WCM Educational Recap #1: Summer In Review & Intro to Finance

WCM’s Mandate

“WCM delivers a holistic member experience through connecting theory with application, allowing members to explore and develop a genuine interest across various pillars of finance. This makes learning theory and achieving recruitment success an organic part of the member experience, rather than the sole focus.”

Event Breakdown & Housekeeping

WCM’s first educational of the year kicked off with a breakdown of our upcoming events and initiatives. Look out for our Mentorship Program in late October (Apps Now Live!), and also our Confidence Workshop and US Industry Conference in November. Our Facebook group is also live, so be sure to join here: https://tinyurl.com/WCMFB!

We also went over the goals of the Educations team this year, specifically to cover the fundamentals of finance, the careers within finance, and recruiting for finance.

In terms of our upcoming educationals later this month, we will cover an Economics Crash Course on October 20th and an Intro to M&A on October 27th. There will also be a reading week take-home case released on October 30th, so be on the lookout for that!

Summer In Review

We also took a deep dive this week into the following key events that occurred this summer:

• The Federal Reserve cuts interest rates: rates were cut down to 1.0%-1.25%. Cheaper borrowing costs decrease the barriers to consumer spending, lower the incentives of keeping money in the bank, and could even create a potential liquidity trap.
• Oil prices go negative: On April 20th, West Texas Intermediate crude oil fell to a low of -$40 per barrel. This happened because the sudden decrease in production resulted in the storage facilities being overextended.
• SPACs become popular: Special Purpose Acquisition Companies (“SPACs”) are vehicles that raise public funds to pursue an M&A deal. 83 SPACs raised a record-breaking $30.6B during the pandemic.
• Deals falling apart: Over $10B in mergers and acquisitions became at risk as a result of the pandemic. Included in the list of troubled deals is the prominent merger of LVMH and Tiffany.

What is Finance?

Finance is the study and system of money, investments, and other financial instruments. The jobs in the field can be grouped into corporate roles, the buy-side, and the sell-side.

Some examples of corporate roles would be those in Financial Planning and Analysis, and corporate development.

Buy-Side, or “money managing roles” would include Private Equity, Venture Capital, and Asset Management.

Sell-Side, or “advisory roles” encompass Investment Banking, Equity Research, and Sales and Trading.

WCM breaks the finance industry down into the following 6 pillars:

1. Asset Management
2. Private Equity
3. Venture Capital
4. Investment Banking
5. Equity and Debt Research
6. Sales and Trading

This was all tied together with a case study on Zoom Video Communications. The team started by going over their founder, journey, and competition. From there, the various capital raises were explained, and how each of the various capital markets functions were involved.

Overview of Buy-Side Roles

We went over the Buy-Side, or firms that make investments or purchase securities in public and private companies. Under this umbrella, firms fall into three main categories:

1. Asset Management: firms that buy, sell, and manage a portfolio of stocks and investments on behalf of private or institutional clients
2. Private Equity: firms that purchase companies using investor capital and debt, make improvements over 5–10 years, and then sell them for a return
3. Venture Capital: similar to PE, except they invest in start-ups, early-stage, and emerging tech companies that have high growth potential

A deeper dive was taken into all these categories. We looked at the different strategies utilized in asset management, spanning the gamut from Long/Short Equity all the way to Capital Structure Arbitrage. For private equity, the operations of these firms was compared to buying a house with a mortgage (debt). The mortgage lowers the amount that needs to be paid upfront, and assuming that it’s paid off over a few years and then the house can be sold again, the returns can be pretty spectacular. For venture capital, the key investment criteria were analyzed, namely the TAM growth potential, the business defensibility, and the management of the company.

Overview of Sell-Side Roles

We also dug into the Sell-Side of finance. These are the firms that promote and sell companies and securities to the Buy-Side, or in other words, “the dealmakers”. The companies that span this side of finance also fall into three major categories:

1. Investment Banking: These are financial advisors that help companies and manage the process of buying and selling businesses (or raising funds in general)
2. Equity Research: Teams that conduct analysis and produce reports with recommendations to buy, hold, or sell investments for their clients
3. Sales and Trading: Salespeople who call institutional investors with ideas and opportunities, and traders who execute those orders in the market

We spent some time taking a closer look at each of these functions. For investment banking, we separated the advisory functions (M&A, restructuring, and activism) from the capital markets functions (equity capital markets, debt capital markets, and leveraged finance). The former group focuses on providing companies with advice, while the latter is concerned with raising capital for clients. We also touched on the various S&T functions. Under sales, we identified fixed income, equities, and derivatives. For trading, we looked at areas like credits, rates, and futures.