It's bonus season at most financial institutions--big or small, behemoth or boutique. At some, payouts were made in December. At others, bonuses are paid in January after a strenuous month of evaluations, rankings and appraisals in December.
For everybody involved, it's not always a comfortable time, especially in the current environment. For perhaps a generation, senior finance professionals got used to receiving the bulk of their compensation in one lump-sum payout in January. A year of doing deals, generating revenues, bringing in fees, managing risks, handling portfolios, selling services, introducing new clients, making presentations, and creating new products traditionally led to that big day of a big payout.
Times are different now. The art, science and politics of compensation are as complicated as ever--because (a) in 2011 business revenues at banks, funds, and firms were volatile and unpredictable and (b) with regulation looming, not many are sure how current business models can justify the old large incentive payouts that became a habit in the 1990s and 2000s.
Every firm, it seems, is struggling to figure out how to do it right. How do you pay top performers at all levels--sufficiently enough to keep them from fleeing to another bank or another industry? How do you rationalize the right payouts in a scenario of dwindling profitability and uncertain revenue trends--when trading revenues will disappear or revenues from deals, clients, and products aren't consistent or "sticky"? And what are the right payouts in the face of a public looking for a scapegoat to blame the financial crisis and recession?
Some institutions will find a way to continue to pay top performers at mid-2000 levels, even while they scale back operations, reduce staff, and withdraw from certain businesses. Others will strive for a fair, consistent bonus strategy at all levels of experience and performance. In other words, everybody must bear the pain of a new era or a new business model.
A few (including boutique firm Greenhill) have announced they will target total firmwide compensation at a specific percentage of net revenues--probably 40-50%. Bankers and traders must learn to be satisfied within that model. Not the 50-60% levels of the past. If revenues are down, then bonuses will decline to ensure they meet compensation-percentage targets.
Everybody is watching each other, no doubt. What will UBS do? Bank of America? Or Goldman Sachs, Paribas, Blackstone, or Credit Suisse? Financial institutions have always peeped over their shoulders to determine how "the market" for compensation is faring. (Among bulge brackets, Goldman, it was always thought, set the standard for associates, vice presidents and managing directors.)
What does this mean to recent MBA finance graduates, especially those who are early in their careers, still hoping to remain in finance throughout a career, and perhaps yearning (with illusions?) to remain at the same firm for a long time?
1. Financial institutions, especially those accustomed to paying professionals bonuses that double or triple (or quadruple!) their base salaries, often say incentive plans are objective and metric-based. The process starts out that way, as senior managers review contributions, accomplishments and progress of individuals. Further along, however, the process becomes political, subjective, and biased.
Senior managers are instructed to cut bonus pools all of a sudden--sometimes a day or two before scheduled payouts. Some seniors seek to protect favorites. Others shift some of the compensation pie to talented people who threaten to leave. Many managers sometimes can't agree on what is outstanding performance or what types of contributions or performances should be rewarded.
Younger professionals often don't understand the underlying influences of incentive payouts. They won't know the behind-scenes discussions or the last-moment instructions from sector heads to change the rules. The rules are fluid throughout bonus season.
The junior population often agonizes, but shouldn't try to figure out why the compensation game is changing in the middle of the game. Too much anxiety becomes a distraction from performance--which still counts for much, especially as they build reputations and a "buzz" around them and when promotions are under discussion.
2. Incentive payments come in assorted packages. They may include a package of cash, restricted stock and/or options. MBA associates and junior vice presidents seldom, if ever, have a say in the content of payouts. Most prefer up-front cash. Senior managers, in good times, offer up-front cash to keep talent from deserting. In times of struggle, bank management will have few choices--pay in larger percentages of stock and options, or don't pay any amounts at all.
In times of uncertainty and little leverage, younger professionals should gladly accept grants of stock. Furthermore, in times of uncertainty, there's always that faction that reminds us that having a permanent job and a base salary is the bonus after all.
3. Younger professionals shouldn't jeopardize the possibility of a bonus with tepid, indifferent performance or abhorrent behavior in the few days before scheduled payouts. Sector heads and senior managers sometimes change their minds or look for reasons to take away from Paul to pay Peter. A bad impression in December, because of a rude attitude or sloppy presentation after 11 months of superb performance, has often--more than most know--led to a reduction in pay in January.
4. One more life lesson. Bonus season, as much as any episode in somebody's career finance, is a smack-in-the-face reminder that sometimes life is fair, and sometimes it isn't.
Tracy Williams
Thursday, January 12, 2012
The Toughest Interviewers
Imagine surveying MBA graduates at top schools, asking them to reveal which firms are the toughest interviewers, and Goldman Sachs or Morgan Stanley are not on the list.
In a survey last year of business professionals and from a compilation of feedback on its website, a California-based group listed its top 20 toughest places to interview. Strangely, Goldman Sachs, Morgan Stanley or other well-known financial institutions were not on the list. Those firms, as many MBA and Consortium graduates in finance know well, are known to put candidates through a grueling, marathon process over many rounds before they extend an offer.
Many other banks and financial institutions are known to follow similar practices--whether the candidate is vying for a spot in a BA/BS program or is an experienced vice president looking to make a lateral move. How often have you heard about "the process"--successive rounds of three-on-one interviews, technical interviews on specific chapters in finance, situational interviews related to a deal or client, and virtual psychology tests, including brain-teasers and pressure points?
The website, http://www.glassdoor.com/, nonetheless, includes only two "financial institutions" (hedge funds) on its list. The site addresses topics and issues related to the culture and hiring practices at companies around the nation.
The beginning of a new year typically means interviewing season. MBA first-year students are preparing for interviews for internships after spending much of the fall trying to secure interview spots. MBA second-year students are hustling to find permanent spots, if they didn't like their summer-internship experiences or if they didn't receive an August offer. More senior finance people might be considering a move now that bonus and evaluation season is over.
In the survey from 2011, consulting firms were frequent on the list. That wasn't a surprise. That Goldman, Morgan Stanley, UBS, Credit Suisse, Lazard or JPMorgan weren't on the list is intriguing. Many factors could explain that.
McKinsey, Bain, and Boston Consulting, which hold some of the most coveted spots at consulting firms, finished nos. 1, 4, and 5, respectively on the list. Hedge funds Jane Street and Bridgewater finished no. 2 and 16. Bridgewater is known to put candidates through nightmarish sessions. It boasts about how it judges candidates on how they respond to their grueling, sometimes demeaning tests. Jane Street, a lesser known trading firm in New York, was said to require candidates to make quick, complex, and decisive trading decisions based on hypothetical market scenarios.
Teach for America was no. 7--somewhat a surprise. But it must filter candidates carefully to ensure they are qualified for the classroom. Amazon and eBay were nos. 16 and 17 on the list.
Note, too, that technology firms (including Google, Facebook and Apple), also known to "play mind games" with candidates who endure interview ordeals worthy of legend, were not on the list.
The large banks may not have been on the list for a few reasons. They attract candidates (MBAs or otherwise) who are familiar with what is required to get through the process. Candidates likely spend much time preparing for rounds of interrogation, getting intelligence from colleagues and alumni, and reviewing specific topics in finance that could surface. Business-school students and alumni, including those at Consortium schools, take advantage of career services on campus and alumni networks, all of whom coach candidates. The interview process is still tough, but they are well-prepared.
You might argue, however, that those those are the same types who also aim for offer letters from McKinsey and other big consulting firms.
The big financial institutions will attempt to be hard, tough, but are likely assessing candidates carefully for "fit" and "maturity" and the ability to develop into managers, business leaders, and client-oriented professionals. Sure, they will ask candidates to compute discounted-cash-flows in their heads, but are also evaluating when and whether they will trust a candidate to lead a major deal, trade or negotiation with clients. It suits them to envision the candidate in a natural business setting.
Notwithstanding the recent list, most MBA students and graduates will still declare the rounds of talks they have with, say, Barclays, UBS, Bank of America, or Wells Fargo were as tough as it can get.
Tracy Williams
For more about Bridgewater, the hedge fund, see
http://consortiumfinancenetwork.blogspot.com/2011/04/firm-culture-could-you-work-here.html
For more about interview experiences, tales, and summaries at specific companies, see http://www.glassdoor.com/.
In a survey last year of business professionals and from a compilation of feedback on its website, a California-based group listed its top 20 toughest places to interview. Strangely, Goldman Sachs, Morgan Stanley or other well-known financial institutions were not on the list. Those firms, as many MBA and Consortium graduates in finance know well, are known to put candidates through a grueling, marathon process over many rounds before they extend an offer.
Many other banks and financial institutions are known to follow similar practices--whether the candidate is vying for a spot in a BA/BS program or is an experienced vice president looking to make a lateral move. How often have you heard about "the process"--successive rounds of three-on-one interviews, technical interviews on specific chapters in finance, situational interviews related to a deal or client, and virtual psychology tests, including brain-teasers and pressure points?
The website, http://www.glassdoor.com/, nonetheless, includes only two "financial institutions" (hedge funds) on its list. The site addresses topics and issues related to the culture and hiring practices at companies around the nation.
The beginning of a new year typically means interviewing season. MBA first-year students are preparing for interviews for internships after spending much of the fall trying to secure interview spots. MBA second-year students are hustling to find permanent spots, if they didn't like their summer-internship experiences or if they didn't receive an August offer. More senior finance people might be considering a move now that bonus and evaluation season is over.
In the survey from 2011, consulting firms were frequent on the list. That wasn't a surprise. That Goldman, Morgan Stanley, UBS, Credit Suisse, Lazard or JPMorgan weren't on the list is intriguing. Many factors could explain that.
McKinsey, Bain, and Boston Consulting, which hold some of the most coveted spots at consulting firms, finished nos. 1, 4, and 5, respectively on the list. Hedge funds Jane Street and Bridgewater finished no. 2 and 16. Bridgewater is known to put candidates through nightmarish sessions. It boasts about how it judges candidates on how they respond to their grueling, sometimes demeaning tests. Jane Street, a lesser known trading firm in New York, was said to require candidates to make quick, complex, and decisive trading decisions based on hypothetical market scenarios.
Teach for America was no. 7--somewhat a surprise. But it must filter candidates carefully to ensure they are qualified for the classroom. Amazon and eBay were nos. 16 and 17 on the list.
Note, too, that technology firms (including Google, Facebook and Apple), also known to "play mind games" with candidates who endure interview ordeals worthy of legend, were not on the list.
The large banks may not have been on the list for a few reasons. They attract candidates (MBAs or otherwise) who are familiar with what is required to get through the process. Candidates likely spend much time preparing for rounds of interrogation, getting intelligence from colleagues and alumni, and reviewing specific topics in finance that could surface. Business-school students and alumni, including those at Consortium schools, take advantage of career services on campus and alumni networks, all of whom coach candidates. The interview process is still tough, but they are well-prepared.
You might argue, however, that those those are the same types who also aim for offer letters from McKinsey and other big consulting firms.
The big financial institutions will attempt to be hard, tough, but are likely assessing candidates carefully for "fit" and "maturity" and the ability to develop into managers, business leaders, and client-oriented professionals. Sure, they will ask candidates to compute discounted-cash-flows in their heads, but are also evaluating when and whether they will trust a candidate to lead a major deal, trade or negotiation with clients. It suits them to envision the candidate in a natural business setting.
Notwithstanding the recent list, most MBA students and graduates will still declare the rounds of talks they have with, say, Barclays, UBS, Bank of America, or Wells Fargo were as tough as it can get.
Tracy Williams
For more about Bridgewater, the hedge fund, see
http://consortiumfinancenetwork.blogspot.com/2011/04/firm-culture-could-you-work-here.html
For more about interview experiences, tales, and summaries at specific companies, see http://www.glassdoor.com/.
Wednesday, December 21, 2011
Getting Real: Opportunities for 2012
Let's get real. As we turn the corner and head toward an uncertain 2012, where are the real opportunities for MBA finance professionals?
What's the real scoop? In an environment where some tip-toe when they project better scenarios next year, but where every other day large banks announce lay-offs by the thousands, what's the real story?
Who's hiring? Who's promoting solid performers? Who's luring those interested in finance and promising long-term career paths? Where are the sectors or institutions that will harbor finance pros and allow them to grow, contribute and thrive over the the next few years?
Let's take a glance and gauge vibes and signals across the sectors.
1. Investment banking, corporate finance. From now until about mid-2012, you know banks won't commit. Uncertainty forces them to be hesitant. They'll want to see sustained trends in an economic recovery. Until then, banks will resort to old-time habits of firing rashly and excessively, but hiring too aggressively when signs point to more deal flow. Some banking sectors (Asia, financial institutions, e.g.) are thriving more than others. But even those change from quarter to quarter.
But old habits mean when the tide picks up (or when deals rush through the door), the doors of banks open, and they welcome new contributors at all levels.
2. Investment banking: equities, fixed-income. Who knows? Groupon, Facebook, Zynga, and Linkedin IPOs or projected IPOs were supposed to kick-start the equities sector. Low interest rates were supposed to encourage companies to refinance and get comfortable with debt levels. But regulation (especially from the new Dodd Frank rules) is forcing banks to restructure their trading desks and the complementary role investment banking plays.
Some analysts project fixed-income sectors will diminish in importance because of the lingering damage from the mortgage castastrophe and banks not being able to offset declines in fixed-income revenues with fixed-income banking fees. Some project equities units will soar and thrive, when markets improve, because of higher fees from deals.
2. Investment banking, mergers & acquisitions. Read between the lines or current deals. All depends on the industry sector. Many industries wait for entrenched signs of growth before they acquire companies or merge with a peer. Other industries, because of business conditions, must consolidate, restructure, or sell off divisions to survive. M&A groups stand ready to advise on any kind of corporate reorganization that exists.
New regulation won't tarnish this business too much, since it's fee-based and doesn't often require banks to use too much of their balance sheets. Opportunities for M&A pros in selected areas will always exist, as long as they're comfortable with a lifestyle of few holidays and weekends and arduous travel.
3. Bank sales & trading. Expect few opportunities. Profit opportunities are disappearing. Regulation, compliance, and market volatility have combined to become an avalanche. And banks, after careful analysis, are choosing to get out of the way. Expect gradual reductions in staff across the board. Some are deciding that trading requires too much effort, pain and compliance just to squeak out a few basis points of revenues or tiny profit margins.
Banks are restructuring their trading desks, because they must. Some will depart from all trading activity, except from bare-bones customer-flow transactions. Many (J.P. Morgan, e.g.) have already reduced staff in commodities substantially. The new Volcker Rules will change the game, guidelines and profit dynamics. Some will rationalize maintaining a presence in certain trading areas if they can offset declines with gains in business elsewhere, if that's possible.
They know their best traders will flee for hedge funds and take entire desks with them, and there's not much they can do about it.
4. Risk management. Right after the financial crisis, this was the "growth area" in most financial institutions. Banks, firms, and funds hurried to ensure they had experienced, wise risk managers in place. They reviewed governance policies and rewrote them to give risk managers sufficient authority to confront the next crisis.
They even re-branded risk units to attract and keep talent. Risk management would be a destination unit, not a temporary stop-off between corporate finance assignments. Since then, the rush to reorganize and re-emphasize risk management has slowed down, but few institutions will want to be seen as reducing risk staff or risk support during challenging times.
At many firms, you seldom hear about drastic cuts in risk staff. Risk management, you can argue, is the glue that keeps Goldman Sachs in order. The lack of a strong risk organization, some argue, is why MF Global failed.
5. Corporate banking. Corporate banking, or old-fashioned relationship banking and corporate lending, regained prominence in recent years. Big banks, fatigue from the ups and downs of investment banking, rediscovered the benefits of corporate banking: a stable revenue base from lower-risk products and a loyal, committed client base that rewards banks for service, not for dramatic board-room pitches.
Many banks continue their renewed emphasis on corporate banking and project hiring experienced bankers. They are also designing new paths for new MBAs, especially for those who never contemplated such a career while in business school.
6. Bank treasury services, funds transfer, custody and cash management. The other half of nuts, bolts, blocking and tackling of service banking. Big firms re-emphasizing corporate banking must also have superior service products, too. Banks in the past were often careless in their efforts to attract strong product managers or marketing experts from the outside or from within.
Lately, however, some (J.P. Morgan, e.g.) have successfully convinced former investment bankers to transfer into these areas to energize mature (and sometimes moribund) business units. Banks, nonetheless, haven't yet rationalized a comparable compensation program for those ex-investment bankers and may not be able to.
7. Corporate treasury, financial management, financial analysis. Ah, breaths of fresh air. Amid all the market turmoil and difficulties at financial institutions, blue-chip companies are quietly reporting strong earnings, investing in new markets, and projecting reasonable growth. The finance units in these companies continue to recruit aggressively at business schools; some have convinced top graduates to by-pass Wall Street.
They promise more stability, opportunities to work in foreign countries, and worthwhile management experience. A financial analyst job at Ford or General Motors (popular destinations for many Consortium graduates) might have become fashionable again. Or a position in corporate strategy at Eli Lily or Pepsico is a desirable first job.
8. Private wealth management. Almost every bank in the country has decided to devote capital and attention to this sector. Almost every bank is attracted to a business model of aggressive accumulation and gathering of client assets, which lead to stable revenues, steady growth, and fewer headaches from market risks, regulatory threats, and an uncertain corporate clientele.
At least for now, before too many banks chase too few clients or too little in assets (or clients get too frustrated with market performance), everybody agrees this is the hot hiring growth spot in the year or two to come.
9. Community banking and development, retail banking. Some institutions see long-term growth in brick-and-mortar banking. Some don't. J.P. Morgan Chase and Bank of America have seen it. Citi sees it overseas. HSBC or BNY Mellon didn't see it.
Those that do will continue to acquire branches, hire more managers and staff, and provide more face-to-face banking services, even if it's not always easy to justify the efficiencies of such expansion. As long as they attract more and more customers (especially those who prefer a personal touch) and as long as those customers bring their deposits and their ongoing personal needs (mortgages, car loans, credit cards, e.g.), they can justify it.
Not many MBAs from top schools (including many from Consortium schools) have conventionally expressed interest in retail or community banking, but many with experience have eventually turned toward these sectors when opportunities arise.
10. Hedge funds. Hedge funds stumbled through a tough 2011. They have admitted to their investors they were caught off guard with troubles in Europe and U.S. budget-deficit fuss. But funds tend to forget the past. Or at least they try to.
Others close up shop and reopen in a different incarnation. They move on and start anew. They know, too, they'll benefit from banks being forced to downsize proprietary trading. There will be opportunities, but the industry, as always, will still be difficult to break into. Hedge-fund managers hire cronies, classmates, former colleagues from other trading experiences, graduates from the schools they attended, and sons and daughters of classmates.
11. Venture capital and private equity (financial sponsors). This is the industry of home-runs and American-dream stories of earning millions inside the proverbial five-year window. Opportunities for firms and funds to make money exist in good times (new markets and mature markets) and in bad times (distressed assets, bargain-basement prices, and restructurings). There are some (KKR, e.g.) who have even discovered ways to make investments in battered Europe. But the doors to get inside this industry are difficult to penetrate. Now, next year, and for years to come.
Some (Blackstone comes to mind) have tried to be open-minded about opening their doors to a wider array of talent and backgrounds, partly because a few have become public institutions or have been contemplating going public.
12. Asia, Europe, South America, China. Of course, Europe is in turmoil, and experts project the likelihood of continued problems. Banks there are besieged with issues and capital challenges. Few European institutions (UBS, RBS, Deutsche Bank, HSBC, e.g.) are heralding opportunities while the continent tries to right itself.
Meanwhile, financial institutions everywhere continue to have expansion eyes on parts of Asia, South America (especially Brazil), and China.
13. Diversity initiatives. When institutions struggled to remain alive after the Lehman collapse, many initiatives and much enthusiasm for diversity slipped. You could hardly get a CEO or sector head to discuss the topic, much less attend a meeting or conference call on the topic.
Some enthusiasm has revived since then, partly because some institutions see the long-term benefits and genuinely believe it's a way to hire top talent.
We've reached the corner and are headed toward the new year. Uncertainty prevails, but the mood isn't one of hopelessness or disenchantment. It's about caution and picking the right spots, the right places, and the most optimistic and resourceful institutions.
Tracy Williams
What's the real scoop? In an environment where some tip-toe when they project better scenarios next year, but where every other day large banks announce lay-offs by the thousands, what's the real story?
Who's hiring? Who's promoting solid performers? Who's luring those interested in finance and promising long-term career paths? Where are the sectors or institutions that will harbor finance pros and allow them to grow, contribute and thrive over the the next few years?
Let's take a glance and gauge vibes and signals across the sectors.
1. Investment banking, corporate finance. From now until about mid-2012, you know banks won't commit. Uncertainty forces them to be hesitant. They'll want to see sustained trends in an economic recovery. Until then, banks will resort to old-time habits of firing rashly and excessively, but hiring too aggressively when signs point to more deal flow. Some banking sectors (Asia, financial institutions, e.g.) are thriving more than others. But even those change from quarter to quarter.
But old habits mean when the tide picks up (or when deals rush through the door), the doors of banks open, and they welcome new contributors at all levels.
2. Investment banking: equities, fixed-income. Who knows? Groupon, Facebook, Zynga, and Linkedin IPOs or projected IPOs were supposed to kick-start the equities sector. Low interest rates were supposed to encourage companies to refinance and get comfortable with debt levels. But regulation (especially from the new Dodd Frank rules) is forcing banks to restructure their trading desks and the complementary role investment banking plays.
Some analysts project fixed-income sectors will diminish in importance because of the lingering damage from the mortgage castastrophe and banks not being able to offset declines in fixed-income revenues with fixed-income banking fees. Some project equities units will soar and thrive, when markets improve, because of higher fees from deals.
2. Investment banking, mergers & acquisitions. Read between the lines or current deals. All depends on the industry sector. Many industries wait for entrenched signs of growth before they acquire companies or merge with a peer. Other industries, because of business conditions, must consolidate, restructure, or sell off divisions to survive. M&A groups stand ready to advise on any kind of corporate reorganization that exists.
New regulation won't tarnish this business too much, since it's fee-based and doesn't often require banks to use too much of their balance sheets. Opportunities for M&A pros in selected areas will always exist, as long as they're comfortable with a lifestyle of few holidays and weekends and arduous travel.
3. Bank sales & trading. Expect few opportunities. Profit opportunities are disappearing. Regulation, compliance, and market volatility have combined to become an avalanche. And banks, after careful analysis, are choosing to get out of the way. Expect gradual reductions in staff across the board. Some are deciding that trading requires too much effort, pain and compliance just to squeak out a few basis points of revenues or tiny profit margins.
Banks are restructuring their trading desks, because they must. Some will depart from all trading activity, except from bare-bones customer-flow transactions. Many (J.P. Morgan, e.g.) have already reduced staff in commodities substantially. The new Volcker Rules will change the game, guidelines and profit dynamics. Some will rationalize maintaining a presence in certain trading areas if they can offset declines with gains in business elsewhere, if that's possible.
They know their best traders will flee for hedge funds and take entire desks with them, and there's not much they can do about it.
4. Risk management. Right after the financial crisis, this was the "growth area" in most financial institutions. Banks, firms, and funds hurried to ensure they had experienced, wise risk managers in place. They reviewed governance policies and rewrote them to give risk managers sufficient authority to confront the next crisis.
They even re-branded risk units to attract and keep talent. Risk management would be a destination unit, not a temporary stop-off between corporate finance assignments. Since then, the rush to reorganize and re-emphasize risk management has slowed down, but few institutions will want to be seen as reducing risk staff or risk support during challenging times.
At many firms, you seldom hear about drastic cuts in risk staff. Risk management, you can argue, is the glue that keeps Goldman Sachs in order. The lack of a strong risk organization, some argue, is why MF Global failed.
5. Corporate banking. Corporate banking, or old-fashioned relationship banking and corporate lending, regained prominence in recent years. Big banks, fatigue from the ups and downs of investment banking, rediscovered the benefits of corporate banking: a stable revenue base from lower-risk products and a loyal, committed client base that rewards banks for service, not for dramatic board-room pitches.
Many banks continue their renewed emphasis on corporate banking and project hiring experienced bankers. They are also designing new paths for new MBAs, especially for those who never contemplated such a career while in business school.
6. Bank treasury services, funds transfer, custody and cash management. The other half of nuts, bolts, blocking and tackling of service banking. Big firms re-emphasizing corporate banking must also have superior service products, too. Banks in the past were often careless in their efforts to attract strong product managers or marketing experts from the outside or from within.
Lately, however, some (J.P. Morgan, e.g.) have successfully convinced former investment bankers to transfer into these areas to energize mature (and sometimes moribund) business units. Banks, nonetheless, haven't yet rationalized a comparable compensation program for those ex-investment bankers and may not be able to.
7. Corporate treasury, financial management, financial analysis. Ah, breaths of fresh air. Amid all the market turmoil and difficulties at financial institutions, blue-chip companies are quietly reporting strong earnings, investing in new markets, and projecting reasonable growth. The finance units in these companies continue to recruit aggressively at business schools; some have convinced top graduates to by-pass Wall Street.
They promise more stability, opportunities to work in foreign countries, and worthwhile management experience. A financial analyst job at Ford or General Motors (popular destinations for many Consortium graduates) might have become fashionable again. Or a position in corporate strategy at Eli Lily or Pepsico is a desirable first job.
8. Private wealth management. Almost every bank in the country has decided to devote capital and attention to this sector. Almost every bank is attracted to a business model of aggressive accumulation and gathering of client assets, which lead to stable revenues, steady growth, and fewer headaches from market risks, regulatory threats, and an uncertain corporate clientele.
At least for now, before too many banks chase too few clients or too little in assets (or clients get too frustrated with market performance), everybody agrees this is the hot hiring growth spot in the year or two to come.
9. Community banking and development, retail banking. Some institutions see long-term growth in brick-and-mortar banking. Some don't. J.P. Morgan Chase and Bank of America have seen it. Citi sees it overseas. HSBC or BNY Mellon didn't see it.
Those that do will continue to acquire branches, hire more managers and staff, and provide more face-to-face banking services, even if it's not always easy to justify the efficiencies of such expansion. As long as they attract more and more customers (especially those who prefer a personal touch) and as long as those customers bring their deposits and their ongoing personal needs (mortgages, car loans, credit cards, e.g.), they can justify it.
Not many MBAs from top schools (including many from Consortium schools) have conventionally expressed interest in retail or community banking, but many with experience have eventually turned toward these sectors when opportunities arise.
10. Hedge funds. Hedge funds stumbled through a tough 2011. They have admitted to their investors they were caught off guard with troubles in Europe and U.S. budget-deficit fuss. But funds tend to forget the past. Or at least they try to.
Others close up shop and reopen in a different incarnation. They move on and start anew. They know, too, they'll benefit from banks being forced to downsize proprietary trading. There will be opportunities, but the industry, as always, will still be difficult to break into. Hedge-fund managers hire cronies, classmates, former colleagues from other trading experiences, graduates from the schools they attended, and sons and daughters of classmates.
11. Venture capital and private equity (financial sponsors). This is the industry of home-runs and American-dream stories of earning millions inside the proverbial five-year window. Opportunities for firms and funds to make money exist in good times (new markets and mature markets) and in bad times (distressed assets, bargain-basement prices, and restructurings). There are some (KKR, e.g.) who have even discovered ways to make investments in battered Europe. But the doors to get inside this industry are difficult to penetrate. Now, next year, and for years to come.
Some (Blackstone comes to mind) have tried to be open-minded about opening their doors to a wider array of talent and backgrounds, partly because a few have become public institutions or have been contemplating going public.
12. Asia, Europe, South America, China. Of course, Europe is in turmoil, and experts project the likelihood of continued problems. Banks there are besieged with issues and capital challenges. Few European institutions (UBS, RBS, Deutsche Bank, HSBC, e.g.) are heralding opportunities while the continent tries to right itself.
Meanwhile, financial institutions everywhere continue to have expansion eyes on parts of Asia, South America (especially Brazil), and China.
13. Diversity initiatives. When institutions struggled to remain alive after the Lehman collapse, many initiatives and much enthusiasm for diversity slipped. You could hardly get a CEO or sector head to discuss the topic, much less attend a meeting or conference call on the topic.
Some enthusiasm has revived since then, partly because some institutions see the long-term benefits and genuinely believe it's a way to hire top talent.
We've reached the corner and are headed toward the new year. Uncertainty prevails, but the mood isn't one of hopelessness or disenchantment. It's about caution and picking the right spots, the right places, and the most optimistic and resourceful institutions.
Tracy Williams
Monday, December 12, 2011
Approaching 2012
Trying to project 2012 is like reading tea leaves. Who's willing to make an informed, detailed forecast and be comfortable and confident about it? The variables are too numerous, too complex, too bewildering. If you are a finance professional, an MBA student or a Consortium alumnus, how do you brace and prepare for next year--a year of turning points and pivots with Europe unable to make up its mind about a corrective course and with U.S. elections hovering?
By now, we have grown weary of the tail end of 2011 and are ready for the year to get going. Early in 2011, business and financial signs were uplifting. We were poised for a sustained upturn until we fell off a cliff in August. Since then, we've feared a repeat of the fall, 2008, with a different set of plots, twists and finger-pointing.
The plot this time revolved around the bickering in Congress about budget deficits and debt levels and bickering in Europe about debt levels and budget deficits. The collapse of MF Global and its unexplained loss of a billion dollars of customer funds caught everybody off guard. Jon Corzine, its CEO, was supposed to have brought Goldman magic to the struggling futures brokerage. Insider-trading scandals, pending financial reform, and general economic malaise complicate the plot.
Markets meanwhile swooned out of control, with a mind wandering on its own, reacting irrationally to whatever announcement, statistic or trend happened to be the worry of the day.
Financial institutions, rebounding with a blaze with 2010 profits and gearing up to hire in large numbers, began to stumble. Trading losses hurt their bottom lines, and many are still crippled from mortgage-related businesses. It didn't help in late 2011 when the public perceived big banks were creating fees (ATM fees, checking-account fees, debt-card fees, whatever) out of the blue, unnerving retail customers. Financial institutions around the globe continued to duck slings and arrows from critics, pundits, politicians, and economists.
Nonetheless, amidst this apparent mess, lately there has been a quiet seepage of good news on employment fronts, retail spending, and general confidence. Facebook still wants to proceed with its public offering, and major banks everywhere continue to push hard in certain areas--wealth management, community banking, e.g.
What do finance professionals--both the MBA student and the experienced, senior executive--make of this confusing environment? How then do they approach 2012, when many expect a market holding pattern as Europe endures a few more scuffles before it figures itself out?
For MBA students, including Consortium students across the country, the environment seems like a whirlpool--enticing, but constantly stirring. Students are unsure when and how the waters will calm down. They are forced to adopt a Plan A, then a Plan B, and likely a Plan C.
Financial institutions are sending mixed signals. They want to hire more interns and first-year associates in private wealth management, in corporate strategy, in treasury, in corporate banking, in risk management, and in spots in Asia. But then they change their minds, reduce their expected hiring numbers, or announce large-scale cutbacks in the areas they previously promised to emphasize more.
Students are wooed by major institutions, but they know they must be purposeful and diligent in finding the right spot at the right place.
More experienced finance professionals are thankful they are in substantive roles. But the memory of 2008 is haunting. They endured the crisis, many survived it, some repositioned or rebranded themselves and landed elsewhere. However, they know what can or might happen. Although 2011 is not 2008, they can't help but wonder whether a Euro collapse could be more devastating than a Lehman downfall. How do we, they must ask, prepare individually for what could happen in a way that we weren't prepared before?
Experienced MBA graduates (including many Consortium alumni in finance) know better this time around they should take efforts to manage the uncertainty around them or shrewdly insulate themselves from career risks that may or may not happen.
Experienced professionals, however, could be the ones who guide younger MBAs who are unsure if a financial hurricane or financial sunshine looms ahead. They can compare the current scenario with other periods in recent finance history. Is this a scaled-down repeat of 2008? How do these times compare to periods of market upheaval or market confusion during the dot-com blow-up of the early 2000s or the maddening sequence of Long Term Capital, Russia and Asia defaults in 1998? How is the industry better prepared now (or less so) than in struggling times in the past? Are we in the midst of a real recovery, but we don't see it because we are blinded by the turbulence across the Atlantic?
More senior professionals, in a mentoring role, can advise younger professionals and students on how to focus on daily, immediate tasks and have confidence in what can be controlled--the next project, the next presentation, the new opportunity to learn.
Approaching 2012 is like turning a corner. Perhaps around the bend lie opportunities, optimism, profits and improved times--not the daunting signals of a crushing, long-term slowdown.
Tracy Williams
By now, we have grown weary of the tail end of 2011 and are ready for the year to get going. Early in 2011, business and financial signs were uplifting. We were poised for a sustained upturn until we fell off a cliff in August. Since then, we've feared a repeat of the fall, 2008, with a different set of plots, twists and finger-pointing.
The plot this time revolved around the bickering in Congress about budget deficits and debt levels and bickering in Europe about debt levels and budget deficits. The collapse of MF Global and its unexplained loss of a billion dollars of customer funds caught everybody off guard. Jon Corzine, its CEO, was supposed to have brought Goldman magic to the struggling futures brokerage. Insider-trading scandals, pending financial reform, and general economic malaise complicate the plot.
Markets meanwhile swooned out of control, with a mind wandering on its own, reacting irrationally to whatever announcement, statistic or trend happened to be the worry of the day.
Financial institutions, rebounding with a blaze with 2010 profits and gearing up to hire in large numbers, began to stumble. Trading losses hurt their bottom lines, and many are still crippled from mortgage-related businesses. It didn't help in late 2011 when the public perceived big banks were creating fees (ATM fees, checking-account fees, debt-card fees, whatever) out of the blue, unnerving retail customers. Financial institutions around the globe continued to duck slings and arrows from critics, pundits, politicians, and economists.
Nonetheless, amidst this apparent mess, lately there has been a quiet seepage of good news on employment fronts, retail spending, and general confidence. Facebook still wants to proceed with its public offering, and major banks everywhere continue to push hard in certain areas--wealth management, community banking, e.g.
What do finance professionals--both the MBA student and the experienced, senior executive--make of this confusing environment? How then do they approach 2012, when many expect a market holding pattern as Europe endures a few more scuffles before it figures itself out?
For MBA students, including Consortium students across the country, the environment seems like a whirlpool--enticing, but constantly stirring. Students are unsure when and how the waters will calm down. They are forced to adopt a Plan A, then a Plan B, and likely a Plan C.
Financial institutions are sending mixed signals. They want to hire more interns and first-year associates in private wealth management, in corporate strategy, in treasury, in corporate banking, in risk management, and in spots in Asia. But then they change their minds, reduce their expected hiring numbers, or announce large-scale cutbacks in the areas they previously promised to emphasize more.
Students are wooed by major institutions, but they know they must be purposeful and diligent in finding the right spot at the right place.
More experienced finance professionals are thankful they are in substantive roles. But the memory of 2008 is haunting. They endured the crisis, many survived it, some repositioned or rebranded themselves and landed elsewhere. However, they know what can or might happen. Although 2011 is not 2008, they can't help but wonder whether a Euro collapse could be more devastating than a Lehman downfall. How do we, they must ask, prepare individually for what could happen in a way that we weren't prepared before?
Experienced MBA graduates (including many Consortium alumni in finance) know better this time around they should take efforts to manage the uncertainty around them or shrewdly insulate themselves from career risks that may or may not happen.
Experienced professionals, however, could be the ones who guide younger MBAs who are unsure if a financial hurricane or financial sunshine looms ahead. They can compare the current scenario with other periods in recent finance history. Is this a scaled-down repeat of 2008? How do these times compare to periods of market upheaval or market confusion during the dot-com blow-up of the early 2000s or the maddening sequence of Long Term Capital, Russia and Asia defaults in 1998? How is the industry better prepared now (or less so) than in struggling times in the past? Are we in the midst of a real recovery, but we don't see it because we are blinded by the turbulence across the Atlantic?
More senior professionals, in a mentoring role, can advise younger professionals and students on how to focus on daily, immediate tasks and have confidence in what can be controlled--the next project, the next presentation, the new opportunity to learn.
Approaching 2012 is like turning a corner. Perhaps around the bend lie opportunities, optimism, profits and improved times--not the daunting signals of a crushing, long-term slowdown.
Tracy Williams
Tuesday, November 22, 2011
First-Year MBAs: Internships and Recruiting
What are current sentiments, trends, and outlook, as MBA students prepare for a tough job market in 2012-13? What are the best tools, advice, and guidelines to get ready?
The Consortium Finance Network hosted a webinar Nov. 22 for first-year Consortium MBAs in finance to discuss strategies for recruiting and securing internships for the summer, 2012.
Panelists included Consortium graduates Eddie Galvan, Denzil Vaughn, and Enoch Kariuki. CFN founding members Tracy Williams and Camilo Sandoval (also a Consortium alumnus) and the Consortium's D-Lori Newsome-Pitts organized the webinar.
Fortunately for students, the hiring environment for 2012 is not as discouraging as it was in 2008-09, when financial institutions worried more about survival than bringing aboard new MBAs. Yet with announcements every other day from banks about rounds of lay-offs, finance students know the task of winning an offer for a meaningful internship will be tricky.
Market volatility in recent months, frenzied discussions about U.S. debt reduction, a stumbling economic recovery and persistent rumblings from Europe all have impact even in hiring MBA students. The webinar provided strategies for new students.
Panelists said there is some optimism--despite all. Financial institutions are in better shape now than they were in 2008. They have stronger capital cushion and are flooded with cash reserves, although they momentarily are suffering from trading losses or slow deal flow. They are, however, hopeful they'll get over a late-2011-2012 hump, endure a long election year and want to be prepared for 2012-13.
Many large firms, panelists said, are optimistic and hopeful, but cautious. There are areas of opportunity (private banking, risk management, middle-market banking, e.g.), but there are also areas of decline or little hope (some sectors in trading). Financial reform, not just economic conditions, will also affect recruiting trends.
For now, financial institutions this fall made the rounds at Consortium and other top business schools, as they usually do, no matter the environment. A few canceled planned presentations on campus--still unsure about deal flow, new clients, new business, and costs to support business efforts in the short term. Most institutions are struggling to count how many spots for MBA internships it will offer. The same institutions have a decades-long history for not getting the number right (over-hiring, under-hiring, and doing so too quickly). They certainly have a habit for changing the expected number throughout the process.
MBAs, nonethless, throughout the post-crisis fracas, continue to have degrees of interest in finance. Over 80 students in this year's Consortium first-year class expressed interest in financial services, banking, sales & trading, investment research, and asset management.
Panelist during the webinar provided a road map for students. How do you take advantage of networks? How do you choose the right finance sector, culture and fit? Why is it important to keep up with current topics? How do you confront technical interviews? Will you succeed in certain environments? How do you impress an institution where you prefer to work? How do you control and master rounds and rounds of interviewing?
Panelists shared stories of how they chose to work at a certain firm, why they chose one firm over another, or why they took a detour and went into a non-banking role. They showed, too, how they tapped networks to find opportunities. They advised on how students can manage academics, recruiting and keeping up with trends and events in markets. They reminded students to handle technical interviews with confidence and preparation.
They discussed trends in diversity. Are the major institutions still committed? Will institutions be committed in all times--good times, downturns, booms?
And once you have the offer, how do you negotiate and accept it? How do you make sure the summer internship leads to a full-time offer? Panelists shared their experiences.
CFN, upon request, will share details of the presentation to Consortium students and alumni.
Tracy Williams
Venture Capital: Diversity Update
If you were to peep inside the corridors of most venture capital firms, including those in pockets of Silicon Valley or those scattered about Manhattan or in the Boston suburbs, would you see encouraging signs of diversity? Would you see a diverse environment, an inclusive culture, or a setting where those from under-represented groups are deeply involved in investment discussions, analyses, presentations, and decision-making?
In those same venture capital firms, would you see women, blacks and Hispanics in prominent professional roles?
Not really, says a survey from the National Venture Capital Association (http://www.nvca.org/). Would you be surprised? Not really, the survey also shows. The business of venture capital (investing in promising start-ups, nurturing new ideas, coaching young entrepreneurs, and facilitating financing in second and third rounds) has a long way to go.
The survey was taken in mid-2011 and follows a similar survey from 2008. The survey was sent to investment professionals and to those in a variety of administrative roles. About 600 responded, providing answers to questions related to race, ethnicity, background and education. Whether optimally scientific or not, the responses weren't surprising. Women, blacks and Hispanics still do not have significant roles in venture capital--at least at the big, world-shaking firms.
What did the survey tell us?
1. Women are not prominent in major roles at venture-capital firms. Only 11 percent of those in investing roles are women, a decline, in fact, from 2008 (14 percent).
2. Women are more involved in life sciences and clean technology (18 percent), less involved in non-high-tech businesses (8 percent).
3. There are signs of progress. Women (both investing professionals and administrators) comprise 28 percent of those under 30.
4. Blacks and Hispanics are virtually invisible in the industry, and there has been little or no progress the past three years. African-Americans and Hispanics (combined) comprise 2 percent of all survey respondents (both investors and administrators)--down from 3 percent in 2008.
5. There are few signs of progress among Blacks and Hispanics. They comprise 3 percent of investing professionals who had less than five years of experience (those who are among the most recent hires).
6. Asians and Asian-Americans have a greater presence at venture-capital firms, but not in significant numbers: 9 percent of all respondents this year, 17 percent of all investing professionals with less than five years of experience.
7. Alumni from prominent graduate schools are present in large numbers at top venture-capital firms. Almost 80 percent have master's, J.D., or Ph.D. degrees; about half have MBAs. Graduates of Harvard, Stanford, Yale, Penn, MIT, Berkeley, Duke, Norwestern, Michigan, and Columbia comprised about half of all the respondents.
8. More than half of respondents had spent some time in their careers as consultants, investment bankers or attorneys, suggesting that one of the best ways to enter the field is to have started out first and gained meaningful experience in one of these roles.
Why are the numbers for under-represented groups woefully low?
Why hasn't there been progress? Is there something that keeps or discourages blacks, Hispanics and women from large-scale entrepreneurial activity and from participating in expected profits and large windfalls from sales of private stock or IPOs?
As most know, the top venture-capital firms tend to be concentrated in hotbeds of entrepreneurial activity, where firms have close access to new ideas, innovation, and eager entrepreneurs, but also access to capital and investors. Silicon Valley and the greater San Francisco area are well-known homes for top ventures firms, but so are Boston, Chicago, and New York.
Top firms, based on the number of deals they've done over the past few years and the amount of capital they manage, include Sequoia Capital, Andreesson Horrowitz, Draper Fisher, Kleiner Perkins, General Catalyst, Accel, Charles River Ventures, Khosla, Oak Investment, and Greylock--many of whom are members of the NVCA and likely had employees and investing professionals who participated in the survey.
Why are those from under-represented groups not intimately involved in the promise, innovation and profit-sharing of venture investing?
1. The venture-capital world is private, clubbish. "Members" know each other well from previous deals, affiliations, and experiences. They know each other in previous roles as bankers, lawyers, and consultants. They may, in fact, know each other from school. They invest in deals and funds within the club; they hire among each other or tap investing talent they know among themselves.
Some firm leaders might have been entrepreneurs before. They benefited from financial support and industry guidance from other venture firms. The survey said more than 15 percent of investing professionals at venture firms were CEOs or heads of other start-ups. Many managed start-ups through early stages, reaped large benefits from the sale of their enterprises, and then invested the wealth in new venture funds. Marc Andreessen, a Netscape founder, and Peter Thiel, PayPal's founder, are now widely known as venture investors.
2. Venture firms are narrowly focused on the next deal, the next new idea, and the next entrepreneur who has a "disrupting" vision. They are seldom motivated by or caring enough to ensure diversity among their professional staff. Institutions, investors, and funds that provide capital for the venture fund don't hold firms accountable. Because transactions and relationships are private, they aren't likely to push to make firm's culture inclusive and or push to provide opportunities for those from a variety of backgrounds.
3. Venture firms, not held accountable and operating in closed-door environments, are likely to be unaware, uninformed or unperceptive of diversity's benefits.
4. Venture firms tend to be marginally staffed. They include investor professionals, principals, partners, analysts, and researchers. They also include attorneys, administrators, and financial staff. They are not likely to have personnel who pursue diversity-related initiatives and programs, who hold the firm's leaders accountable to fairness, opportunities and diversity, or who prompt the firm to catch up or keep up in related issues.
5. Venture firms aren't likely familiar with diversity pipeline programs or aren't aware that blacks, women, and Hispanics in numbers are interested in venture capital, private equity and fund investing and attend the same top business schools that their leaders did. Blacks, Hispanics, Asians and women who find their ways into the sheltered cultures are likely to have attended the same schools and found a pathway from school ties, summer internships, or experiences in investment banking or consulting.
Despite the dismal numbers, some African-Americans, Hispanics and women have punctured the closed doors. Some have started their own funds or have found a way into top spots at the bigger venture capital or private-equity firms (Ronald Blaylock's GenNx360 Capital, e.g.).
Nonetheless, applaud the NVCA. First, it dares to conduct such a survey and report its results widely, even if there isn't yet much to celebrate while progress is stiflingly slow. Second, it states it has objectives to improve the numbers. Its president Mark Heesen said in a recent release, "Ideally, we would like to see a professional base that reflects the entrepreneurs in which we invest, one that is robust and diverse in terms of gender, ethnicity, nationality and age."
In other words,the NVCA is daring to hold the industry accountable, if it doesn't do so itself.
Tracy Williams
In those same venture capital firms, would you see women, blacks and Hispanics in prominent professional roles?
Not really, says a survey from the National Venture Capital Association (http://www.nvca.org/). Would you be surprised? Not really, the survey also shows. The business of venture capital (investing in promising start-ups, nurturing new ideas, coaching young entrepreneurs, and facilitating financing in second and third rounds) has a long way to go.
The survey was taken in mid-2011 and follows a similar survey from 2008. The survey was sent to investment professionals and to those in a variety of administrative roles. About 600 responded, providing answers to questions related to race, ethnicity, background and education. Whether optimally scientific or not, the responses weren't surprising. Women, blacks and Hispanics still do not have significant roles in venture capital--at least at the big, world-shaking firms.
What did the survey tell us?
1. Women are not prominent in major roles at venture-capital firms. Only 11 percent of those in investing roles are women, a decline, in fact, from 2008 (14 percent).
2. Women are more involved in life sciences and clean technology (18 percent), less involved in non-high-tech businesses (8 percent).
3. There are signs of progress. Women (both investing professionals and administrators) comprise 28 percent of those under 30.
4. Blacks and Hispanics are virtually invisible in the industry, and there has been little or no progress the past three years. African-Americans and Hispanics (combined) comprise 2 percent of all survey respondents (both investors and administrators)--down from 3 percent in 2008.
5. There are few signs of progress among Blacks and Hispanics. They comprise 3 percent of investing professionals who had less than five years of experience (those who are among the most recent hires).
6. Asians and Asian-Americans have a greater presence at venture-capital firms, but not in significant numbers: 9 percent of all respondents this year, 17 percent of all investing professionals with less than five years of experience.
7. Alumni from prominent graduate schools are present in large numbers at top venture-capital firms. Almost 80 percent have master's, J.D., or Ph.D. degrees; about half have MBAs. Graduates of Harvard, Stanford, Yale, Penn, MIT, Berkeley, Duke, Norwestern, Michigan, and Columbia comprised about half of all the respondents.
8. More than half of respondents had spent some time in their careers as consultants, investment bankers or attorneys, suggesting that one of the best ways to enter the field is to have started out first and gained meaningful experience in one of these roles.
Why are the numbers for under-represented groups woefully low?
Why hasn't there been progress? Is there something that keeps or discourages blacks, Hispanics and women from large-scale entrepreneurial activity and from participating in expected profits and large windfalls from sales of private stock or IPOs?
As most know, the top venture-capital firms tend to be concentrated in hotbeds of entrepreneurial activity, where firms have close access to new ideas, innovation, and eager entrepreneurs, but also access to capital and investors. Silicon Valley and the greater San Francisco area are well-known homes for top ventures firms, but so are Boston, Chicago, and New York.
Top firms, based on the number of deals they've done over the past few years and the amount of capital they manage, include Sequoia Capital, Andreesson Horrowitz, Draper Fisher, Kleiner Perkins, General Catalyst, Accel, Charles River Ventures, Khosla, Oak Investment, and Greylock--many of whom are members of the NVCA and likely had employees and investing professionals who participated in the survey.
Why are those from under-represented groups not intimately involved in the promise, innovation and profit-sharing of venture investing?
1. The venture-capital world is private, clubbish. "Members" know each other well from previous deals, affiliations, and experiences. They know each other in previous roles as bankers, lawyers, and consultants. They may, in fact, know each other from school. They invest in deals and funds within the club; they hire among each other or tap investing talent they know among themselves.
Some firm leaders might have been entrepreneurs before. They benefited from financial support and industry guidance from other venture firms. The survey said more than 15 percent of investing professionals at venture firms were CEOs or heads of other start-ups. Many managed start-ups through early stages, reaped large benefits from the sale of their enterprises, and then invested the wealth in new venture funds. Marc Andreessen, a Netscape founder, and Peter Thiel, PayPal's founder, are now widely known as venture investors.
2. Venture firms are narrowly focused on the next deal, the next new idea, and the next entrepreneur who has a "disrupting" vision. They are seldom motivated by or caring enough to ensure diversity among their professional staff. Institutions, investors, and funds that provide capital for the venture fund don't hold firms accountable. Because transactions and relationships are private, they aren't likely to push to make firm's culture inclusive and or push to provide opportunities for those from a variety of backgrounds.
3. Venture firms, not held accountable and operating in closed-door environments, are likely to be unaware, uninformed or unperceptive of diversity's benefits.
4. Venture firms tend to be marginally staffed. They include investor professionals, principals, partners, analysts, and researchers. They also include attorneys, administrators, and financial staff. They are not likely to have personnel who pursue diversity-related initiatives and programs, who hold the firm's leaders accountable to fairness, opportunities and diversity, or who prompt the firm to catch up or keep up in related issues.
5. Venture firms aren't likely familiar with diversity pipeline programs or aren't aware that blacks, women, and Hispanics in numbers are interested in venture capital, private equity and fund investing and attend the same top business schools that their leaders did. Blacks, Hispanics, Asians and women who find their ways into the sheltered cultures are likely to have attended the same schools and found a pathway from school ties, summer internships, or experiences in investment banking or consulting.
Despite the dismal numbers, some African-Americans, Hispanics and women have punctured the closed doors. Some have started their own funds or have found a way into top spots at the bigger venture capital or private-equity firms (Ronald Blaylock's GenNx360 Capital, e.g.).
Nonetheless, applaud the NVCA. First, it dares to conduct such a survey and report its results widely, even if there isn't yet much to celebrate while progress is stiflingly slow. Second, it states it has objectives to improve the numbers. Its president Mark Heesen said in a recent release, "Ideally, we would like to see a professional base that reflects the entrepreneurs in which we invest, one that is robust and diverse in terms of gender, ethnicity, nationality and age."
In other words,the NVCA is daring to hold the industry accountable, if it doesn't do so itself.
Tracy Williams
Tuesday, November 8, 2011
MF Global: Too Small to Save
 |
| Not the same impact as Lehman |
MF Global, the futures brokerage firm, filed for bankruptcy. It was deemed too small to save. MF Global was not a household name (but so wasn't Bernard Madoff before the world found out about that fraud). Few outside the industry knew much about MF Global. Some knew that former New Jersey Governor Jon Corzine was its CEO. And they knew Corzine had been the head at Goldman Sachs in the 1990s.
MF Global was known as a major player in futures and commodities brokerage. It had institutional client accounts with hedge funds, pension funds, corporations, banks, other brokerages, and other trading firms. It facilitated futures and commodities trading on all the important derivatives exchanges around the world and special trading over the counter.
For the most part, it acted in intermediary roles, a broker for clients who wished to engage in futures and commodities trading for hedging purposes or for taking a bet or view on interest rates, crude oil, foreign currencies, or stock indices. Clients deposited funds at the firm, and the firm facilitated trading at futures and commodities exchanges or "over the counter." It earned commissions (or "mark-ups"). Client funds not yet deployed for transaction purposes were supposed to be deemed "safe" and "segregated."
MF Global was supposed to be somewhat insulated from virulent swings in markets, as long as there was some activity or some transaction for which it could charge a commission. While clients try to hedge against market swings, MF Global is supposed to thrive in market volatility, not suffer inexplicable trading losses that lead to bankruptcy.
Entered Corzine, recovering from a devastating loss for reelection for a gubernatorial term in New Jersey and perhaps hoping to write a thrilling second chapter to his career on Wall Street. He felt he could be the catalyst to wake up a sleeping MF Global, which had stumbled through a few performance and risk-management issues before he arrived.
To provide earnings spark and improve performance, Corzine felt he needed to reinvent MF Global. It wouldn't move away from its core brokerage expertise, but it needed to be more daring. It would take risks in the same way Goldman evolved to become a trading powerhouse under his helm in the 1990s.
MF's demise has caused ripples in markets, not a Lehman-like thunderous roar. Its disappearance won't be a threat to the global financial system. But many market participants wonder whether other medium-sized brokerage houses are similarly vulnerable or could be next. Who could be next? Unfortunately, too, at MF Global, regulators are scrambling to locate hundreds of millions of dollars of missing customer funds. Many experienced brokerage personnel at the firm must look elsewhere for work. (Over 900 were let go this week.)
What happened at MF? What hastened its demise?
1. Corzine likely tried to hard too fast to replicate parts of Goldman and had a stubborn belief in his old, successful ways. About a year after Corzine had settled in, MF Global started to suffer substantial losses from leveraged bets on Europe sovereign debt this year (exploiting its access to "repo" markets and credit-default swaps, but stumbling soon thereafter).
2. Risk management lacked a voice or authority to restrain the trading and the firm's piling up of risks. It certainly lacked authority to second-guess Corzine. He presided over a risk-management structure that didn't allow risk managers to say "no" or "slow down."
3. MF was non-responsive to regulators' persistent requests to increase its capital base. Capital might have been adequate for a pure-brokerage role, but it wasn't when it began to engage in proprietary trading on a large scale. Instead of boosting capital to comply with requests, Corzine and team would lead arguments for why it felt new capital wasn't necessary.
Are there lessons to be learned from the MF Global mini-crisis?
1. Leveraged trading is still risky, even if it involves trading government securities.
2. Risk management within financial institutions must have an authoritative voice to be effective.
3. Old, successful ways of making money in trading may not be magical and profitable at a different firm in a different era in apparently different market scenarios.
4. Plain-vanilla brokerage and banking businesses may not always lead to stellar returns, but can help ensure long-term survival.
What happens over the next year or two?
1. The bankruptcy will run its course. It will continue to be a business headline, because customer funds and deposits are missing and can't be accounted for. Regulators, market watchers, and business media will persist in asking how that could happen. They will blame woefully inadequate operations, and some will suspect fraud.
2. Exchanges and regulators will ponder rules changes to discourage futures brokerages from taking big proprietary-trading risks. As with other financial reform, new rules will be thoroughly discussed, but won't be implemented soon.
3. MF Global will become a broker/dealer-industry footnote like Rothshild, Hutton, Refco, and Drexel. That it will become a footnote in the history of finance is probably good. It meant it was too small to save, just a market ripple.
Tracy Williams
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