Presentation on theme: "Financials Coverage Group"— Presentation transcript:
1Financials Coverage Group Tommy FanBill Kwai Maurice Ang Nick LaGrandeur Colin Man David Lopez Nick Burakoff Sai Senthilkumar Habib Olapade Sophia Huard Andrea Wang Alex Mack
2Hedge Funds“Hedge Fund” is an umbrella term for a diverse industry comprised of funds with vastly different strategies and sizesCompensation performance based“2 and 20”2% total asset value (AUM) as management fee20% of profits earned (alpha)Managing billions of dollars + High returns = Fund managers making tons of $$$$$$$$
4Private Equity - Overview Private equity is an asset class for investing in public and non-public companies or physical assets, such as real estate.PE firms seek to invest directly in private companies or acquire private/public companies and capitalize on the investments by selling the company laterInvestments are less liquid and seek exit after 3-5 years.Fee structures typically consist of a yearly 2% management fee and 20% of gross profits upon sale of the company (2 and 20 structure).
5Current StatePrivate Equity fundamentals have been steadily strengthening since the global financial crisis.High asset prices and stiff competition from a new breed of investors, including sovereign wealth funds, state-owned enterprises, pension plans, specialist funds and large family offices pose obstacles to new deals.Such investors are now managing their own investment portfolios and buying companies directly to avoid private equity fees.
7Deals and Exits2013 saw a record number of private equity-backed buyout exits, with 1,348 such exits valued at $303bn witnessed.2013 also saw a record year for venture capital exits, with 798 recorded throughout the year, the highest number of exits in the period since 2007.
8Sector TrendsPE firms starting to target retail investors for capital growthKKR, Blackstone, Carlyle open up to investors putting up less than $1 millionCoupled with increasing high net worth PE allocation (>23%)Rise of high-performing, sector-focused PE fundsCambridge Associate Report : 2.2x multiple on invested capital (MOIC) and 23.2% IRR as opposed to 1.9x MOIC and 17.55% IRR by generalist fundsMiddle/lower market challengers: <$500 million under management have outperformed >$500 million in past six yearsRecord high equity valuations, cheap debt = highly leveraged buyouts (>70% debt multiple)Fear of peak demand in PE cycle
9Recent Deals and Future Trends TPG $1.05 billion buyout of DTZ real estate services firmKKR & Blackstone standoff over $10 billion of cement facilitiesVista Equity Partners $4.3 billion buyout of TibcoCarlyle $700 million buyout of DealogicIncreased international market investmentContinued TMT, Consumer and Healthcare M&A activityRegulatory and compliance hurdles, 2015 interest ratesIncreasingly competitive PE space
11Highlights – KKR & Co. 1976 - Present Cumulative gross IRR of 25.7% vs 11.9% and 9.3% for S&P 500 Index and MSCI World Index, respectivelyMore than doubled the value of capital from $61.3 billion to $126.5 billion of valueFuture of KKRAnnounced deal with Nasdaq to allow investors to trade private equity fund stakesWill allow retail investors to purchase these stakes, who are currently the largest growth area for the investment management businessEnhanced focus in its private equity business (% allocated to PE funds):KKR %BX %Carlyle %
13Investment BankingBulge Bracket – The world's largest and most profitable investment banks. Their clients tend to be large corporations and institutions, and governments.Most Bulge Bracket Firms are not solely devoted to investment banking operationsE.G. Bank of America, Barclays, J.P. Morgan, UBS, Credit Suisse, Morgan Stanley, Citigroup, Goldman Sachs, and Deutsche BankBoutique Investment Banks - A boutique investment bank is an entity that specializes in some subset of investment banking. Boutique banks generally work on smaller deals involving middle-market companies, typically less than a billion dollars in revenues, and usually assist on the sell-side in mergers and acquisitions transactions.E. G. Lazard, Blackstone, Jefferies &Co, and Morgan Keegan & Co.
14Investment Banking Operations Corporate FinanceIBs will help companies raise funds by evaluating the firm's financial needs and raising the appropriate type of capital that best fits the needs of the company.Initial Public Offerings (IPOs)IBs help companies raise cash for future operations and/or expansion through the sale of stocks or bonds or underwriting.Mergers and Acquisitions (M&A)IBs will be retained by both buy side and sell side parties in order to structure a merger or a combination of two companies seeking to form a new company or an acquisition or the purchase of one company by another in which no new company is formed. When facilitating M&As, bankers help finalize the purchase price, structure the deal, and ensure a smooth transaction.Sales and Trading (S&T)IBs will often make a market in certain securities and execute sales for wealthy and institutional investors such as central banks, pension funds, mutual funds, and large corporations by communicating orders to the appropriate trading desk. Sale side traders make money through commissions on trades made through their firms or, increasingly, as a percentage of their clients’ assets with the firm. IBs will also engage in proprietary trading with their own funds in order to leverage and manage risk. (although the Dodd-Frank Bill has added more regulation to this venture). Traders make only off of a spread.
15Investment Banking Financial Metrics Bank of AmericaBarclaysCitigroupCredit SuisseGoldman SachsMorgan StanleyJ.P. MorganUBSDeutsche BankS&P AveragePrice/ Earnings188.8.131.528.511.014.211.218.4N/A18.6Price/Book.184.108.40.206.01.2.52.7Price/Sales220.127.116.11.62.41.8Price/Cash Flow4.1-.110.1-2.3-8.8243.94.01.911.5Dividend.20.25.04.79.4.28.52Yield1.20%1.7%.1%3%1.3%1.1%2.7%1.6%1.8%NAEPS.362.91.3917.218.104.22.168-.15Beta1.591.421.941.832.451.93.941.45UBS:Third quarter profit increased 32% despite 1.8B loss in litigation chargesBank of America: Received approval from the Federal Reserve to raise its divided payout to more competitive levels relative to industry competitors.Anticipated legal costs from the 2008 crisis are going down (SCOTUS has agreed to hear two BAC cases involving mortgage default payments and a ruling in favor of BAC is highly anticipated).
16Commercial BankingFinancial institutions that profit from the creation and flow of moneyFinancial intermediaries standing between depositors who supply capital & borrowers who demand capitalHeavily regulated businessesWhat they do :Provide Safety to their ConsumersAct as Payment Agents within a Country & Between NationsIssue debit cards & arrange wire transfers with other institutionsAccept Deposits / Make LoansThey accept deposits from customers, raise capital from investors or lenders, & then use that money to make loans, buy securities & provide other financial services to customers.These loans are then used by people & businesses to buy goods or expand business operations, leading to more deposited funds that make their way to banks.If they can lend money at a higher interest rate than they have to pay for funds and operating costs, they make money.
17Recent Industry NewsCompanies such as Square are taking away from traditional banksSquare Capital - program to finance small businesses (essentially give them loans by ‘buying future cash flows’)Banks interact with each other as wellRecent collusion scandal 6 banks (HSBC, Citigroup, BoA, RBS, UBS, JP Morgan)Manipulated foreign exchange rates of the British Pound and Japanese Yen
18Highlight – HSBCProvides banking and financial services through four segments namely Retail Banking and Wealth Management, Commercial Banking, Global Banking and Markets and Global Private BankingWill only pay a fraction of the Forex scandal finesAdvantage: network corresponds with markets relevant to international financial flows, access & exposure to high-growth markets and businesses, & strong balance sheetManage the bank globally. Goal: continue to streamline, globalise & simplify processes and procedures to generate sustainable savings, releasing capacity to further invest in growing the business
20Market Interaction At least 10%-12% of assets in reserve Rest of assets are invested in:Government Bonds (68.4%)Common Stock (10.9%)Mortgages (6.5%)Real Estate (<5.0%)Derivatives (<5.0%)Profits depends on return on investment