value of the loan.

 

Fixed-Income/High Yield Research – Jared Feeney, CFA; Neuberger Berman

Jared Feeney’s career as a high yield analyst started at JP Morgan working in the leveraged finance group in New York.   After a short stint in sales, Feeney became a credit research associate working with a senior JP Morgan High Yield analyst. Feeney moved to Chicago and the buy-side, joining Neuberger Berman’s high yield team. Neuberger Berman has one of the largest high yield research platforms with over 20 high-yield credit analysts, organized by industry and asset class. Publicly traded high yield bonds make up the majority of the investment universe but the leveraged loan market has grown to become a substantial asset class for most high yield investors.  Unlike bonds, leveraged loans are issued by private companies and are not technically securities, although loans are widely traded on the OTC market. Due to limited information flows from private companies and lower liquidity, credit research is critical for investing in this asset class. High yield research can be a cross between traditional credit research and equity analysis. Knowledge of a company’s capital structure and an ability to carefully read through loan documents are important aspects of the high yield analyst. Feeney covers about 50 companies and must have a strong knowledge of the credit risks and opportunities associated with his coverage universe. An analyst can expect to spend weeks putting together an investment direction, only to be dismissed by portfolio managers, which can be frustrating. The investment recommendation presentation is given to a panel of decision makers that ultimately decide on whether to invest capital, or pass on a recommended opportunity. The ability to prioritize is a key skill for a research analyst, as several companies may be releasing public information nearly simultaneously, or issuing debt during a similar timeframe, requiring model updates and new recommendations. High yield research can be a cross between traditional credit research and equity analysis.  Knowledge of a company’s capital structure and an ability to carefully read through loan documents are important aspects of the high yield analyst.

 

Fixed Income/Portfolio Management – Eric Bergson, CFA; J.P. Morgan

Eric Bergson is the Midwest and Southeast Director of Fixed Income at J.P. Morgan Securities. In his current role, he spends much of his time advising the bank’s high-net worth and family office clients on appropriate fixed income investing strategies and communicating portfolio performance. He also spends time working with internal teams to implement client strategies and glean market information from traders, analysts and portfolio managers, which informs his conversations with clients. His work day often starts very early, as it is not uncommon to receive client inquiries via e-mail overnight from his U.S.-based clients. Responding to his clients with immediacy is a top priority for Bergson and should be for anyone with client-facing responsibilities. His firm hosts a 7am conference call for employees in the bank’s securities unit. The conference call covers nearly all asset classes, but is followed by discussions specifically focused on the team’s respective focus. It is important that the teams communicate with one voice and have an aligned market outlook. After the conference calls, he reaches out to clients to discuss current investment positions and potential portfolio impacts based upon economic factors. Bergson offered his advice on staying market-informed by continually reading and absorbing information from a variety of resources that include both print media, as well as the multitude of on-line offerings. He also encouraged the table participants to develop both formal and informal mentor/mentee relationships with senior leaders in professional roles of interest. Senior leaders are often interested in developing a deeper bench and can make hiring recommendations for open positions. Bergson is originally a native of Cleveland, but moved to Chicago to attend the University of Chicago.

 

Hedge Funds – Krista McLeod, CFA; Silverpath Capital Management

Krista McLeod facilitated the discussion on hedge funds with a focus on starting a hedge fund, key trends affecting the industry and challenges in running a hedge fund. As a founding partner of a recent startup, she has firsthand knowledge of the challenges and opportunities of running a hedge fund business. It is imperative that you have good business partners. This includes choice of software for key functions such as operations, finance, accounting and marketing, hiring a good broker, compliance consultants, and other service provider partners. Questions that need to be decided include how to initially seed the fund, raising funds prior to launch, or seeding the hedge fund yourself. Working through the client due diligence process was discussed. This can often be a drawn out affair looking into operations, compliance and investment process. Choice of clients to target can matter as philanthropies or family foundations can have a quicker timeframe than other institutions. It was pointed out that SEC registration is not necessary on Day 1, and only required after $100M AUM. Required documentation can take a long time so it is advised to be very prescriptive and organized. Separately managed accounts are a trend that must be addressed. Other trends or best practices discussed included technology that is more algorithm driven, and having a well performing and cohesive research team.

 

Private Equity – Gary Stark, CFA; Iron Range Capital Partners

Gary Stark presided over a discussion of the private equity industry. Iron Range is a small independent that raises capital for each deal executed as opposed to establishing a ready fund from which to make investments. It is currently a very competitive marketplace with many players and a large supply of funds all looking to source deals. In order to gain access to the potential deal flow it is very important to stay on the radar screens of the investment bankers, brokers, etc. Financing a deal as an independent can vary. The typical Private Equity fund has an expectation of liquidating the fund within 4-6 years. One advantage of being an independent is that there does not need to be a fixed exit plan and you can maintain an investment for a longer period, especially as your knowledge continues to grow of the business, its market, the management team, etc. In looking at multiple deals, the cream rises to the top. With limited deal flow and an overabundance of capital on the sidelines while the cost of debt cheap, it is possible that many good deals will not make it to the letter of intent stage. You never know when a deal will fall apart. So hustle and perseverance are very important.

 

Real Estate – John Lindell; Heitman

John Lindell is Vice President at Heitman overseeing debt and structured finance portfolios.  He is experienced in multiple sectors of the commercial real estate market and has been responsible for over $2 billion of transaction volume.  Lindell is a former attorney who used an opportunity at Heitman to make a career change into commercial real estate finance. Lindell structures real estate deals for both internal funds which he manages and external funds.  The market dictates the difficulty of raising capital from investors and finding deals to fit that capital.  In the current market, raising capital is relatively easy however finding deals have become increasingly difficult.  For those seeking careers in real estate, Lindell stressed that resilience and the ability to tackle uncertainty is extremely important.  Deals can encounter unexpected roadblocks and markets can change rapidly, the professional who can thrive under those conditions will succeed.

CFA Chicago Members Support 1 City, 1 Food Drive

CFA Society Chicago invites all members to support the Greater Chicago Food Depository by participating in the 1 City, 1 Food Drive campaign by donating one bag of food.

We invite you to drop off one bag of non-perishable food donations at our office now through Thurs., Dec. 11. Drop off location: 134 N. LaSalle Street Lobby or our office in suite 1740.

CFA Chicago’s mission is to lead the investment profession by promoting the highest standards of ethics, education, and professional excellence; to shape an investment industry that serves the greater good; and to serve as the premier local resource for Chartered Financial Analyst designees, candidates, other investment professionals and our communities. CFA Society Chicago, the world’s first investment analysts’ society, is committed to working with our members and the investment community to achieve our mission by expanding our investment culture to serve the interests of investors and society.