The topic of June by Executive Study Group, CUHK is 'How “Investment Banks” Make Their Money?'. A better understanding of this industry is necessary for senior executives and entrepreneurs to cooperate with those banks. The seminar was held on 10 June 2011 in HKSTP.
Mr. Mark Lee (Centre for Logistics Technologies and Supply Chain Optimisation, The Chinese University of Hong Kong (CUHK)) was guest speaker and this talk content included “Top 10 Investment Banks”, “Value Chain of Investment Banks”, “Strategy and Operation of Front Offices”, “Financial Crisis and The Road Ahead” and “Group Discussion”.
Mr. Mark Lee introduced the financial industry.
Then he explained the reason of financial crisis was loan securitization which caused the bank load less careful. Mr. Mark Lee quoted Alan Schwartz (Former CEO of Bear Sterns) statement “In our business, there are no patents to speak of, so everything is about staying in front of the curve and creativity. We keep creating new areas of high profit margin. When they get created they become commoditized, and then you have to find the next area of opportunity”.
Mr. Mark Lee introduced the value chain of investment banks (IBs), it was separated into “Back Office”, “Middle Office” and “Front Office” in IBs organization Structure.
The functions of different offices were described as follows:
Front Office:
1. Investment Banking Service
2. Sales and Trading
3. Asset Management
4. Research
Middle Office:
* Risk Management
* Corporate Treasury
* Financial Control
* Corporate Strategy
* Compliance
Back Office:
* Operations
* Technology
Then Mr. Lee explained details in each function of Front Office. The first part is Investment Banking Service which included mergers and acquisitions (M&A), equity-capital markets, debt-capital markets and leveraged finance.
The second service was Sales and Trading which invested in "Fixed income, currency, commodities (FICC)", Equities and Derivatives.
The third service was Asset-Management. Mr. Lee said the "Alternative Asset Groups" was equal to very high risk asset group. Private Equity Fee had "2 and 20" formula that was 2% in annual charge and 20% profits that the fund generates (the carry).
The last one was Research such as stock trends, financial metrics and valuation analysis. This service was easier to join in compared with the other three service. Mr. Andrew Look was awarded the best analyst by the Asiamoney magazine in 2007. The he found Look's Capital Limited in April 2009. That was the example transferred from "Research Services" into "Asset-Management Services".
At the end, we had a group discussion for post-crisis industry strategy review. It needed to select 2 biggest challenges affecting the strategy in our industry.
Reference:
The Centre for Logistics Technologies and Supply Chain Optimization, CUHK: http://www.logitsco.cuhk.edu.hk/
HKSTP - www.hkstp.org
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