I too will become a wet dream tomato

The original Bing sent me this link 5 minutes ago and I had to post it. Mostly because my future roommate / hometown friend last night, upon hearing Jay-Z Feat Alicia Keys “Now You’re In New York” on the radio, proclaimed this was our anthem. Oh the enthusiasm.

http://wetdreamtomato.ytmnd.com/

“Hey! I could go back and get my Masters!”

courtesy of cherrylet

My good hometown friend accepted an offer at a major Swiss investment bank in Equity Capital Markets a few weeks back. It’s pretty amazing that we’re going to be living together after being separated for college. He’s super excited to start; I’m indifferent. I’m not sure if it’s cause I view my next two years like this video, but all I can think of is grad school…

Finance to the back office

In finance, people love to categorize jobs as either front office or back office.  Usually what determines what is front offices v. back office is how directly involved a role is in generating sales (i.e. IT is back office).  If you think about it though, almost all of business is back office, especially finance.  In a company, the CFO isn’t generating sales for the company, at least not organic sales.  A large part of the time he’s overseeing budgets, creating SEC filings, and attending investor/analyst presentations: pretty back office stuff.  If anything, something like the engineering team is much more of a “front office” role; they’re they ones creating the product and thus for a large part, defining the company.  The ultimate front office would have to be the entrepreneur.

But then there’s high finance, where a finance professional can make a ton of money utilizing his knowledge of time value of money.  Okay sure, there’s a lot more to it, but still it is a bit ridiculous what finance has become.  In the past, M&A bankers have become celebrities in their own right and quants have been viewed as geniuses.  Let’s examine that though.  M&A bankers are brokers facilitating acquisitions – what justifies their celebrity status?  That their DCF modeling skills are better than the rest?  I can’t think of any other profession where a middleman is so glorified.  And the quant traders have not even proved themselves to be profitable.  With the exception of a few hedge funds such as Renaissance Technologies, lots of quants have failed.  In a way, the idea of finance as front office is as ridiculous as if an IT professional was promoted to celebrity status and/or labeled as “genius” — “OMG!! This guy is a genius: he made my Blackberry sync up with the Microsoft Exchange server!!!”

Indeed, high finance is what attracted me to the industry when I was just a teenager.  Now as a senior in college, I’m watching high finance fall apart around me.  I watched the genius quants that I revered get clobbered by the market so I opened my mind towards investment banking, private equity, and venture capital.   Then I watched the diminishing returns of venture capital and the bonuses of investment bankers get attacked.

But that’s okay.  There’s still private equity right?  I mean credit will come back, for if it doesn’t, the whole economy will suffer.  So LBO’s will come back too….

Enter this BusinessWeek article that I read last night: Can KKR Make Like Berkshire Hathaway?

Going forward, KKR is shying away from debt for smaller, equity-only, minority stake deals in hopes of emulating Warren Buffet’s strategy.  I think I can safely say, for most of the young college graduates who hope to get into high finance, Warren Buffet isn’t one of our heroes.  He represents an extremely boring aspect of finance: buy & hold; yet Henry Kravis, a god amongst private equity hopefuls, admires (envies?) the Omaha Oracle.  The BW article writes:

Loading mounds of debt on a company in hopes of selling it later for a big profit is a technique befitting a “cave man,” says Kravis. “The days are long gone when you just buy a company and hope that financial engineering will work. Our job today is to create value. Private equity, to me, is acting and thinking like an industrialist.”

I hate to get the feeling that the era of high finance is over.  Time to move back to where the industry belongs: the back office.  And while private equity will still be there, people who are much more entrepreneurial will be taking the helm, not former financiers.  In a way, it’s almost funny to me.   After watching my dad get rocked from the tech bubble, I shied away from computer science/engineering because I thought they were such a dispensable profession.  Looks like finance is just as dispensable.

Off to investment banking

I signed and sent off my acceptance to a full-time job offer at a middle-market bank this Saturday.  It was a pretty difficult decision because I wanted to explore more opportunities but the bank gave me a very tight deadline.  One of the opportunities I wanted to explore was an investment fund that does endowment management style investing.  Sounds pretty unsexy at first, but when I went to their info session I was extremely impressed by their quantitative focus.  Though around half of their fund is allocated to portfolio managers, the other half, following Harvard Management Co’s example, they actively trade.  They showed us an example of an arbitrage they did by building a model in MatLAB to analyze the spread between the yield on a bond with the yield on a synthetic equivalent.  Not exactly the most original investment analysis but it immediately got me interested.  Then they gave us a 35 minute exam.  I totally expected the exam to be a joke; HSBC made me take an online numerical reasoning test that essentially asked me if I could read a graph.  However this exam covered market trivia (e.g. What caused AIG to fail?), computer science, math (linear algebra / multivariate calc), finance, investment analysis, economics, probability, and combinatorics.   Needless to say, it was challenging, but also it was as if the exam was made for me.  I took an extra computer science course, study math and study finance in hopes that I’d find a job like this.  For a while I thought I would never get a highly quantitative finance job without a Ph.D but then, after receiving a job offer in investment banking, it showed up.

I tried my best to get as far into the recruiting process as I could with the investment fund.  I let everyone know of my situation and I got to  interview with them last Friday morning (the info session was last Monday).  The interview was probably the most challenging one I’ve ever had- one of the associates (? their business cards don’t have titles) asked me how I would evaluate a catastrophe bond given the premium, principal, and price.  Then went on to ask me why insurance isn’t priced at it’s actuarial fair value, which then lead to talking about VAR and risk of ruin.  I was unfamiliar with a lot of these things (e.g. catastrophe bond) but I was able to reason my way through most of it.

This was also the first time I got asked about the prestige of my school.  The associate asked me, “Why did you choose BU?” and I gave my usual answer about wanting a strong math program along with a good business program, but then he goes “You seem pretty smart.  What were your SATs?  So you could’ve gone to a more prestigious school.”  Finance is a brutal in that people always judge you on four years of your life (i.e. your high school because that’s what determined your college).  The associate was making it really easy for me to make up some lame excuse but I didn’t bite.  I told him I don’t feel like I deserve to be at a better school and given that I’m being challenged with my courses, I feel that BU is fine.  He must’ve really had a low opinion of BU though because then he asked “But you must be one of the smartest kid in your math classes right?”  Man… if only that were true… (fyi: the associate transferred from Yeshiva University to Harvard where he studied Physics.  Then he got a Ph.D at MIT in Operations Research).

In the afternoon I got feedback and the director told me that everyone responded positively.  However since I didn’t have the chance to meet with a few of the top management people, I couldn’t move on to the final project till another interview.  The thing is, the deadline to respond to the bank is today and I was nowhere deep in the recruiting process with any other company.  I told them that given that I’m only far in the recruiting process with them, I’m going to accept my offer with the bank, which the director took rather well and told me to think of applying again in a couple of years.  He’s a really nice guy and I think I would’ve learned a ton working with him.  Hopefully I’ll get the chance to… After a couple years of investment banking, I definitely want to apply to that fund again.

Guess I’m not that great at interviewing

Yesterday, I received a formal rejection from the investment arm of a large conglomerate, which is one of the few jobs that I truly considered despite its lower compensation (in comparison to banking/private equity).  I don’t even know.  I thought my interview went pretty well; my interviewers seemed genuinely interested in and impressed by my mathematical background. I complimented them on an investment that I found through research, asked about their take on the future of US refineries, and told them I wanted to join them because I thought the position is one of the best opportunities for young graduates to work on the buy side (truth).  Argh, I don’t know what went wrong.  Perhaps some of my answers (especially to behavior questions like “Tell me about a failure of yours”) weren’t good enough.  I’m planning to call my interviewer to try and get some feedback.

This rejection isn’t putting doubt into how I did last Friday though.  A couple days ago, I got a response to my thank you e-mail saying that the interviewer group found me quite impressive. *crosses fingers really really hard*

Other than that, there’s a bulge bracket bank and middle market bank recruiting for their investment banking division on my school’s job board site.  I also signed up for Doostang but so far, there’s barely any jobs that fit my criteria…. hopefully some will show up so I don’t waste my money on the site >.<