ECM on its own is a good career - better hours than M&A obviously. I don't want to leave. So, it seemed like a good time to revisit Structured Finance and break down the industry, from over-collateralization to exit opportunities: Structured Finance Definition: In Structured Finance, banks pool together loans backed by cash flow-producing assets into securities and sell tranches of these securities into the capital markets; these securities use tools like credit enhancements to make each tranche riskier or less risky than the average loan in the pool. Or is it usually an end goal. Other examples include collateralized debt obligations (CDOs), synthetic financial instruments, and collateralized bond obligations (CBOs). Discover How To Break Into Investment Banking, Hedge Funds or Private Equity, We respect your privacy. That means slides showing the features of recent issuances, a fair amount of market monitoring, and also loan performance tracking.. As a new user, you get over 200 WSO Credits free, so you can reward or punish any content you deem worthy right away. WSO Free Modeling Series - Now Open Through, +Bonus: Get 27 financial modeling templates in swipe file, Being obsessed with Prestige has ruined my life, Being obsessed with Prestige has saved my life. Also, while PE and DL share some aspects, the investing philosophy is quite different since one is a pure equity role, and the other is a pure debt role. 27 year-old private equity guy shows benefit of - eFinancialCareers I don't want to pigeonhole myself into something this early in my career. So, Project Finance loans issued to fund infrastructure projects such as power plants and toll roads could be considered Structured Finance transactions even if they are not securitized. 2. cold call a bunch of IB boutiques in london The Leveraged Finance skill set is more applicable to corporate-level transactions, while Structured Finance is all about asset-level analysis. Dry powder for private equity surged on the back of a flurry of fund-raises following 2021s activity. How would it differ from the analysis of other consumer ABS, such as ones for credit cards and personal loans? Bookmark content that interests you and it will be saved here for you to read or share later. From what I have been told we are pretty SOL if thats the only experience we have. Harum quae sit aperiam dicta consequuntur maxime ex. Theyre often willing to lend up to higher multiples of EBITDA (e.g., 4.5x or 5.0x rather than 4.0x for a Term Loan) in exchange for higher interest rates, of course. Leading Indian GPs, such as Kedaara Capital and ChrysCapital, increasingly competing with global counterparts on large deals, crossed $1 billion in new fund-raises. Maxime minus est sapiente qui. I just received an offer for one of the big 3 credit rating agencies for next summer. All else being equal, an ABS with a low CPR and low CDR is more attractive than one with higher rates for one or both of those. Aliquid modi tempore quod vel voluptatem. If you get a case study or modeling test, it will likely take this form: Please read this CIM or a few pages of information about this company, build a 3-statement or cash flow model, and make an investment recommendation about the potential Term Loan A/B or other loan issuance.. The bulge bracket banks with large Balance Sheets tend to have the strongest groups here. And fields like venture capital and corporate development are a huge stretch unless, in the latter case, the company happens to issue structured notes all the time. Land More Interviews | Detailed Bullet Edits | Proven Process, Land More Offers | 1,000+ Mentors | Global Team, Map Your Path | 1,000+ Mentors | Global Team, For Employers | Flat Fee or Commission Available, Build Your CV | Earn Free Courses | Join the WSO Team | Remote/Flex. If you're at a fund that does Mezz debt or Subordinated debt loans, or invests in those sorts of bonds/notes, then Hedge funds and PE firms would be a natural 'lateral'. Ab quasi nihil velit et est esse quisquam. Thank you for this article and many others which have been helpful! Similar to Debt Capital Markets (DCM), there is a lot of overlap with Sales & Trading, and some banks put their Structured Finance (SF) teams within S&T rather than IB. The difference is that Structured Finance works with many other assets besides commercial real estate, while CMBS specializes in securitized issuances for all types of CRE properties (multifamily, office, retail, industrial, hotel, etc.). Your email address will not be published. A: See the explanations at the top of this article. This is an example of subordination, and its a feature of almost every structured product: the issuer pools the loans and splits them into tranches with different risk/return profiles. I am headed into a corporate banking role this summer in a bank with CIB umbrella structure. 3) Submit an Indication of Interest (IOI) or Letter of Intent (LOI) You outline your proposed investment terms, including the maturity of the loan, the fees, the interest rate, and so on. Expect to see JP Morgan, Goldman Sachs, Bank of America, Citi, Credit Suisse, and Deutsche Bank near the top globally and in the U.S. You have a low chance of getting into traditional private equity unless you have previous M&A, Leveraged Finance, or industry coverage experience. Structured Finance might be the rare sector of finance that has become less controversial over time. I think your best bet is to do the Masters to improve your grades because that seems to be the main obstacle here, and then recruit for IB roles during/after the Masters. Both types of loans may charge commitment fees, prepayment penalties, and other fees, but these fees tend to be higher for mezzanine. Clean energy saw robust deal activity in 2022, as improved efficiency, climate agenda (COP27 accord2022 UN Climate Change Conference) and governments focus on utilities-scale investments improved the cost competitiveness of renewables. Investors are increasingly looking at Indias healthcare sector for secular returns amidst turbulent tides, with an increase in interest in health providers, pharma, diagnostics, and single-specialty providers since 2020. Private debt markets have always existed, but direct lending a specific subset of private debt took off in a major way after the 2008 financial crisis. And if you go to a mezzanine fund, you open up exit opportunities at some of the other firm types mentioned above. What kind of exit opps exist if one were to complete a credit training program and then become a debt/credit products underwriter for maybe 4-5 years? Also, as the name implies, private debt is not publicly traded, so its market value is more difficult to determine. MFs and UMM PE usually only hire out of banking. The subordination described above is an example of an internal credit enhancement, and so is over-collateralization. 2022 Diversity, Equity, and Inclusion Report. Distinctio quisquam cupiditate et delectus in ipsam praesentium. To learn more about, please click here to get my FREE 57-page investment banking recruiting guide - plus, get weekly updates so that you can break into investment banking, Direct Lending vs. If these numbers hold across the entire loan pool, investors can expect ~6% of the entire pool to be repaid early each year. What is the general reputation, pay, culture, exit ops, etc. Have you seen individuals move from commercial banking (C&I Lending) straight to Direct Lending? Indias healthcare sector saw deal values reach $4.3 billion in 2022, at approximately 8% of total investments. Before proceeding, we need to explain the special features of these structured products that alter their risk/return profiles. Voluptate cum ipsa culpa velit pariatur hic. PE firms will appreciate your ability to screen and understand a deal. April 19, 2023. Im currently a student looking at a prospective summer internship. Then there are French banks such asCrdit Agricole and Socit Gnrale and various others (HSBC, Standard Chartered, BNP Paribas, etc.) You'll still be able to do IB/PE if you really want, but will need to understand the M&A process and study in your free time. I sometimes get confused when you refer to lack of deal experience when it comes to corporate versus investment banking roles: if I am doing credit analysis/due diligence, modeling, and helping to execute on project financing, term loans, etc. This example of subordination is the best-known feature of structured products, and it creates cash flow waterfalls like the one below (source: Deloitte): But if you want to take the red pill and stay in wonderland, youll see just how deep the structured rabbit hole goes. FourFourTwo Films is celebrating the last 20 years of World Cup history through a game, a player, a moment, a team and a goal all that makes the World Cup great. Higher numbers are better. Deutsche Bank Targets Asia's Rich as Credit Suisse Clients Flee Hey Brian. In theory, the CAIA covers Structured Products, but it also covers many other fields, and its not a great use of time vs. gaining real work experience. Also, if youre not sure you want to be in credit for the long term, stay away because most people in direct lending do end up staying for the long term. However, note that if youre in direct lending at a PE mega-fund, your hours and stress levels might be nearly the same as they are in traditional PE. On the trading side, refer to the articles on fixed income trading, sales & trading internships, and sales & trading interview questions for the details about the recruiting and interview process. Hi Brian, thanks for the article. Traditional sectors such as banking, financial services, and insurance (BFSI), energy, healthcare, and manufacturing, grew by approximately 50% due to robust domestic demand and accounted for around 60% of deals greater than $100 million. I have also heard that they give you a ton of responsibility/opportunity to learn, so its an excellent place to start ones career and move on after a few years. Ive looked at studying for my CFA or going to get my MBA and switch to IB. On the banking side, recruiting is similar to the standard IB process in terms of the requirements and timing, but there are a few differences: Certifications are close to irrelevant in this area because the skill set is so specialized. India has seen close to $19 billion in ESG-aligned investments in the last 5 years, with clean energy driving more than 60% share at $12 billion, and electric vehicle (EV) manufacturers commanding around 20%. Yes, FIG or LevFin would be good options. Trial by fire: Indian PE ecosystem resilient in a globally challenging year. Research by Bain & Company and EcoVadis indicates that positive ESG outcomes are a trait of successful companies. If you're new here, please click here to get my FREE 57-page investment banking recruiting guide - plus, get weekly updates so that you can break into investment banking.