citigroup global markets careers in finance january 5, 2005 see the disclosure appendix for the...

Citigroup Global Markets

Careers in Finance

January 5, 2005

See the Disclosure Appendix for the Analyst

Certification and Other Disclosures.

Scott Peng


PhD in Engineering / Science from MIT

What next?

What is finance?

Is finance the right career choice?

How does one break into a totally different profession?

The Basics


Finance involves the selling or buying of investment instruments on behalf of either oneself or customers

Aspects of finance includes (but is not limited to)

– Interest rate analysis

– Credit analysis

– Risk management

– Portfolio theory and application

– Financial engineering

– Psychology

What is Finance?


When one says finance, one usually thinks of …

– Salomon Brothers (Now Citigroup Global Markets)

– Goldman Sachs

– Lehman Brothers

– Etc, etc

But … there is a lot more to finance than just those names

Finance companies can be broadly grouped into

– Buy side

– Sell side

What is Finance?


Sell side

– Investment Banks

Buy side

– Commercial banks

– Mutual funds & Money managers

– Insurance companies

Financial Institutions: The Old Days (Mid 90s)


Sell side

– Investment banks


Buy side

– Finance entities


– Mutual funds & Money Managers

– Insurance companies

– Hedge funds

There’s a lot more to finance than just investment banks

Financial Institutions: Now


Finance Entities

– Government sponsored enterprises – Fannie Mae, Freddie Mac

– Finance subsidiaries – GECC, GMAC, FMCC

– REITs

Commercial banks – Citibank, Chase, BankAmerica

Mutual funds & Money managers – Fidelity, Putnam, Alliance, PIMCO

Insurance company – MetLife, Mass Mutual, Aetna

Hedge funds – new kids on the block

Buy Side


Invest client assets

Performance judged against benchmarks

– Equity funds: S&P 500

– Bond funds: Lehman Aggregate Index of Citigroup Broad Investment Grade (BIG)

– Hedge funds: Pure “alpha”

Key roles

– Credit analyst

– Risk manager

– Portfolio manager / Trader

– Client relationship manager

Buy Side


Examples:

– Fannie Mae & Freddie Mac

– GECC, GMAC

– REITs

Invest assets versus borrowed capital to maximize return or dividend in a risk controlled fashion

Risks

– Asset-Liability Mismatch

– Credit risk

– Structural

Buy Side: Finance Companies


Invest cash from

– Checking accounts

– Saving accounts and CDs

– Ongoing operations and investments

Invest to maximize return while managing risk subject to regulations

Regulation

– May invest only in bank eligible securities

– Investments subject to risk-based weighting

Risks

– Asset-Liability Mismatch

– Credit risk

– Structural

Buy Side: Commercial Banks


Mutual fund managers and money managers (institutional) are not necessarily one and the same

Mutual funds: manage assets for retail investors

Money managers: Manage assets for institutional investors such as pension funds, insurance companies, universities

Major funds and money managers include (but is not limited to)

– Equity: Fidelity, Alliance Capital, Vanguard, Putnam, etc

– Bonds: Federated, Nuveen, PIMCO, BlackRock, WAMCO, etc

Manage assets versus benchmarks

– Volatility of return versus gains, slippage versus index

– Credit risk

Buy Side: Mutual Funds and Money Managers


Invest cash from

– Insurance policies and annuities

Goal: maximize returns while managing risk subject to regulatory and accounting issues

Regulatory and accounting

– Capital standards and adequacy subject to state insurance commissions and NAIC

– Myriads of accounting standards and issues

– Investments subject to risk-based weighting

Risks

– Asset-Liability Mismatch (biggest)

– Credit risk

– Structural

Buy Side: Insurance Companies


Been around since 1950s, exploded in popularity in last five years

Now over 7,000 hedge funds in existence

Hedge funds are grouped by their investment strategy types such as:

– Equity long/short

– Fixed income arbitrage

– Convertible bond arbitrage

– Global macro

– Managed futures

– Event driven

– Emerging market

– Private equity, venture capital and buyout (not strictly hedge fund, per se)

Buy Side: Hedge Funds


Goal: Manage return versus risk (Sharpe Ratio) and minimize correlation to other asset classes

Advantages

– Work on a variety of tasks

– Relaxed, academic-like atmosphere

Disadvantages

– Relatively narrow window of expertise

– View of world is very different from non-hedge fund entities

– A lot of new hedge funds out there

Understand style and riskiness of hedge funds. Do your own research

Buy Side: Hedge Funds


Commercial banks with securities subsidiaries now perform virtually the same function as investment banks

Sell side firms are generally considered as either large “bulge-bracket” or smaller niche firms

Bulge bracket: Largest investment banks

– Broadest array of equity and fixed income products

– Usually involved in most institutional trades

Niche – banks which focus on some specialties

– Mortgage-backed securities

– High yield bonds

– Equity IPO

– Financial futures

Sell Side: Investment & Commercial Banks


Investment banking

– Investment banking

– Mergers & Acquisitions

Sales & Trading

– Trading

– Sales

– Strategy / Analyst

– Research

Product types: Equity and Fixed Income

Sell Side Functions


Investment banking

– Grouped along industry lines – technology, insurance, finance, etc

– Understand financing needs of clients

– Work on debt and equity issuance to raise capital

– A lot of presentations and long nights

M & A

– Understand growth and longer term needs of clients

– Work on finding acquisition targets or sell unnecessary parts of firm

– A lot of presentations and long nights

These jobs mainly filled by MBA’s

Sell Side Functions: I-Banking


Trading

– Make markets on securities – generally a small segment of market

– Make money trading with customers and taking positions

– Specialization: Know a lot about a relatively small segment of market

– Smoke big cigars if you’re right

Sales

– Understand client goals

– Discuss and propose trades

– Know something about a broad segment of market

Sell Side Functions: Sales & Trading


Bond Strategy / Equity Analyst

– Understand markets & investors

– Discuss trades and market conditions

– Must have good communications skills – writing and speaking

Research: Most PhD’s start their careers on Wall Street here

– Quantitative bent

– Work on implementation of trading models and simulations

– Come up with new models and ways of looking at the world

– Excellent training ground for future traders/salespeople

– Can have long term career in research

Sell Side Functions: Strategy & Research


Citigroup, Inc. is the world’s biggest financial services firm

Citigroup Global Markets, Inc. is the investment banking unit

Citigroup Fixed Income Quantitative Research

– Approximately 100 in the U.S.

– Approximately 250 in Global Fixed Income Research

– 40% PhDs

– Strong emphasis on quantitative aspects of fixed income

Sell Side: Strategy & Research at Citigroup


Knowledge

– No, not about solving nonlinear fifth order coupled pde’s

– Read and understand the product and role for which you’re interviewing

– For example, Fabozzi’s “Handbook of Fixed Income Securities” (1373 pages) is a must-read for bond prospects

Teamwork: Show you can operate in a team environment as both a follower and a leader

– Student government

– Intramural sports

– Volunteer

Communications: Must be a good communicator

Well rounded: Have interest outside of the lab

Take business school classes to achieve a basic understanding of finance

What Makes You A Good Wall Street Candidate?


Added burden of proof

– Why do you want to do this?

– Why leave science / engineering?

– How do you think what you know applies to finance?

– What do you know about what we do?

Need to demonstrate basic understanding of product

Work on having the qualifications that would make you an attractive candidate (see previous page)

Think of ways of applying the combination of technical skills and finance

– Develop a business plan for a potential new venture

– Read technical finance literature

• Journal of Fixed Income, Journal of Finance

• Risk Magazine

It Is Not Easy for PhD’s (Non-Econ) to Break In


Disclaimer

ANALYST CERTIFICATION

I, Scott Peng, hereby certify that all of the views expressed in this research report accurately reflect my personal views about any and all of the subject issuer(s) or securities. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or views in this report.

ADDITIONAL INFORMATION AVAILABLE UPON REQUEST Citibank, N.A., London Branch and Citigroup Global Markets Inc, including its parent, subsidiaries and/or affiliates (“the Firm”), may make a market in the securities discussed in this report and may sell to or buy from customers, as principal, securities recommended in this report. The Firm may have a position in securities or options of any issuer recommended in this report. An employee of the Firm may be a director of an issuer recommended in this report. The Firm may perform or solicit investment banking or other services from any issuer recommended in this report.

Within the past three years, the Firm may have acted as manager or co-manager of a public offering of the securities of any issuer recommended in this report. Securities recommended, offered, or sold by the Firm : (i) are not insured by the Federal Deposit Insurance Corporation; (ii) are not deposits or other obligations of any insured depository institution (including Citibank); and (iii) are subject to investment risks, including the possible loss of the principal amount invested. The Firm are regular issuers of, and trade in including position taking), traded financial instruments linked to securities which may have been reported on in the preceding research report

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Although information has been obtained from and is based upon sources the Firm believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the Firm 's judgement as of the date of the report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. This research report does not constitute an offer of securities. Any decision to purchase securities mentioned in this research must take into account existing public information on such security or any registered prospectus

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