A quick review of the Equity Research analyst's job…

March 31, 2024November 28, 2022 by Louis DETALLE

A quick review of the Equity Research analyst’s job…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what an Equity Researcher works on, on a daily basis.

What does Equity Research consist in?

The objective of equity research is to make buy or sell recommendations on stocks to advise investors on their asset allocation. In doing so, the Equity Research team will closely monitor certain stocks to see if the stock is outperforming or underperforming. In doing so, they will closely monitor the share price and sell their monitoring as a service to determine whether to buy or sell a share.

This equity research service is therefore sold to investors in the financial markets to provide them with a comprehensive financial analysis, as well as advice on whether to buy or sell particular securities. The analysis report presented by an equity analyst is used by investment banks and private equity firms to evaluate the company for an initial public offering (IPO), a leveraged buy-out (LBO), alliances and others. Therefore, all these investors constitute clients of Equity Research teams.

Most banks have Equity Research teams such as Societe Generale Bank, UBS, BNP Paribas, Barclays, Goldman Sachs and Citi for instance. In short, equity research analysts are mainly employed by investment banks (BNP, Citi, Barclays, etc.), investment funds (KKR, Blackstone, Bpifrance) or asset managers (BlackRock, Vanguard, Amundi).

An equity research analyst is specialised in a specific sector such as automotive, aerospace, healthcare, telecoms and biotech. The advantage of doing that is that the banks will have extremely complementary profiles that will be able to deal with the analysis of many companies of the same sector. They will have the benefit of hindsight trough building their knowledge of comparable companies. The analyst will often even develop a special expertise on a particular company, which he or she will follow closely.

What does an analyst in Equity Research work on?

As explained above, an equity research analyst will follow the release of sector or company specific information to write a note for subsequent use by the clients as part of their investment strategy. Therefore, the work of the equity research analyst will be primarily information research, reading quarterly financial reports, and press releases which may provide information on the company’s performance to date compared to expectations. The analyst will also look for information on upcoming mergers and acquisitions (M&A) or divestment transactions, the announcement of new partnerships or possible disposal plans.

As for the sectoral notes, the analyst will delve into the reading of documents from the major international institutions for all the data relating to global and entire sectors.
Once this research work is completed, equity research analysts proceed to forecast results through financial modelling: they use historical data to understand how the results were obtained and they confront these historical performances with the constraints of the future environment in order to anticipate how the company will perform. This modelling will enable them to forecast short-, medium- and long-term stock performance and the behavior to adopt in order to make the most of it.

This work will therefore be carried out in the form of a synthesis and by drafting studies for investors and reacting to specific news items.

Finally, a last type of task will consist of answering clients’ questions by telephone during morning meetings in order to give them recommendations for the day.

Why do Equity Research jobs appeal so much to business school students?

First of all, it should be noted that this profession combines corporate finance skills with financial market experience, which is rare! Indeed, the Equity Research analyst will carry out various financial analyses which will be used to issue trading recommendations on the financial markets. A financial profession in such a situation is rare, which is a first strong argument.

In addition, it is the dynamic working environment that investment banking constitutes that attracts young graduates. Equity Research is marked by a culture of high standards and maximum commitment, with highly responsive teams and extremely competent colleagues. Working in a high-powered team though quite small teams enables an analyst to quickly gain knowledge on a sector or a client.

The position of Equity Research in front of clients also makes the job really interesting because the Equity Research Analyst is at the core of the clients’ investment strategies. Because as we have seen together, such a job requires the ability to manage theoretical models and market trends in order to give clients a good insight of what is to expect for the day. For that matter, an Equity Research career can be very challenging and gives plenty of responsibilities, and this is what young graduates seek for.

Resources

Equity Research Interview Questions with answers

Youtube An analyst in Equity Research’s Youtube Interview

Youtube How to do the Equity Research of a company?

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick interview with an Asset Manager at Vontobel…

November 28, 2022 by Louis DETALLE

A quick interview with an Asset Manager at Vontobel…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) interviews an asset manager at Vontobel to better understand their daily work.

Hello, what is your background?

I went to business school and chose to do an internship in finance at Blackrock. When I left ESCP Business School, Blackrock offered me a job and that’s how I launched my career in Finance. I got into Vontobel later, as I had experienced many aspects of Asset Management.

Could you explain what Vontobel Asset Management does?

Vontobel is an asset management company, which means that it invests the funds of clients such as banks and insurance companies that do not necessarily have the required expertise.

Our investment strategy must therefore ensure the growth of our clients’ funds while combining several factors such as risk, investment horizon and the profitability objective sought by the client.

What is your role as Managing Director here at Vontobel?

I am responsible for the global development of bond sales, so I have to make sure that our representatives around the world present these bond products well by making sure they have access to all the necessary marketing materials such as tenders. I also have to understand the market behaviour and the expectations of our clients in order to define the best possible strategy.

How were you recruited for this position and what qualities do you think are required?

I was recruited in particular for my experience and knowledge of the various financial markets. Vontobel was looking for someone who had the ability to understand the client segments and the ability to manage teams, for example, I manage 50 people on a daily basis. Generally speaking, the higher you go, the less technical skills are required. A managing director (MD) will of course have to be able to master the financial issues of the day, but he or she will make the difference by his or her ability to lead a team to ever-improving results.

What do you like about this job?

What I like is the diversity of the subjects I deal with in my job. This job requires me to use my technical knowledge of investment products, stock markets and macroeconomic principles in the context of a client relationship.

I have to analyse both the financial markets and my clients’ needs. Understanding their psychology and the structure in which they evolve allows me to define offers in line with their needs. For instance, it is required of me to understand what the best investment opportunities are given the macroeconomic circumstances and the interest rates environment.

Do you have any advice for students who want to go into investment banking or asset management?

Before choosing which area of finance you want to work in, I think it’s important to identify the characteristics of each of these sectors. Investment banking is similar to corporate finance, so it is a very demanding job (including weekends) because you work on M&A and company IPOs. So an analyst in M&A will be required to work from 9:30 am until midnignt and later sometimes…Asset management is a market finance job, with the definition of investment strategies linked to the opening of the market. This is why this sector requires more reasonable hourly volumes, we are talking about 8 am to 8:30 pm. The level of remuneration will be less than the ever-increasing wages of M&A, an Asset Manager can start around 50 K€ per year but it will increase every year.

Resources

Vontobel

Youtube How to approach a job interview for Asset Management

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

The Money Changer and his Wife

February 5, 2024November 27, 2022 by Nakul PANJABI

The Money Changer and his Wife

In this article, Nakul PANJABI (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2024) talks about the The Money Changer and his Wife painting by Quentin Matsys and the related subject of foreign exchange markets.

About the The Money Changer and his Wife painting

This painting called ‘The Money Changer and his Wife’ was painted in 1514 by Quentin Matsys, a 16th century Flemish Artist. It originated at a time when Belgium saw an increase in the number immigrants from Spain and neighboring countries because of the Spanish Inquisition. The immigrants needed local money to buy goods and services in Belgium. Therefore, the business of money changers thrived at that time.

The Money Changer and his Wife painting

Source: Quentin Matsys (Louvre Museum).

In fact, the city of Antwerp was growing in importance at that time. Earlier, Bruges was the trading capital of Belgium. In 13th century, Bruges was the leading trade centre of the North-western Europe and the world’s ever first Stock Exchange was founded in Bruges. However, due to silting up of Zwin due to tidal inlet, Bruges lost access to the North Sea and suffered from economic decline.

At the end of the 15th Century, most foreign trading houses shifted from Bruges to Antwerp and Antwerp became the Sugar capital of Europe. The city attracted Sugar traders from all around the Europe and became a major trading hub. Moneylenders and Financiers capitalized this opportunity and Antwerp became developed an efficient Bourse (Stock Exchange) that even lent money to the English Government.

Money Changer

A money changer was a person who exchanged coins or currency of one country for that of another. Many European cities and towns produced their own coinage during the Middle Ages, and these coins frequently featured the faces of their rulers, such as the local bishop or baron.

It became necessary to exchange foreign coins for local ones at neighborhood money changers when visitors from the outside world—especially traveling merchants—came to town for a market fair.

A foreign coin would be evaluated by money changers for its type, condition, and legitimacy before being accepted as a deposit and having its value converted into local money. The money could then be withdrawn by the merchant in local currency to complete a transaction. This was the humble yet prosperous beginning of the modern day banking and foreign exchange.

As mentioned on the Louvre Museum website, through its deployment of Christian symbolism (representation of the Bible), this depiction of a money changer’s store acts as a moral lesson on the spiritual need to resist worldly temptations (the woman is not looking at the Bible but the money).

The two subjects are pictured sitting behind a table, half-length. They become the center of attention because of how tightly the scenario is framed. They are symmetrical to the letter. On the table in front of him, the man is busy weighing the pearls, gems, and gold pieces. This is keeping his wife from finishing the devotional book she is now reading, as seen by the image of the Virgin and Child.

This painting can currently be seen in the Louvre Museum in Abu Dhabi.

The History of Forex

Trading between tribes began as early as 6000 BC. People started trading by exchanging one good for another. This was followed by systems in which goods like salt and spices became common media of exchange.

Then around 6th century BC societies started using coins as a medium of exchange. The main reasons were portability, durability, divisibility, uniformity, limited supply and acceptability. Most coins were valued by the purity and type of metal used, its weight and its stamp. Gold coins became the most common form of currency around the world.

However, in the 1800’s countries started adopting Gold Standard. England, USA, and other major countries adopted a system in which a piece of paper (fiat currency) is equal to a certain value of gold that can be redeemed by the holder of this paper from the government. Since the notes were a promise to pay a certain level of gold from the government, the value of that paper became equal to the value of gold it was backed by.

During the First and Second World Wars, the limits of this system were tested when the European countries needed to print more money to pay for the war. This led to the creation of Bretton Woods System. In this system, all the major currencies would be pegged (fixed rate) to the US Dollar and the US Dollar would be pegged to gold. It made sense as USD was the benchmark currency at that time and US had the majority of gold reserves in the world. The shortage of gold relative to the US dollars in circulation brought an end to the Bretton Woods agreement in 1971.

After a series of failed agreements, countries made the switch to the free-floating system that we know today. In this system the value of one currency in other currency’s terms is decided by the relative supply and demand of the currencies. Before the Internet, the major players in this market were large financial institutions and central banks. With the internet, anybody with a computer and access to internet can access the forex market and exchange currencies. This changed everything not just for Forex market but also for other financial markets. Now investing in or trading with another country became extremely easy. The costs (spreads) were reduced, and the movement of money (capital) was faster than ever.

The History of Forex

Source: Daily FX.

Although the Forex Markets, as we know it, are relatively new, people have always been exchanging currencies for trade. This lead to a creation and prosperity of a very specific profession- Money Changing.

Useful resources

About the painting

Wikipedia The Money Changer and His Wife

Louvre Abu Dhabi The Money Changer and His Wife

Joy Of Museums virtual Tours “The Money Changer and His Wife” by Quentin Matsys

Brugge Brugge: History in a nutshell

About the foreign exchange

IG Benefits of forex trading

Daily FX The History of Forex

About the author

The article was written in November 2022 by Nakul PANJABI (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2024).

Market efficiency: the case study of Yes bank in India

November 26, 2022 by Aamey MEHTA

Market efficiency: the case study of Yes bank in India

In this article, Aamey MEHTA (ESSEC Business School, Master in Finance, Singapore campus, 2022-2023) explains the key financial concept of market efficiency.

What is Market Efficiency?

An informationally efficient market is a market in which the current price of a security fully, rationally, and quickly reflects all information of that security

We can measure the efficiency of a market by observing the lag between the time that information is received to the time that the security’s price reflects this information. If there is a large lag, then traders can make use of this information to generate positive returns. For efficient markets the price of a security should not be affected by information that is already expected. The changes in price should be due to new information, i.e., information that was unexpected. For example: if a company’s earning is expected to be $10M (market consensus) and their earnings are $10M, this should not cause a change in the company’s price. However, if the earnings were $20M or $5M, then the shock news will cause the stock price to move upwards or downwards.

Market efficiency and investment styles

In a perfectly efficient market investors should use a passive investment strategy. This is because in such a market it is not possible to beat the market. In efficient markets investors can expect the market value of an assets to be equal to its intrinsic value. Using an active strategy will result in underperformance compared to the market due to transaction costs. However, if the market is inefficient, then active investment strategies can result in a profit for the investor.

What factors affect market efficiency?

Generally, markets are neither perfectly efficient or inefficient. The degree of efficiency depends on the following factors: the number of market participants, the availability of Information, and impediments to trading.

Number of market participants

The higher the number of market participants the more efficient the market is. Market participants include investors, traders, analysts, and people who follow the market. The number of participants can vary over time and across countries. Some countries prevent foreigners from trading on their markets which reduces market efficiency.

Availability of Information

The more information that is available to the investors, more efficient the market is. The easier and cheaper it is to access the information the more efficient the market will be. The access to information should not favor one group over another and should be equally available to all participants. If participants have access to material nonpublic information about the firm they should not trade on this information as this would constitute insider trading which is illegal. In developed markets there is abundance of information, and the markets are efficient. Example: New York Stock Exchange. In less developed markets the availability of information is lower and hence markets are less efficient. Example: the forwards market.

Impediments to trading

Arbitrage refers to buying an asset in one market and simultaneously selling it in another market at a higher price. This buying and selling will continue till price in both the markets are the same and arbitrage is no longer possible. Impediments to trading such as high transaction costs will restrict arbitrage opportunities and allow for some mispricing of assets.

Short selling prevents assets from being overvalued and hence short selling improves market efficiency. Restrictions on short selling, such as inability to borrow stock cheaply will reduce efficiency.

Transaction and information costs

If the cost of gathering information, analysis and trading is more than the cost of trading misvalued assets markets will be inefficient. If after deducting costs, there is no risk adjusted returns to be made from trading based on publicly available information then the markets are said to be efficient.

Types of market efficiency

Weak form of market efficiency

This form of market efficiency states that current security prices fully reflect all currently available security market data. Thus, past price and volume information will have no predictive power over the future direction of security prices because price changes will be independent from one period to the next.

Semi-strong form of market efficiency

This form holds that security prices rapidly adjust without bias to the arrival of new public information. Current security prices fully reflect all publicly available information. This form says that security prices include all past security market and non-market information available to the public. Examples: Information on the financials reports published by the company, news about the company.

Strong form of market efficiency

This form states that security prices fully reflect all information from both public and private sources. The strong form includes all types of information: past security market information, public and private (insider) information. This means that no group of investors has monopolistic access to information relevant to the formation of prices and no one should be able to generate positive risk adjusted returns.

What do we know about the efficiency of the market?

Fama

Fama, in his paper Efficient Market Hypothesis defined a market to be “informationally efficient” if prices at each moment incorporate all available information about future values.

The efficient market hypothesis states:

Current prices incorporate all available information and expectations.
Current prices are the best approximation of intrinsic value.
Price changes are due to unforeseen events.
“Mispricings” do occur but not in predictable patterns that can lead to consistent outperformance.

The efficient market hypothesis does not state:

All investors are rational.
Prices are always right.
Prices should be stable.
Professional money managers can’t earn higher than market returns.

The Grossman-Stiglitz paradox

This paradox was proposed by Stanford Grossman and Joseph Stiglitz. They argue that perfectly informationally efficient markets are an impossibility since, if prices perfectly reflected available information, there is no profit to gathering information, in which case there would be little reason to trade and markets would eventually collapse.

Investors that purchase index funds or ETFs benefit at the expense of investors who pay for financial services either indirectly or directly via investing in actively managed funds.

Case study: yes bank

Yes Bank is an Indian Bank founded in 2004 by Rana Kapoor and Ashok Kapur, headquartered in Mumbai, India.

Yes bank is a private sector bank. In March 2020, Yes Bank faced a historical crisis. There are various reasons that led Yes bank to this crisis, they are, there were a large number of bad loans given by banks and depositors have withdrawn large numbers of amounts from the bank. There was no balance between the loan sheet and the depositors’ sheet. RBI put a 30 days moratorium on Yes Bank to save it.
A major effect of the yes bank crisis was that there was a big chance that other financial institutions could collapse. But the Reserve Bank of India took initiative and saved Yes Bank from major collapse.

In May 2020 shares of Yes Bank Ltd. fell as much as 84.65 percent intraday to Rs 5.65 apiece—the lowest on record—but pared some of the losses to traded 51.63 percent lower at Rs 17.80. The S&P BSE Sensex fell 1,450 points and NSE Nifty 50 slipped below 10,900. This, after the Reserve Bank of India on Thursday evening superseded the board of the lender and imposed curbs on its operations for a month.

stock chart of yes bank
Logo of Wells Fargo
Source: internet.

Useful resources

Academic resources

Fama E. (1970) Efficient Capital Markets: A Review of Theory and Empirical Work, Journal of Finance, 25,383-417.

Fama E. (1991) Efficient Capital Markets: II Journal of Finance, 46, 1575-617.

Grossman S.J. and J.E. Stiglitz (1980) On the Impossibility of Informationally Efficient Markets The American Economic Review, 70, 393-408.

Business resources

Yes bank

About the author

The article was written in November 2022 by Aamey MEHTA (ESSEC Business School, Master in Finance, Singapore campus, 2022-2023)

My experience as a credit analyst at Wells Fargo

November 26, 2022 by Aamey MEHTA

My experience as a credit analyst at Wells Fargo

In this article, Aamey MEHTA (ESSEC Business School, Master in Finance, Singapore campus, 2022-2023) shares his experience as a credit analyst at Wells Fargo.

The Company

Wells Fargo is the fourth largest bank in the United States in terms of total assets, with $1.9 trillion AUM. It is headquartered in San Francisco. On February 2, 2018, account fraud by the bank resulted in the Federal Reserve barring Wells Fargo from growing its nearly $2 trillion-asset base any further until the company fixed its internal problems to the satisfaction of the Federal Reserve. In September 2021, Wells Fargo incurred further fines from the United States Justice Department charging fraudulent behavior by the bank against foreign-exchange currency trading customers. Under the leadership of the current CEO Charles W. Scharf the bank is aiming to stabilize and improve the bank’s public image and I was able to witness the transition first hand as well as the CEO’s vision and mission for the company.

I worked in the Subscription Finance Group (SFG) which is under the Corporate and Investment Banking (CIB) department of the organization. The team was newly set up in India to provide support to the main team in the US and UK. This gave me exposure to several different aspects of the business and allowed me to learn a lot.

What is Subscription Finance?

Subscription credit facilities typically take the form of a senior secured revolving credit facility secured by the unfunded capital commitments of the fund’s investors. The facilities are subject to a borrowing base determined based on the value of the pledged commitments of investors satisfying specified eligibility requirements, with advance rates based on the credit quality of the relevant investors.

The purpose of subscription credit facilities is usually to provide liquidity for the fund on a faster basis than calling for capital contributions. Under a credit facility, borrowed funds typically can be made available within a day, while under a typical limited partnership agreement, capital calls may take 10 business days or more.

Logo of Wells Fargo

Source: Wells Fargo.

My Internship

I worked at Wells Fargo full time for 16 months from March 2021 to July 2022 and was mainly involved in the credit risk and analysis of the various clients of the bank (investment funds like hedge funds and real estate funds). Subscription Finance is a niche part of finance which refers to the process by which investors sign up and commit to investing in a financial instrument, prior to the actual closing of the purchase. Wells Fargo lent money to different investment funds. The collateral was the uncalled capital that these funds could draw from their respective investors. Wells Fargo would internally review the investors in each fund and come up with a risk profile for each client. The fees for these loans were LIBOR plus a negotiate premium.

My missions

Part of the team that undertook the task of preparing an Annual Review credit memo for the first time in India as well as teaching 7 new members of the team on how the process is done.
Co-Led the setup and work of the 5-member Deal Structuring Squad which undertook the task of understanding the terms that were included in various credit memos and educating the rest of the 25- member team on what each data point meant and where this information was sourced from.
Led the team that undertook the process of preparing and analyzing the FX Portfolio Overview File every week and established a reporting framework with the US team lead. The team highlighted and resolved 2 key errors that were previously overlooked.
Part of the Portfolio Overview team that undertook the preparation of the daily Portfolio Overview File. The team analyzed the daily reports and highlighted any discrepancies that arose. The reports generated were distributed firm-wide.
Completed Financial Spreading for 46 deals every quarter.

Required skills and knowledge

For the role I needed to have a working knowledge of how credit ratings are relevant during due diligence of a company. I also needed to have basic finance knowledge of how loans are priced and how hedge funds and other investment funds make money. However, the most important skills that were needed were those of ethics and compliance. As we were working with sensitive and private information it was of utmost importance that we were in compliance with the banks guidelines and did not violate any compliance standards.

What I have learnt

My full-time role taught me how hedge funds and large asset managers set up their different funds. It was insightful to learn about the different structures of the various and how they differ across geographies.

Another important learning was how different asset managers have different funds. The funds have different investment strategies such as real estate and each strategy would have different terms and different credit terms to analyze and look at.

There were several soft skills that I learnt too. The biggest one being communication. We were constantly in touch with the team in the US and liaising with them across different time zones to schedule calls and trainings was a new experience for me.

During this job I was also able to significantly improve my excel skills and understanding of several functions. This helped to increase my efficiency at my role and make some files more functional for the organization.

Three key financial concepts

Here are three useful concepts I used during my job at Wells Fargo.

Interest Rate Pricing

During my time working at Wells Fargo, I learnt that LIBOR was no longer the benchmark that was going to be used to determine pricing. The market was transitioning to a new rate called SONIA. SONIA is rate based on the actual overnight rate in active and liquid wholesale cash and derivatives market which makes it more robust and less volatile than LIBOR. The key difference is that LIBOR is forward-looking – it is agreed at the start of an interest period. SONIA is backward-looking – it cannot be determined until the end of an agreed interest period. This means that borrowers will no longer have upfront certainty about the amount of their interest payments and will require the calculations of the interest due at the end of the period.

Sovereign Immunity

Some of the clients of the bank were government backed funds and institutions. For example, a client was Abu Dhabi Investment Council (ADIC), which is the investment arm of the Government of Abu Dhabi and had $829 Billion of AUM as of 2022. These clients had sovereign immunity. Sovereign immunity refers to the fact that government cannot be sued. In the USA this is particularly relevant in the state of Texas. The main learning point was how banks like Wells Fargo treat such special entities, that is to say how it defines the different credit terms for these entities and how it takes into account for the fact that there is no recourse on such loans (due the sovereign immunity of these entities).

Credit Rating

I learnt that the credit rating analysis done by different agencies such as S&P and Moody’s, do not use the same approach. Often the ratings provided by both agencies may vary. The bank used to collate ratings from these two rating agencies for the same entity. Based on the ratings the bank would use an internal credit rating system to provide three different scores across three different categories for the entity. These scores fell into different bands as defined by the bank’s policy. Based on which band they fell into; different terms were offered to the clients and different negotiation was done. For example, a client that had a lower score across the categories would be offered more flexibility and better terms. The credit ratings were also assigned to the various investors of the fund as they were to be used as collateral while availing the loan which resulted in extensive due diligence.

Useful resources

Wells Fargo

S&P Global (rating)

S&P Global (Capital IQ)

Moody’s

About the author

The article was written in November 2022 by Aamey MEHTA (ESSEC Business School, Master in Finance, Singapore campus, 2022-2023).

What are rating agencies and what are used they for?

November 23, 2022 by Louis DETALLE

What are rating agencies and what are used they for?

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what are the different rating agencies and what are they used for?

What is a rating agency?

The purpose of a rating agency is to assess the credit risk of a company or a state. Since the 1980s, these agencies have become benchmarks for both issuers and investors when issuing bonds, for example. They therefore play a major role since the information they communicate (rating, positive or negative outlook) greatly influences the way in which the financial markets perceive the rated companies and states. However, the reputation, independence and existence of rating agencies are sometimes being questioned.

What are the main rating agencies?

There are mainly three rating agencies: Moody’s, Standard & Poors and Fitch Ratings. These three rating agencies are all American. Besides the three main agencies, the Chinese Dagong has gained in importance in recent years, especially in Asian countries.

Each rating agency choses its own rating ranking that you can see below:

Comparison of ratings of credit rating agencies
Source: internet.

After a grade is given to a company by one of these three rating agencies, it will determine how the company is perceived on financial markets. For example, if a company with a “BB-“ S&P rating wants to issue a bond, it will have to pay a higher interest rate to the bond’s buyers that a company with a “A+” S&P rating for the same bond issuance. All this is due to the fact that the risk of default from the BB- company will be greater than the A+ company. For that matter, it will be more expensive for “poorly rated” companies to issue debt on financial markets.

Why are rating agencies debated so much?

Rating agencies are often questioned because of the influence they have. Indeed, the three major rating agencies, Moody’s, Standard & Poor’s and Fitch Ratings, together account for 94% of the government and company rating market as of June 2022. This raises a first concern, relating to the plurality of sources of information and the asymmetry of the financial markets, which are partly based on the information provided by only three rating agencies.

On the other hand, since lower-rated securities present risks and therefore higher interest rates, the rating process ends up acting in a pro-cyclical way. When a company and/or a state suffers a downgrade, this has the direct consequence of increasing the cost of its financing and aggravating the issuer’s difficulties. The opposite is true: when a company sees its rating get better, the cost of its debt will go down and it will improve its financial health…

Finally, since the rating agencies are paid by the companies that want to be rated by them, a potential conflict of interest seems possible. Some rating agencies have entire departments devoted to advising the potential client on how an operation – a merger for example- would impact the rating…

What role did credit rating agencies played during the subprime crisis?

Rating agencies have played a crucial role in securitization, a financial technique that transforms illiquid assets into easily tradable securities, such as bonds. The agencies then rate the securitized loan packages and the bonds issued as counterparts according to different risk bands. This is what the rating agencies did: they rated the baskets containing subprime loans. But the agencies were far too generous in giving AAA ratings (the highest rating) on the securitized packages. This contributed to the euphoria surrounding these financial products. Without this rating, the real risk would probably have been better understood.

Then, when the housing market turned, the agencies did not downgrade mortgage securities properly and in time. They reacted too late and with abrupt downgrades, which aggravated the crisis.

In the end, almost all of the mortgage securitizations marketed in 2006 with a AAA rating are now rated as “junk bonds”.

Resources

Article about how Rating Agencies played a significant role in the subprime crisis in 2008…

S&P

Moody’s

Fitch Ratings

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick review of the tax specialist’s job…

November 23, 2022 by Louis DETALLE

A quick review of the tax specialist’s job…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what a tax specialist works on, on a daily basis.

What does the tax specialist’s job consist in?

A tax lawyer’s main task is to advise a company on the projects it intends to carry out to ensure that these projects are as optimized from a tax point of view while remaining legal. This means that the job of a tax lawyer is to use its knowledge of the legal environment and the latest standards to save the company money by limiting the amount of tax it has to pay. For business projects, this can be an acquisition, various investments, relocation, setting up abroad, and many other projects. The tax lawyer is also the privileged interlocutor and support of a company when it enters into a financial and/or legal dispute with the regulatory authorities for example.

It is the tax lawyer who guarantees the proper conduct of all the company’s operations through his or her recommendations! Thus, the tax lawyer is responsible for choosing the appropriate tax regime for each company, depending on its characteristics and the current state of affairs.

Why would a company employ a tax specialist rather than resort to legal cabinets whenever they need them?

Whether it is the drafting of a contract or the creation of a subsidiary on the other side of the world, the law and taxation of these operations is inherent to their successful completion. This is why the company resorts to a tax specialist at all times, since it needs a rapid response to the slightest of its questions that can come up anytime since law is always involved.

On the other hand, the advantage of having a tax specialist dedicated to the company is that the latter will develop a fine understanding of the company, its structure and its network. In doing so, the tax specialist will be able to provide a more personalized and tailored solution than a tax consultancy that discovers the company when it becomes a client.

What does a tax specialist work on?

The tax specialist’s job is to bring his or her skills to help the company to fill in its tax return if it is complex. He or she can also help with inheritances, in order to calculate the transfer duties that will be applied free of charge. For example, this is an important feature of LVMH, which Bernard Arnault has structured in order to anticipate his succession. For example, he had the holding company that owns LVMH – the Agache holding company – transformed into a limited partnership. This type of company is recognized as a good solution to control family groups (see “Resources” section below).

The tax lawyer can also assist the taxpayer when he wants to repatriate funds held abroad. The tax lawyer also comes in support when his client is subject to a tax audit, in this case, his mission is to ensure that the tax authorities do not exceed their powers and respect the procedural guarantees. He must assist him in all stages of the procedure in progress.

Finally, the optimization of his clients’ assets is also part of his missions. The Chief Financial Officer and the tax lawyer will therefore work together to ensure that the company’s real estate holdings are secure, optimized and in compliance with the law. When the tax lawyer works in collaboration with a company, his role is to defend the legal and economic interests of the latter and, in fact, he will be able to manage the various disputes directly related to its activity.

Why does the tax specialist’s job appeal so much to people?

First of all, it is the dynamic working environment that the legal environment constitutes that attracts tax specialists. Indeed, the law evolves with time, and this constitutes the first argument given by them. In fact, as the law is not the same today as it was yesterday, a tax specialist is often demanded to keep a close look at the different regulation changes that happen.

In addition, the position of this job within companies also makes the job really interesting because the tax specialist can interact with other departments such as the Corporate Strategy Department and the Board of Directors. For that matter, a tax specialist career can be very challenging, and this is what young lawyer seek for.

Resources

Youtube Interview with a Tax Specialist

Article about the main trends in taxation in the European Union in 2020

LVMH: how is Bernard Arnault preparing his succession?

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

How does a takeover bid work & how is it regulated?

November 23, 2022 by Louis DETALLE

How does a takeover bid work & how is it regulated?

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains how takeover bids and public tender offers work…

What is a takeover bid?

A takeover bid is a transaction launched by a company or a group of investors with a view to taking control of another listed company. After approval and review of the takeover proposal, the buyer triggers the launch of its takeover bid.

The launch of a takeover bid marks the beginning of a period during which the shareholders of the target company will be able to choose whether to keep their shares or to sell them to the acquiring company at a price higher than the last quoted price. This difference corresponds to a premium to encourage the shareholders of the target company to tender their shares to the bid.

There are two cases: cash takeover bids and equity takeover bid.

Cash Takeover bid: If the offer to acquire all the listed shares of the target company is in cash, it is called a cash takeover bid.

Equity Takeover bid: The bid can also be made in shares, i.e., the bidder will pay with its own shares. In this case, the bidder usually carries out a capital increase that will create these shares. This is known as a Public Exchange Offer (PEO) because the shareholders of the target company will be able to exchange their shares for a given number of shares in the initiating company according to an exchange ratio.

The bid can be either friendly or hostile. A takeover bid is “friendly” or “solicited” when the bid is made in agreement with the board of directors or supervisory of the target company; it is “hostile” or “unsolicited” in other cases.

The role of public authorities in regulating takeover bids?

In France, the company that initiates the takeover bid files a draft offer document with the Autorité des Marchés Financiers or AMF (the French authority about financial markets), which presents all the characteristics of the bid to investors. It is published as soon as it is filed, but is still subject to review by the AMF, which may request changes to its form and content.

• At the same time, the initiating company publishes a press release that presents the main features of the draft offer document.
• The target company may then publish a press release disclosing its board’s opinion on the bid and, where applicable, the conclusions of the independent expert’s report and the reasons for the bid.

This press release is submitted to the AMF for review and contains, in particular, the board’s reasoned opinion on the bid and, where applicable, the fairness opinion of the independent expert appointed by the company and the opinion of the works council.

To sum up, the French Authorities -through the AMF- will ensure the transparency of the potential merger between the two companies.

In addition, the Autorité de la concurrence (the French authority about competition) will assess whether the takeover bid is contradictory with the antitrust regulations & others. This is what happened with the TF1-M6 potential merger that we discussed a few weeks ago in an article (see “Related posts on the SimTrade blog” section below). On the other hand, the French Autorité de la concurrence declared this morning that the tender offer of EDF by the French state was allowed.

In the US, the institution from which companies must seek authorization from is the SEC (Securities Exchange Commission). For example, the SEC allowed Merck to buy Imago BioSciences Incorporation 2 days ago.

As regards French Autorité de la concurrence, only transactions exceeding a certain size are subject to its review. This is the case when the following three conditions are met:

• The total worldwide turnover (excluding tax) of all the undertakings or groups of natural or legal persons involved in the merger exceeds 150 million euros;

• The aggregate turnover excluding tax in France of at least two of the undertakings or groups of natural persons or legal entities concerned is more than EUR 50 million.

• The European Commission is not relevant for this merger

Indeed, sometimes, the European Commission’s approval may also have to be seeked for, when companies operate at a continental level. When the transaction involves the territory of more than one Member State and the turnover of the undertakings concerned is very large (e.g., where the worldwide turnover exceeds EUR 5 billion for all the parties to the transaction and EUR 250 million for at least two of the companies in the European Union), the European Commission is competent.

Resources

Autorité de la Concurence (French Competition Authority)

Autorité des Marchés Financiers (AMF) (French Financial Market Authority)

Bank mergers and acquisitions in the euro area: drivers and implications for bank performance

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

How is a decision made by companies?

November 23, 2022 by Louis DETALLE

How is a decision made by companies?

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains how companies are organized to undertake the decision-making process…

What is a shareholder?

A shareholder is a person who owns part of the company’s capital, which is divided into shares.

A shareholder is therefore a person or institution that has invested money in a corporation in exchange for a “share” of ownership. This ownership is represented by ordinary or preferred shares issued by the company and held by the shareholders.

Shareholders of small and medium-sized private companies are often closely involved in the management of the company. They therefore contribute to the decision-making process on a regular basis. This is much rarer in large listed companies, where management teams take decisions on a day-to-day basis. In the case of the French company TotalEnergies, it would indeed be complex to take a decision by consulting all the shareholders, as more than 500,000 individual investors are shareholders in the company.

How do voting rights are attached to shares?

The capital is therefore represented by ordinary, or preference shares issued by the company and held by the shareholder.

An ordinary share is a simple share, which has a voting right associated with it and which is inseparable from it. A preference share, on the other hand, will allow its holder to benefit from certain advantages:
-financial: a preference share may be devoid of voting rights but in return allow its holder to benefit from priority dividends each year.
-control: a share with double voting rights may be financially less attractive than an ordinary share but at the same time offer twice as many voting rights as the latter.

Ordinary and preference shares therefore have different prices which fluctuate according to the control/financial balance they provide. They give shareholders rights to different proportions of the company’s profits and may or may not carry voting rights (i.e., the right to participate in the company’s decisions).

Who proposes a decision among companies?

The Board of Directors is a management body whose mission is to define its strategy by being a force of proposal to face the market context. The Board of Directors is therefore composed of:
• Directors (minimum of three and maximum of 18)
• A chairperson of the board of directors.

The chairperson of the board of directors is often also the chief executive officer (CEO) of the company: in this case he or she has the status of chairperson and chief executive officer. The chairman and chief executive officer are therefore a member of the company’s board of directors.

As for the rest of the Board of Directors, they are appointed by the company’s shareholders’ meeting. Some shareholders can therefore propose to work as a Director by applying for the job in front of their fellow shareholders. Once the Board of Directors is organized, they appoint the Chairman of the board of Directors and the decision-making process can start! Please bear in mind that in France only the Sociétés Anonymes (SA) and Sociétés par Actions Simplifiées (SAS) can legally create a board of directors.

Resources

“Who really decides in companies?” 1-hour conference with famous French CEOs

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

Exchange-traded funds and Tracking Error

November 16, 2022 by Micha FISCHER

Exchange-traded funds and Tracking Error

In this article, Micha FISHER (University of Mannheim, MSc. Management, 2021-2023) explains the concept of Tracking Error in the context of exchange traded funds (ETF).

This article will offer a short introduction to the concept of exchange-traded funds, will then describe several reasons for the existence of tracking errors and finish with a concise example on how tracking error can be calculated.

Exchange-traded funds

An exchange-traded fund is conceptionally very close to classical mutual funds, with the key difference being, that ETFs are traded on a stock exchange during the trading day. Most ETFs are so-called index funds and thus they try to replicate an existing index like the S&P 500 or the CAC 40. This sort of passive investing is aimed at following or tracking the underlying index as closely as possible. However, actively managed ETFs with the aim of outperforming the market do exist as well and typically come with higher management fees. There are several types of ETFs covering equity index funds, commodities or currencies with classical equity index funds being the most prominent.

The total volume of global ETF portfolios has increased substantially over the last two decades. At the beginning of the century total asset volume was in the low triple digit billions measured in USD. According to research by the Wall Street Journal total assets in ETF investments surpassed nine trillion USD in 2021.

The continuing attractiveness of exchange-traded index funds can be explained with the very low management fees, the clarity of the product objective, and the high liquidity of the investment vehicle. However, although especially the market leaders like BlackRock, the Vanguard Group or State Street offer products that come extremely close to mirroring their underlying index, exchange-traded funds do not perfectly track the evolution of the underlying index. This phenomenon is known as tracking error and will be discussed in detail below.

Theoretical measure of the Tracking Error

Simply speaking, the tracking error of an ETF is the difference in the returns of the underlying index (I for index) and the returns of the ETF itself (E for ETF). For a specific period, it is computed by taking the standard deviation of the differences between the two time-series.

Formula for tracking error

Theoretically, it is possible to fully replicate an index in a portfolio and thus reach a tracking error of zero. However, there are several reasons why this is not achievable in practice.

Origins of the Tracking Error

The most important and obvious reason is that the Net Asset Value (NAV) of index funds is necessarily lower than the NAV of its underlying index. An index itself has no liabilities, as it is strictly speaking an instrument of measurement. On the other hand, even a passively managed index fund comes with expenses to pay for infrastructure, personnel, and marketing. These liabilities decrease the Net Asset Value of the fund. In general, a higher tracking error could indicate that the fund is not working efficiently compared to products of competitors with the same underlying index.

Another origin of tracking error can be found in specific sector ETFs and more niche markets with not enough liquidity. When the trading volume of a stock is very low, buying / selling the stock would increase / decrease the price (price impact). In this case an ETF could buy more liquid stocks with the aim to mirror the value development of the illiquid stock, which in turn could lead to a higher tracking error.

Another source of tracking error that occurs more severely in dividend-focused ETFs is the so-called cash drag. High dividend payments that are not instantly reinvested drag down the fund performance in contrast to the underlying index.

Of course, transaction fees of the marketplaces can reduce the fund performance as well. This is especially true if large rebalancing efforts are necessary due to a change of the index composition.

Lastly, there are also ways to reduce the effects described above. Funds can engage in security lending to earn additional money. In this case, the fund lends individual assets within the portfolio to other investors (mostly short sellers) for an agreed period in return for lending fees and possible interest. It should be noted, that while this might reduce tracking error, it also exposes the fund to additional counterparty risk.

Tracking Error: An Example

The sheet posted below shows a simple example of how the tracking error can be computed. To not include hundreds of individual shares, the example transformed the top ten positions within the Nasdaq-100 index into an artificial “Nasdaq-10” index. Although the data for the 23rd of September is accurate, the future data is of course randomly simulated.

By using the individual weights of the index components and their corresponding weights, the index returns for the next three months can be computed.

Figure 1: Three-months simulation of “Nasdaq-10” index.
Three-months simulation of Nasdaq-10 index
Source: computation by the author.

At this point our made-up ETF is introduced with an initial investment of 100 million USD. This ETF fully replicates the Nasdaq-10 index by holding shares in the same proportion as the index. In this example only the management and marketing fees are incorporated. Security lending, index changes and transaction fees and dividends are omitted. Also, all the portfolio shares are highly liquid and allow for full replication. The fund works with small expenses for personnel of only ten thousand USD per month. Additionally, once per quarter, a marketing campaign costs additionally fifty thousand USD.

Figure 2: Computation of ETF return and tracking error.
Computation of ETF-return and Tracking Error
Source: computation by the author.

Calculating the net asset value (NAV) gives us the monthly returns of the fund which in turn allows us to calculate the three-month standard deviation of the tracking difference. Additionally, the Total Expense Ratio can be calculated as the percentage of expenses per year divided by the total asset value of the fund.

This example gives us a Total Expense Ratio of nearly 0.3 percent per annum which is within the competitive area of real passive funds. Vanguard is able to replicate the FTSE All-World index with 0.2 percent. However, the calculated tracking error is obviously smaller than most real tracking errors with only 0.0002, as only management fees were considered. Exemplary, Vanguards FTSE All-World ETF had an historical tracking error of 0.042 in 2021, due to the reasons mentioned in the section above.

Excel file for computing the tracking error of an ETF

You can also download below the Excel file for the computation of the tracking error of an ETF.

Why should I be interested in this post?

ETFs in all forms are one of the major developments in the area of portfolio management over the last two decades. They are also a very interesting option for private investments.

Although they are conceptually very simple it is important to understand the finer metrics that vary between different service providers as even small differences can have a large impact over a longer investment period.

Useful resources

Academic articles

Roll R. (1992) A Mean/Variance Analysis of Tracking Error, The Journal of Portfolio Management, 18 (4) 13-22.

Business

ET Money What is Tracking Error in Index Funds and How it Impacts Investors?

About the author

The article was written in November 2022 by Micha FISHER (University of Mannheim, MSc. Management, 2021-2023).

Financial markets are not accounting enough for the Ukraine-Russia conflict

November 14, 2022 by Henri VANDECASTEELE

Financial markets are not accounting enough for the Ukraine-Russia conflict

In this article, Henri VANDECASTEELE (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2022) reflects on the Ukrain-Russia conflict.

Geopolitical events and financial markets

Normally investors do not have to lie awake over political turmoil. On the contrary, if you go through the list of past geopolitical events and their impact on the market, you will see that they were almost always a reason to buy stocks. So, there is no reason to scare investors unnecessarily with geopolitical analysis. You must look at the broader macroeconomic context. It is always more relevant than the event itself.

Some historical perspective: the 1973 Yom Kippur War

In that respect, there is a problem with the Russian-Ukrainian conflict, because it is different from the norm. A rare exception to the rule that geopolitical turmoil is a buying opportunity was the 1973 Yom Kippur War between Israel and some Arab countries. That war took place in the middle of an inflationary context. In the US, the government was driving inflation with 1960s social programs and spending on the Vietnam War. The US central bank was raising interest rates. And then came the Yom Kippur war and the subsequent oil embargo by the Arab countries, which drove up the price of oil, putting a cherry on top of the cake of existing inflation. It was a matter of bad timing.

Evolution of oil prices and Fed funds rate (1970-2022).

Source: Bloomberg.

What about today (update November 2022)

Today we have a similar situation due to the global inflationary environment. If Russia effectively invades hard, the market impact would be serious, with a solid correction for stock markets and higher oil prices. Financial markets are not taking this into account enough. 10-year U.S. government paper is considered the ultimate haven, but the yield on that paper does not show that investors are very concerned. If a Russian invasion does occur, gold and wheat are an interesting hedge. Both did well in the 2014 Russian invasion of Crimea.

Evolution of the US 10-year interest rate.

Source: investing.com.

Link with market efficiency

This situation links to market efficiency in a semi-strong form (public news). Even with the information publicly available, the markets are not pricing in or correcting in the risk or consequences of a hard invasion of Russia into the Crimea. A hard invasion could potentially induce a lot of uncertainty and volatility into the market, with Russia’s strong foothold in the international energy market. Potential embargos and supply shortages could have a major impact on the prices and induce a hefty inflation increase. This is currently not priced in the markets and thus shows that the market was not efficient in the semi-strong form.

Useful resources

Bllomberg

About the author

The article was written in November 2022 by Henri VANDECASTEELE (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2022).

Approaches to investment

November 14, 2022 by Henri VANDECASTEELE

Approaches to investment

In this article, Henri VANDECASTEELE (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2022) explains the two main approaches to investment: fundamental analysis and technical analysis.

Fundamental analysis

Fundamental analysis (FA) is a way of determining the fundamental value of a securities by looking at linked economic and financial elements. Fundamental analysts look at everything that might impact the value of a security, from macroeconomic issues like the state of the economy and industry circumstances to microeconomic elements like management performance. All stock analysis attempts to evaluate if a security’s value in the larger market is right. Fundamental research is often conducted from a macro to micro viewpoint in order to find assets that the market has not valued appropriately. To get at a fair market valuation for the stock, analysts often look at the overall status of the economy, then the strength of the specific industry, before focusing on individual business performance.

Fundamental analysis evaluates the value of a stock or any other form of investment using publicly available data. An investor, for example, might undertake fundamental research on a bond’s value by looking at economic variables like interest rates and the overall status of the economy, then reviewing information about the bond issuer, such as probable changes in its credit rating.

The aim is to arrive at a figure that can be compared to the present price of an asset to determine whether it is undervalued or overpriced.

Fundamental analysis is based on both qualitative and quantitative publicly available historical and current data. This includes company statements, historical stock market data, company press releases, financial year statements, investor presentations, information found on internet fora, media articles, and broker/analyst reports.

Technical analysis

Technical analysis (TA) is a trading discipline that analyzes statistical trends acquired from trading activity, such as price movement and volume, to evaluate investments and uncover trading opportunities.

Technical analysis, as opposed to fundamental analysis, focuses on the examination of price and volume. Fundamental analysis aims to estimate a security’s worth based on business performance such as sales and earnings. Technical analysis methods are used to examine how variations in price, volume, and implied volatility are affected by supply and demand for a security. Any security with past trading data can benefit from technical analysis. This includes stocks, futures, commodities, bonds, currencies and other securities. In fact, technical analysis is much more common in commodities and forex markets where traders focus on short-term price fluctuations.

Technical analysis is commonly used to generate short-term trading signals from various charting tools, but it also helps to improve the assessment of securities strengths or weaknesses compared to one of the broader markets or sectors increase. This information helps analysts improve their overall rating estimates.

Technical analysis is performed on quantitative data only that recent and historical, but publicly available. It leverages mainly market information, namely daily transaction volumes, stock price, spread, volatility, … and performs trend analyses.

Link with market efficiency

When linking both approaches to investment to the market efficiency theory, we can state that fundamental analysis assumes that financial markets are not efficient in the semi-strong sense, whereas technical analysis assumes that financial markets are not efficient in the weak sense. But the trading activity of both fundamental analysts and technical analysts make the markets more efficient.

Useful resources

SimTrade course Market information

About the author

The article was written in November 2022 by Henri VANDECASTEELE (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2022).

What are the different financial products traded in financial markets?

November 14, 2022 by Louis DETALLE

What are the different financial products traded in financial markets?

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what are the main financial products traded in financial markets.

What is a financial product?

Financial ‘products’ or ‘instruments’ are contracts that are traded on financial markets. Each type of product is traded in a specific financial market. In financial institutions, each type of product is managed by a dedicated team.

Financial products also differ in their type of risk and their risk level. As expected return and risk are positively related, (expected) returns on financial products also differ.

What are the three most simple types of financial products?

Investing in a share means acquiring a share in the capital of a company. The value of the share varies, depending in particular on investors’ expectations of the company’s earnings. These shares can be traded on the financial markets if the company is listed on a stock exchange.

As the value of the investment is not guaranteed, investing in shares is risky. It can be seen as a long-term investment with sometimes significant short-term fluctuations, as we can see at the moment with the disturbances linked to the war in Ukraine.

Bonds

Buying bonds therefore means lending at an interest rate and over a period known from the outset. For this reason, the cash flows of a bond can be computed from the outset. But financial risks (interest rate risk and credit risk) remain for such a product.

The risk associated with a bond is in fact that of a default by the lender, either that it cannot pay the interest or repay the capital. The stronger the borrower, the less risky the bond. As the expected return and risk of a bond are positively related, it is possible to anticipate the interest rate of a bond by looking at the rating of the company or the country according to the rating agencies (about credit rating you can read this post).

Foreign exchange

The foreign exchange market (or ‘forex’) is where currencies (dollar, euro, etc.) are traded. The exchange rates between currencies can fluctuate very quickly and create a currency risk in converting one currency into another.

What are the other types of financial products?

Options

Options are so-called “derivatives” because their value depends on the value of another asset, known as the “underlying”.

These underlyings can be simple financial products such as those mentioned above, or physical products (commodities) or stock market or weather indices, for example.1 in the Resources section) will not be affected by the new bond issue.

A special case: the Stock Options

The stock option program is a compensation tool available to companies with shares (listed or unlisted). It is generally not granted collectively, but rather seeks to build loyalty and motivate key employees for the company’s strategy by associating them with its results, such as top management.

Stock options are subscription options or stock purchase options. Certain employees or corporate officers have the right – but not the obligation – to buy shares in the company in which they work, at a price fixed at the time of grant. These are therefore similar to the options mentioned above, whose underlying asset is the share. However, the major difference is that, unlike options that can be traded on the financial markets, stock options are reserved for certain employees of the company who can only sell them if the bylaws enable them to do so.

Resources

Youtube 1-hour course explaining the main financial products for those who want to deepen their knowledge about it…

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick review of the DCM (Debt Capital Market) analyst's job…

November 14, 2022 by Louis DETALLE

A quick review of the DCM (Debt Capital Market) analyst’s job…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what an analyst in Debt Capital Market (DCM) works on, on a daily basis.

What does DCM consist in?

The Debt Capital Market or DCM teams are used to cover the debt financing needs of organizations via financial markets. For this reason, they assist companies in the issuance of bonds and loans. This job is perfectly centered between corporate finance and financial markets! The clients of a DCM team are very broad and regroup corporate, financial institutions and governments.

The DCM analyst’s job is therefore a financing-related job like the Equity Capital Market (ECM). However, it differs by the nature of the financing offered: debt or equity.

Why would a company resort to DCM rather than ECM?

The main advantage of issuing debt rather than equity is that a company will not have to sell any share of its capital. The company’s shareholders will maintain their shares in the company, in order to keep control of it. The counterpart to this is the repayment obligation inherent in the financial debt, which does not exist when the company issues shares. Indeed, legally, there is no obligation for a company to pay dividends to its shareholders, whereas the repayment of interest and principal on the debt is contractually binding.

The DCM is therefore an effective solution to attract a large number of clients such as companies, but also actors unable to intervene in the equity markets: the governments. Indeed, governments, supranational institutions or sovereign wealth funds cannot sell part of their capital; they find in the bond market a source of liquidity. Traditionally, countries offering solid guarantees of interest payments and bond repayment – the United States, Germany and France – are the biggest players on the bond markets.

What does an analyst in DCM work on?

The DCM team of a bank works mainly on three dimensions: commercial relationship, structuring, and syndication. There are usually dedicated analysts devoted to each task.

Commercial relationship

Through the commercial relationship, the DCM team will try to understand the client’s needs and find a customized solution. The objective is therefore to define the amount of debt to be issued, based on the client’s financing needs, outstanding debt and solvency. This origination work therefore requires an overall view of the client’s profile and capital structure to ensure that its rating will not be affected by the new bond issue (about credit rating you can read this post.

Structuring

This dimension is more technical. This is the case when an investment bank has to offer more sophisticated products such as convertible bonds, bonds with warrants or bonds redeemable in shares. Structuring is mainly concerned with hybrid debt issues. These products offer different levels of risk for investors who will participate to the issuance.

Syndication

Syndication relates to oversized loans that requires allocation among different banks.

Why do DCM jobs appeal so much to business school students?

First of all, it is the dynamic working environment that investment banking constitutes that attracts young graduates. Like ECM, DCM is marked by a culture of high standards and maximum commitment, with highly responsive teams and extremely competent colleagues. Working in a high-powerded team is very stimulating, and often makes it possible to approach the workload with less apprehension and to rapidly increase one’s competence.

The position of DCM divisions within investment banks also makes the job really interesting because the DCM can interact with other departments like M&A. Because as we have seen together, a DCM job requires the ability to manage theoretical models, market trends and legal specificities. For that matter, a DCM career can be very challenging, and this is what young graduates seek for.

Resources

Youtube Interview with a DCM originator at Natixis

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

Focus on the General Inspection in banks

November 14, 2022 by Louis DETALLE

Focus on the General Inspection in banks

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains the General Inspection in banks.

What is the General Inspection?

The General Inspection (GI) path is a 3-to-9-year training program used to identify and develop the banking leaders of tomorrow. Indeed, during this extensive Gradutate Program, the General Inspectors (GI) will experiment many divisions of the bank (retail banking investment banking, asset management) and approach their functioning from different perspectives.

The GI’s tasks can be cross-cutting, specific or regulatory, and they change approximately every 6 months, allowing General Inspectors to work on new subjects each time. For example, they may relate to the global strategy of the retail bank or to the foreign exchange risk control process in the trading room. For a French bank, the assignments may take place both in France and abroad and therefore involve a lot of travel. During their missions, the GIs will meet regularly with senior managers, and by training, enabling the GI team to submit its recommendations, also known as the audit report.

What banks recruit General Inspectors and how does the recruitment process go?

Banks such as BNP Paribas, BPCE Société Générale, and La Banque Postale in France, organize competitive exams each year. Candidates are mainly freshly graduate students from business schools and sometimes from engineering schools. Foreign banks like HSBC recruit also inspectors with a few years’ experience.

This exam consists of a written test, followed by an oral test, and finally a presentation in front of a grand jury.

The written test lasts about four hours and consists of strategic and operational cases in which you will have to demonstrate your ability to analyze financial data by using relevant indicators.

The oral test consists of a group interview of about eight candidates in the form of a simulation during which you will be observed by a jury. You will then take part in a traditional motivational interview with former managers of the General Inspection who will ask you questions about your career objectives.

Finally, if you pass these two stages, you will be invited to an HR interview which will allow you to debrief on a personality questionnaire, before taking part in the grand oral in front of a jury composed of the bank’s managers.

What are the main exits for General Inspectors?

After completing the General Inspection track in a bank, a General Inspector may move into management positions (like in the retail division of the bank) or more operational and hands-on positions (structuring, trading or financing).

There are also opportunities in support functions such as the Risk and Compliance Office departments, as well as in the Middle Office, given the appropriate training provided by the General Inspection. Exits to the Front Office as well as to Trading and M&A are relatively less easy given the lack of operational experience.

Resources

BNP Paribas Job description: Inspector

BPCE Job description: Inspector

Société Générale Job description: Inspector

La Banque Postale Job description: Inspector

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

The different legal types of companies in France

November 14, 2022 by Louis DETALLE

The different legal types of companies in France

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what the different legal types of companies exist in France.

What are the main legal forms of companies that someone can create in France?

The limited liability company (Société à Responsabilité Limitée or SARL)

The SARL offers the advantage of a simple structure in which the liability of the partners (“associés” in French) is limited to the amount of their Initial Investment in capital.

The initial capital of the SARL, of which the French law sets a minimum amount of one euro, is divided between at least two partners.

The one-person” limited liability company (“Entreprise unipersonnelle à responsabilité limitée” or EURL)

A special type of SARL is the EURL with only one partner.

Its operating rules are very similar to those of the SARL. The main difference concerns its tax system: its profits are automatically taxed as income in the name of the partner, although it is possible to opt for corporation tax.

The simplified joint stock company (“Société par Action Simplifiée” or SAS)

This relatively recent form of company is enjoying some success (especially for start-ups). Many SAs have been transformed into SASs. The rules governing it are similar to those of the SA. However, some measures make it simpler. For example, there is no minimum amount of share capital required, you can create a SAS with €1!

The public limited company (“Société Anonyme” or SA)

The SA is formed by at least two shareholders with a minimum capital of €37,000. The number of shareholders is at least seven if the limited company is listed on the stock exchange. It is managed by a chairman and a managing director (who may be one and the same person) and by a board of directors composed of at least three people.

It is subject to the obligation to appoint an auditor (“commissaire aux comptes” in French), especially if it is listed!

General partnership (“Société en nom collectif” or SNC)

This form of company is rarely used because it has the disadvantage of not protecting the assets of its partners: they are indefinitely and jointly and severally liable for the company’s debts out of their personal assets.

What are the main characteristics that must be borne in mind when creating a company in France?

Let’s review what are the advantages of the main types of companies:

SAS vs SA

Compared to the SA, the SAS offers the advantage of flexibility: the French law allows the partners to organize its operation freely in the firm’s status. The writing of the status requires the advice of a qualified professional, as it can lead to the development of rules that would be difficult to apply later.

Because of its cumbersome operating rules, the SA should be reserved for projects of a certain size. It is also used when shareholders who are not involved in the business want to exercise control in the board of directors. The main advantage of this status is that it allows a very large amount of share capital to be built up in order to finance expensive investments.

SARL advantage: limited liability

The main advantage of the SARL status is the limited liability of the partners. They are free to determine the amount of share capital and therefore the contributions they wish to make when setting up the limited liability company and are only liable for the amount of their contributions. For that matter, these companies are especially adapted for partners who wish to protect their personal capital.

SNC

No minimum amount is required for the initial capital, which can be a major advantage. On the other hand, the shares of the capital can only be transferred after having obtained the agreement of all the partners, which makes any change in the composition of the capital complex.

EURL advantage: protecting your personal capital

The EURL allows you to secure your personal assets. By creating such a company, your liability is in principle limited to the amount of your contributions. Your professional creditors cannot therefore sue you personally unless you have committed management errors. If you are not guilty of mismanagement in your capacity as manager and you have not given any personal guarantees in connection with your project, your personal assets are safe in the event of difficulties in the company.

Useful resources

URSSAF Registration of a company in France

Insee Information for the registration of a company in France

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick review of the ECM (Equity Capital Market) analyst's job…

November 4, 2022 by Louis DETALLE

A quick review of the ECM (Equity Capital Market) analyst’s job…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what an analyst in ECM works on, on a daily basis.

What does ECM consist in?

The Equity Capital Markets or ECM teams are used to cover the equity financing needs of companies via financial markets. For this reason, they assist companies in initial public offerings (IPOs) and then seasoned equity offerings (SEOs), convertible bond issuances, capital increases or squeeze. The ECM analyst’s job is therefore a financing-related job like the Debt Capital Market (DCM), which differs, however, by the nature of the financing offered: debt or equity.

What does an analyst work on?

The analyst may first work on the origination of the deal. This involves, for example, proposing a financing solution to the client in parallel with a merger or acquisition (M&A) transaction. This will require a major pitch to convince the client that the proposed financing solution is the most suitable for its needs. On the other hand, the analyst will also have to work upstream on the technical aspects of the ECM transaction, i.e., the pricing of the transaction to reassure the client that the transaction will be successful. This is both a technical and commercial job, with strong relations with clients and other teams in the bank.

In parallel to this technical and commercial work and directly linked to the ECM transaction, the analyst must also work with the legal teams on the structuring of the transaction. This is often overlooked, but a share issue is a financial as well as a legal operation. That is why ECM teams also work on the tax and legal aspects of a share issuance or IPO for example.

Finally, the ECM analyst must regularly inform himself on the behavior of the financial markets in order to choose the most opportune moment for an IPO or a share issuance for example. The current context of massive inflation and instability linked to the war in Ukraine, for example, invites investors in the financial markets to be very cautious and therefore to invest less than usual. This is the reason why IPOs are so rare at the moment, as players wishing to go public fear the response of the primary markets. This work of monitoring the financial markets will be done by looking at the records on Bloomberg for instance, in order to obtain insights on the major market trends.

Why does ECM jobs appeal so much to students?

First of all, it is the dynamic working atmosphere that investment banking constitute that also attracts young graduates. ECM is marked by a culture of high standards and maximum commitment, with highly responsive teams and extremely competent colleagues. Working in a quality team is very stimulating, and often makes it possible to approach the workload with less apprehension and to rapidly increase one’s competence.

The position of ECM divisions within the Investment Banks also makes the job really interesting. Because as we have seen together, an ECM job suggests an ability to manage both theoretical models, market trends and legal specificities. For that matter, an ECM career can be very challenging, and this is what young graduates seek for.

What are the main exits for ECM?

What is special about ECM is that it is a profession between corporate finance and market finance, which means that it is possible to move into one of these two branches after working in ECM. Some go into Venture Capital or late stage start-ups to build on their knowledge of IPOs. Others go into Sales & Trading, although this seems to be more rare.

Resources

Coursera Lecture on ECM & how they work

Indeed 55 Capital Market Interview Questions (With Sample Answers)

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

What are the missions of the financial departments of CAC 40 groups?

November 4, 2022 by Louis DETALLE

What are the missions of the financial departments of CAC40 groups?

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what are the missions of the financial departments in CAC40 groups.

What is the use of the Finance Department?

In a sentence, the Financial Department should be able to answer the following question at any time: “Who should I pay, when and how ?”

The finance department is a key department of the company as it implements financial tools to assist in strategic decision-making, and thus prevents financial risks. In other words, the finance department helps plan the development strategy of the company by ensuring all financial resources are available at any time for example.

For that matter, the financial department of the company works neck and neck with the Board of Directors of the CAC40 Group which define the strategy of the Groups for the months and years to come. The Chief Financial Officer (CFO) will then ensure that the financial resources needed by the company are available to the company at any time of the strategy implemented.

What are the main topics that the Financial Department deals with?

There are a great number of missions that the Chief Financial Officer will have to conduct, but here are the main ones:

About the Group’s solvency: At every time, a CAC40 Group must be solvent, that means they are supposed to be able to reimburse their debts at the previously agreed-upon time. To assess the ability of the Group to do so, the Financial Department has to create Excel models to anticipate the debt repayment over a short, medium & long terms. Obviously, that means the Financial Department will also conduct many calls with the banks to ask for the implementation of credit lines.

Ensuring the management of the company’s cash flow, i.e., its capacity to collect sufficient income to cover its operating cycle: permanent monitoring and management of the teams (customer accounting, supplier accounting, cash flow, etc.), and of the operational activities. The implementation of treasury boards allows the monitoring of the above criteria.

To perform well the previous missions, the CFO (and the Finance Department more generally) has to organize meetings with the lenders, the suppliers and the clients in order to negotiate the payment periods. Indeed, to alleviate the treasury of the CAC40 Group, many solutions exist & it is the CFO’s job to invent new ones.

What is interesting and demanding as a CAC40 CFO?

First of all, since the role of the financial department is crucial to ensure the sustainability of a company because they deal about the solvency of the Group, this suggests that they are implicated in every decision made. They intervene upstream and downstream of each management decision and comes up with corrective measures in the event of financial problems. For that matter, working as a CFO of a CAC40 company requires the ability to see the big picture.

On the other hand, since the financial departments of CAC40 groups are audited every year, the finance department must keep a written record to justify any accounting item from a legal point of view. This requires a high level of organizational skills and a minimum of legal knowledge for the time when the Big 4 firms will conduct the audit of the Group.

Resources

Association Nationale des Directeurs Financiers et de Contrôle de Gestion

Youtube Interview with Gilles Bogaert, CFO of Pernod Ricard

Ebook on the future of CFOs…

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

Art as an asset class

January 30, 2024November 2, 2022 by Nakul PANJABI

Art as an asset class

In this article, Nakul PANJABI (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2024) talks about the Art as an asset class.

Before delving into the economics of the art market and art’s significance as an asset class, let us first recollect the definition of an asset and an asset class. An asset broadly refers to a resource from which future economic benefits are expected to flow. An asset class is a group of assets that have similar characteristics and related risk and return behavior. Common examples of asset class would be equities, fixed-income investments, and real estate.

Why have you not invested in art yet?

Although an age-old investment, art as an investment has been available to only a minority of investors most of whom are high-net-worth individuals (HNWI) or even ultra-high-net-worth individuals (UHNWI). The prime reason is that the market faces an inelastic supply. In simple terms, there are very few goods in market to be traded which leads to higher prices of each item and therefore, at equilibrium, only few people with such means could afford the good. This economic explanation of the art market would be enough if there were very few art items available to buy. However, as intuition might suggest, that is not the case. The world is filled with pieces of art and people who own it. Does this fact weaken our previous argument? The answer is simply No. Even though there are lots of art item and anyone with some spare money can buy a piece of art, almost none of those items would be classified as an asset. Art as an Asset class has an extremely limited supply. Only a few pieces of art are purchased as Asset.

Features of the Art Market

Besides limited supply and consequently higher prices, there are few other factors as well that makes art an interesting asset class. Firstly, the investable art items are highly illiquid. Selling a collectible art item is a time-consuming complex process. It requires dealers, auctions and most importantly potential buyers who could afford such an expensive item that provides no economic benefits except capital appreciation. As one might guess, there are only a handful of individuals in the world who own a 50-million-dollar painting.

Secondly, the supply of this asset class is not closely related to the cost of producing it. Most goods’ supply is based on the cost of producing them. For example, it is cheap to produce toothpaste, so it has an elastic supply. If there is a strike at a toothpaste factory, then there would be less people to make the toothpaste. This will increase the wages (cost of production) paid to them. Now fewer toothpastes would be produced at a higher price. This will make the supply of toothpaste relatively inelastic. However, this economic phenomenon seems to be missing in the art market. The supply of this asset class is highly inelastic but the goods that represent investable art are very cheap to produce. The low cost of production does not dictate the supply of collectible art. It is the rarity of these goods that cause such an inelastic supply. A lot of Investable art items are works of deceased artists. Although they probably were very cheap to produce, it is impossible to create more of them. The rarity of such items makes them so valuable.

Art has a very high maintenance cost and most of the art do not provide any recurring cashflows. One source of art cashflows is the income generated from renting art to museums. Because there is a limit to the number of paintings that can be displayed in museums, most of the return from art investments is generated through capital appreciation. However, as we discussed before, it is not so easy to sell a piece of art. Then, why would anyone, let alone the most sophisticated of investors, buy such an asset? Well, there are a lot of reason why one might invest in art.

Reasons to invest in the art market

Low correlation

Art has a low correlation with traditional asset class. Fluctuations in Apple’s stock price would probably have little effect on the price of an authentic Picasso painting. Thanks to this low correlation, a collectible painting can act as a hedge against inflation and market crashes. According to a 2022 Citibank report, art has either a weak positive correlation or zero correlation with other asset classes.

Tax Benefits

Given the fact that the value of investable art does not derive from either its future cashflows or its cost of production, it is relatively easier to manipulate its price than it is for other assets. Manipulating the price of an asset is extremely useful to manipulate income and consequently taxes.

Money laundering

Art Investments have also been used for money laundering. The logic is straightforward. A 50-million-dollar painting can be much easily hidden than cash or gold of similar value.

Status Symbol

Art is a very efficient status symbol. The rarity of the collectible art items makes owning them a source of prestige. If your friend owns one of the only five paintings created by a famous renaissance painter, you don’t need to be an expert in art to judge the economic worth of the painting or of your friend.

What Future looks like for the art market

According to the annual report by Art Basel and UBS Global Art, the worldwide art sales crossed $65.1 billion in 2021. This reflects a 29% increase from the previous year.

Moreover, with increase in the trend of NFT trading, millennials are more interested in (digital) art than ever. According to 2021 study by Art Basel and UBS Global Art, millennials were the highest spenders on fine art in 2020.

Now, with an increase in art investing funds, the barriers for art investing have also been reduced tremendously. People, who could not invest in art because of high capital requirement and lack of expertise, can now do so by investing in an art fund.

Why should I be interested in this post?

As an (wealthy) investor, art represents an asset class which is not highly correlated with traditional assets. It then can be useful for asset allocation in terms of diversification. When you think of your personal portfolio, you may think of art.

About the author

The article was written in November 2022 by Nakul PANJABI (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2024).

Charging Bull on Wall Street

November 2, 2022 by Nakul PANJABI

Charging Bull on Wall Street

In this article, Nakul PANJABI (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2024) talks about the Charging Bull sculpture displayed on Wall Street.

About the Charging Bull sculpture

In mid of December 1989, a bronze sculpture of a bull in its charging position was dropped outside of the New York Stock Exchange. The Bull is a symbol of booming stock prices. Arturo Di Modica, an Italian-American artist, was responsible for this stunt. During the economically depressive period of late 80s, he intended to encourage optimism and hope for a prosperous future among the American Citizens. Anticlimactically, the sculpture was removed just after few hours but was placed just two blocks away from its original place.

Charging Bull sculpture on Wall Street.
Charging Bull sculpture on Wall Street
Source: Arturo Di Modica.

Although the Charging Bull has already become a global symbol for an upward stock price movements and prosperity, understanding the basics of Bull and Bear markets can be useful for Investment Management. Bull market represents the time period where asset and security prices are rising, and it reflects the heightened investor confidence in the financial markets. Conversely, Bear market represents a downward movement in security prices and an increased investor pessimism. The terminology evolves from the behaviour of the animals. Bull market derives its name from the upward attacking technique of a bull and the bear market from the downward attacking technique of a bear.

Price trends

Generally, fundamental investing deals with the fundamental value of the security rather than the movement of its price. However, it does not mean that price movements are completely irrelevant in investment decisions of an individual. It is useful to know whether the market is bullish or bearish. If the security is currently overvalued according to your fundamental analysis, then the ideal action would be to sell the security while it is overvalued. But if the price is expected to rise even higher in the near future, then the rational behaviour would be to sell the Security later at that higher price and to sell it now if the price is expected to dip. Judging the market trends is an important skill to maximise returns on investment.

The price trend approach and market efficiency

Classifying a market as bull or bear derives from studying the trends in prices of assets. The method to identify patterns in price movements and forecasting the direction of price using past market data is known as technical analysis’. Profiting from technical analysis requires the market to be inefficient. It simply means that the current stock price does not reflect all the information represented in the past price points as well as all the public and private information in the market. However, it is widely assumed that developed markets are usually efficient in the semi-strong sense. This means that the prices of the assets reflect all the information from past price points and all the information publicly available. Theoretically, in such a situation an investor cannot benefit (have abnormal returns) by using technical or fundamental analysis.

However, this does not mean that studying price trends is completely useless. In markets which are inefficient, using technical analysis might be even more profitable than fundamental analysis. Generally, the developing economies such as Africa have inefficient markets. In those markets analyzing the past price points might give a reasonable edge to forecast short-term asset prices. Using fundamental analysis can also be tricky in this case. If a stock is undervalued, then the rational behavior would be to buy the stock and wait for its price to increase. However, since the market is inefficient, it is very uncertain when the prices will reflect the public information and, consequently, whether the investor will make a profit or not. In such a case, technical analysis might still work as it relies on market sentiment.

Why should I be interested in this post?

The Charging Bull sculpture on Wall Street is part of the financial culture of every business school student. It is a must see when you visit New York City.

Bull and bear markets are terms that have to be well understood by every investor in financial markets.

Useful resources

Wikipedia Arturo Di Modica.

Antoine Bourdon (22/10/2021) Mort d’Arturo Di Modica, sculpteur du célèbre Charging Bull de Wall Street à New York Connaissances des arts.

About the author

The article was written in November 2022 by Nakul PANJABI (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2024).