Today begins a very short last full week at my internship with CalPERS AIM group. It's been a full ten weeks of immersion in private equity and investment management. I'll miss some aspects of the job, but I'm looking forward to a second year of classes with renewed interest and a deeper perspective on this industry.
I've enjoyed how my learnings from the first year helped me understand and interpret what I experienced here: financial statements, regulations, and investment portfolios. The experience at CalPERS AIM has also generated questions and I hope/expect to delve into these further over the next three quarters:
How do tax policies effect decision-making by executive teams and investment managers?
What can I learn from financial statements, and how do companies shape that "offering" to the public?
Is investment analysis an art or a science, or where does one end and the other begin?
How does one construct an incentives system to maximize the alignment of interests in a business relationship?
and on and on... Fortunately I've got a class picked out for each of those questions.
And besides all that, there are the classmates I'm looking forward to seeing again. It's a good crew at the GSM.
Monday, September 14, 2009
Thursday, September 10, 2009
An average day
A typical internship day at CalPERS AIM:
8:00 a.m. Arrive, ensure coffee delivery system, read PEHub and try to make sense of latest private equity topics
8:30 a.m. Pull data for Business Development Companies (BDCs) from the web: price/book, TTM dividend/price, beta, top ten portfolio companies by value
10:00 a.m. Break for team meeting. Investment monitors talk about what they see happening in individual deals and implications for the market, if any. Really interesting. Ongoing discussion of how to implement the new placement agent policy and the various administrative and legal challenges. Painful.
12:00 p.m. Back to BDC data. Cross-referencing portfolio companies. Not much overlap there. Interesting to think about information asymmetries in private equity and how to get visibility. No eureka.
1:00 p.m. Lunch.
2:00 p.m. Meeting with fund managers. Nice suits. Interesting business model with these guys (almost always guys)...not the bog-standard "will invest in cash flow positive companies with strong management teams in defensive and counter-cyclical industries." Who wouldn't these days? But these guys operate in health care. They discount their expected returns by 20% starting in 2012 on the assumption that some kind of health reform will pass because the cost of not doing so will be too obvious and damaging by then. I'm not convinced.
3:30 p.m. Short meeting with the Mezzanine project team. Mostly tactical - setting up calls and work planning.
4:30 p.m. Putting some finishing touches on that BDC data and revising the broader BDC paper accordingly. Prepping a paragraph on fund strategy for a four page "one-pager" investment memo for a "distress for control" fund.
5:00 p.m. COB
A good day.
8:00 a.m. Arrive, ensure coffee delivery system, read PEHub and try to make sense of latest private equity topics
8:30 a.m. Pull data for Business Development Companies (BDCs) from the web: price/book, TTM dividend/price, beta, top ten portfolio companies by value
10:00 a.m. Break for team meeting. Investment monitors talk about what they see happening in individual deals and implications for the market, if any. Really interesting. Ongoing discussion of how to implement the new placement agent policy and the various administrative and legal challenges. Painful.
12:00 p.m. Back to BDC data. Cross-referencing portfolio companies. Not much overlap there. Interesting to think about information asymmetries in private equity and how to get visibility. No eureka.
1:00 p.m. Lunch.
2:00 p.m. Meeting with fund managers. Nice suits. Interesting business model with these guys (almost always guys)...not the bog-standard "will invest in cash flow positive companies with strong management teams in defensive and counter-cyclical industries." Who wouldn't these days? But these guys operate in health care. They discount their expected returns by 20% starting in 2012 on the assumption that some kind of health reform will pass because the cost of not doing so will be too obvious and damaging by then. I'm not convinced.
3:30 p.m. Short meeting with the Mezzanine project team. Mostly tactical - setting up calls and work planning.
4:30 p.m. Putting some finishing touches on that BDC data and revising the broader BDC paper accordingly. Prepping a paragraph on fund strategy for a four page "one-pager" investment memo for a "distress for control" fund.
5:00 p.m. COB
A good day.
Monday, September 7, 2009
Friends and Colleagues
Chicago Booth - "Not just a business school...a Business FORCE!"
Wharton - first business school...'nuff said
Jeff and Ghazal, my summer cube mates, are MBS students at Chicago and Wharton respectively. Ghazal just finished up last week and Jeff the week before that.
Sharing a small cube together, really small for three people, became one of the highlights of my internship experience. We built off what each other was learning about private equity and our respective focus projects. We discussed MBA experiences over lunch. And we had more than a few laughs as we plowed through private placement memoranda and portfolio company data. (I must find a copy of Office Space so I will understand, once and for all, why a red stapler is so important.)
Jeff worked on portfolio composition and risk. Ghazal analyzed the energy and clean tech portfolio of the AIM group. Add to that their backgrounds in fixed equity (Jeff) and the UN (Ghazal), and we had some great conversations.
The cube is quiet today, and it is easier to focus, but I sure do miss those guys.
Wharton - first business school...'nuff said
Jeff and Ghazal, my summer cube mates, are MBS students at Chicago and Wharton respectively. Ghazal just finished up last week and Jeff the week before that.
Sharing a small cube together, really small for three people, became one of the highlights of my internship experience. We built off what each other was learning about private equity and our respective focus projects. We discussed MBA experiences over lunch. And we had more than a few laughs as we plowed through private placement memoranda and portfolio company data. (I must find a copy of Office Space so I will understand, once and for all, why a red stapler is so important.)
Jeff worked on portfolio composition and risk. Ghazal analyzed the energy and clean tech portfolio of the AIM group. Add to that their backgrounds in fixed equity (Jeff) and the UN (Ghazal), and we had some great conversations.
The cube is quiet today, and it is easier to focus, but I sure do miss those guys.
Thursday, September 3, 2009
Getting to the Internship
Just a quick nod to how I got here:
I was late seeking an internship in investment management. Back in the late fall when CalPERS was interviewing generally, I had yet to take a single finance course. Investment management just wasn't on my radar.
Then through the finance core and corporate finance I discovered that investement management was more than pure quant and rolling dice. It was like learning a new language, and gradually some of the words I'd been hearing all my life were making sense in a new way.
Everyone at the GSM was tolerant and more, much more, with my shift in focus. Professors and Career Services made connections for me, and within a few weeks I had three interviews. Fortunately, CalPERS offered me the internship in the Alternative Investment Management group, which allows me exposure to the cleantech/greentech portfolio.
From this experience, a few tips on getting that MBA internship:
I was late seeking an internship in investment management. Back in the late fall when CalPERS was interviewing generally, I had yet to take a single finance course. Investment management just wasn't on my radar.
Then through the finance core and corporate finance I discovered that investement management was more than pure quant and rolling dice. It was like learning a new language, and gradually some of the words I'd been hearing all my life were making sense in a new way.
Everyone at the GSM was tolerant and more, much more, with my shift in focus. Professors and Career Services made connections for me, and within a few weeks I had three interviews. Fortunately, CalPERS offered me the internship in the Alternative Investment Management group, which allows me exposure to the cleantech/greentech portfolio.
From this experience, a few tips on getting that MBA internship:
- Find a way to talk about what you want to do and communicate it clearly and often to people you meet who might be able to help. Start doing this even before you know exactly what you want to do.
- Follow up with the contacts that people provide to you.
- Keep your referrers informed of progress, and say thanks.
- Keep an open mind on the internship. There may be multiple routes to your ultimate career goal.
Sunday, August 30, 2009
Why Investment Management
My internship in investment management was not obvious for a lot of people. With a background in international nonprofit program management, I got a few sideways glances when I told people of the interest. One interviewer asked, "Do you think that financial markets are evil?"
Actually, no, I don't think that they are evil. I've lived in places where there are no public financial markets. The only people who get to participate in investment opportunities with normal returns are the very wealthy and well-connected. When overseen by a competent and impartial regulator, financial markets democratize the economy for the middle class and institutions like credit unions and insurance mutuals. And oh, yes, there is that "efficient allocation of capital" idea, too.
But I didn't seek an internship in investment management only because I don't think of it as an ocupation for Satan and his minions. I've always enjoyed the resource allocation and efficiency challenges in my career. I've been doing "investment management" for more than 20 years if one thinks of programs as investments in human well-being and development...and I do...always did. Then I studied accounting and finance at the GSM, and became interested in the mechanics of markets, the methods and motivations of investors, and the implications for fields of innovation like energy.
I am not certain yet that investment management is where I will want to be long term, but it is a great oportunity as an internship. I am definitely enjoying it, and bonus - no new threat to my soul.
Actually, no, I don't think that they are evil. I've lived in places where there are no public financial markets. The only people who get to participate in investment opportunities with normal returns are the very wealthy and well-connected. When overseen by a competent and impartial regulator, financial markets democratize the economy for the middle class and institutions like credit unions and insurance mutuals. And oh, yes, there is that "efficient allocation of capital" idea, too.
But I didn't seek an internship in investment management only because I don't think of it as an ocupation for Satan and his minions. I've always enjoyed the resource allocation and efficiency challenges in my career. I've been doing "investment management" for more than 20 years if one thinks of programs as investments in human well-being and development...and I do...always did. Then I studied accounting and finance at the GSM, and became interested in the mechanics of markets, the methods and motivations of investors, and the implications for fields of innovation like energy.
I am not certain yet that investment management is where I will want to be long term, but it is a great oportunity as an internship. I am definitely enjoying it, and bonus - no new threat to my soul.
Wednesday, August 26, 2009
Private Equity with a Mezzanine Dialect
After the normal introductions and welcomes at my first staff meeting at CalPERS back in June, the discussion quickly shifted into the language of private equity…and I was lost. “How does the waterfall work?” “They have the stalking horse position for that company.” “The warehouse facility was in covenant default after the haircut.” It felt like I was caught somewhere between a Finance class and a coffee house recitation of Jabberwocky in rounds.
My internship this summer is with the Alternative Investment (private equity) Management group at the California Public Employees’ Retirement System. The main project that I’ve joined is an analysis of a potential program allocation to mezzanine debt. Defined in its broadest sense, “mezz” is any part of a company’s capital structure between senior 1st lien debt and common equity. Depending on who you talk to, mezz delivers either “equity returns with debt risk” or “debt returns with equity risk.” Part of my summer project is developing an answer to who is right, when.
While I’m certainly not fluent (I had to look up MOIC the other day), I’ve become functional in private equity and practically proficient in the mezzanine dialect. I can now say “PIK toggle” without stumbling and “open kimono” without blushing.
More importantly, with the concepts and methods that I learned in the core Finance and Corporate Finance classes as a first-year at the GSM, I actually grasp what’s going on in the deals and can contribute to the analysis. My understanding of how a PIK toggle functions in a sub-debt deal and probable impact on the up- and down-sides depends entirely on what I learned from Professors Yetman, Barber and Scherbina.
(Note to self: say thanks next time I see them.)
My internship this summer is with the Alternative Investment (private equity) Management group at the California Public Employees’ Retirement System. The main project that I’ve joined is an analysis of a potential program allocation to mezzanine debt. Defined in its broadest sense, “mezz” is any part of a company’s capital structure between senior 1st lien debt and common equity. Depending on who you talk to, mezz delivers either “equity returns with debt risk” or “debt returns with equity risk.” Part of my summer project is developing an answer to who is right, when.
While I’m certainly not fluent (I had to look up MOIC the other day), I’ve become functional in private equity and practically proficient in the mezzanine dialect. I can now say “PIK toggle” without stumbling and “open kimono” without blushing.
More importantly, with the concepts and methods that I learned in the core Finance and Corporate Finance classes as a first-year at the GSM, I actually grasp what’s going on in the deals and can contribute to the analysis. My understanding of how a PIK toggle functions in a sub-debt deal and probable impact on the up- and down-sides depends entirely on what I learned from Professors Yetman, Barber and Scherbina.
(Note to self: say thanks next time I see them.)
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