Compliance et régulation dans le secteur financier : focus sur les prêts de titres et les dérivés OTC

Posted on July 27, 2024 by Esten CHAUVIN

Compliance et régulation dans le secteur financier : focus sur les prêts de titres et les dérivés OTC

Dans cet article, Esten CHAUVIN (ESSEC Business School, Grande Ecole – Master in Management, 2023-2026) partage son expérience et ses connaissances sur la compliance et la régulation dans le secteur financier, avec un focus particulier sur les prêts de titres et les dérivés OTC.

Introduction

La compliance et la régulation jouent un rôle fondamental dans le secteur financier, garantissant la transparence et la sécurité des transactions. Cet article vise à expliquer les principaux aspects de la régulation en finance, en se concentrant sur les prêts de titres et les dérivés de gré à gré (OTC).

Importance de la compliance et de la régulation

Les régulations financières sont mises en place pour protéger les investisseurs, maintenir la stabilité des marchés et prévenir les pratiques frauduleuses. La compliance, quant à elle, assure que les institutions financières respectent ces régulations. Ensemble, elles forment le socle de la confiance dans le système financier.

Différence entre régulation et réglementation

La réglementation se réfère aux textes de lois, directives et règlements émis par les autorités compétentes pour encadrer les activités financières. Elle définit les règles et les normes que les institutions financières doivent suivre. La régulation financière, en revanche, est le processus par lequel ces règles sont mises en œuvre et appliquées. Elle inclut les activités de surveillance et de contrôle menées par les régulateurs pour s’assurer que les institutions se conforment aux réglementations en vigueur.

Origine et importance du reporting

Le reporting financier est né de la nécessité de fournir des informations transparentes et fiables aux régulateurs, investisseurs et autres parties prenantes. Il permet de suivre et d’évaluer les risques systémiques, de détecter les irrégularités et de garantir la stabilité du système financier. Par exemple, le reporting des transactions de prêt de titres et de dérivés OTC aide les régulateurs à surveiller les expositions et à prévenir les crises financières.

Principales régulations

Réglementation SFTR : La Securities Financing Transactions Regulation (SFTR) en Europe impose des exigences de reporting détaillées pour toutes les transactions de financement de titres. Cette régulation vise à augmenter la transparence et à réduire les risques systémiques.
Réglementation EMIR : L’European Market Infrastructure Regulation (EMIR) impose des obligations de compensation et de reporting pour les dérivés OTC. Elle a été mise en place pour améliorer la transparence et réduire le risque de contrepartie.
Dodd-Frank Act : Aux États-Unis, cette loi impose des réglementations strictes sur les dérivés OTC, visant à prévenir une autre crise financière.

Compliance dans les prêts de titres

Les prêts de titres, ou stock loans, sont soumis à une surveillance réglementaire stricte. Les institutions doivent s’assurer que les transactions sont correctement déclarées et que les garanties sont adéquates.

Exigences de reporting

Les transactions de prêt de titres doivent être déclarées aux régulateurs dans un délai spécifique. Cela inclut des informations détaillées sur les parties impliquées, les titres prêtés et les garanties fournies.

Gestion des garanties

Les garanties doivent être évaluées régulièrement pour s’assurer qu’elles couvrent adéquatement le risque de contrepartie. Par exemple, si la valeur des titres prêtés augmente ou diminue significativement, des ajustements des garanties peuvent être nécessaires.

Exemple pratique

Pendant mon stage chez Oddo BHF, j’ai travaillé sur des transactions de prêt de titres où nous devions ajuster les garanties en fonction des fluctuations du marché. Nous collaborions étroitement avec le département de compliance pour nous assurer que toutes les transactions étaient conformes aux régulations en vigueur.

Compliance dans les dérivés OTC

Les dérivés OTC sont également fortement régulés pour garantir la transparence et la sécurité des marchés financiers.

Compensation et clearing

L’European Market Infrastructure Regulation (EMIR) impose que certaines transactions de dérivés OTC soient compensées par des chambres de compensation centrales pour réduire le risque de contrepartie. Cela signifie que les parties impliquées dans une transaction doivent passer par une entité tierce qui garantit la transaction.

Exigences de reporting

Toutes les transactions de dérivés OTC doivent être déclarées aux régulateurs, incluant des détails sur les termes du contrat, les parties impliquées et les expositions au risque. Ces informations permettent aux régulateurs de surveiller les risques systémiques.

Exemple pratique

Durant mon stage, j’ai aidé à préparer des rapports de conformité pour les transactions de dérivés OTC. Cela impliquait de s’assurer que toutes les transactions étaient correctement enregistrées et que les expositions étaient gérées conformément aux régulations. Par exemple, une transaction de swap de taux d’intérêt nécessitait une déclaration précise et la mise en place de garanties adéquates.

Impact des régulations sur les opérations quotidiennes

Les régulations influencent fortement les opérations quotidiennes des institutions financières. Elles nécessitent des systèmes robustes pour le reporting et la gestion des risques, ainsi qu’une collaboration étroite entre différents départements.

Systèmes et technologies

Les institutions doivent investir dans des systèmes informatiques avancés pour gérer les exigences de reporting et de compliance. Cela inclut des logiciels de gestion des risques, des plateformes de reporting et des systèmes de suivi des garanties.

Formation et sensibilisation

Il est essentiel que tous les employés soient formés aux régulations et aux politiques de compliance. Cela inclut des sessions de formation régulières et des mises à jour sur les nouvelles réglementations.

Conclusion

La compliance et la régulation sont essentielles pour maintenir la confiance et la stabilité dans le secteur financier. Pour les étudiants et futurs professionnels de la finance, comprendre ces régulations est crucial. Les prêts de titres et les dérivés OTC sont deux domaines où la régulation joue un rôle particulièrement important, nécessitant une attention constante et une gestion rigoureuse.

Ressources utiles

ESMA – SFTR

ESMA – EMIR

À propos de l’auteur

Cet article a été écrit en juillet 2024 par Esten CHAUVIN étudiant en Master de Management à l’ESSEC Business School, ancien stagiaire OTC Derivatives, Stock Loans, Repo Loans chez Oddo BHF.

Posted in Contributors, Financial techniques | Tagged Compliance, Prêts de titres, Régulation | Leave a comment

Le marché des Repos : Principe et stratégie

Posted on July 27, 2024 by Esten CHAUVIN

Le marché des Repos : Principe et stratégie

Dans cet article, Esten CHAUVIN (ESSEC Business School, Grande Ecole – Master in Management, 2023-2026) partage son expérience et ses connaissances sur le marché des Repos, leur principe et les stratégies associées en finance de marché.

Introduction

Les Repos, ou “repurchase agreements”, sont des instruments financiers couramment utilisés pour gérer la liquidité des institutions financières et financer leurs positions. Cet article vise à clarifier le principe des Repos et à expliquer les stratégies couramment utilisées.

Principe des Repos

Les Repos, ou accords de pension, sont des contrats financiers dans lesquels une partie (le vendeur) vend des titres à une autre partie (l’acheteur) avec l’engagement de les racheter à une date ultérieure à un prix convenu, généralement légèrement supérieur. Ce mécanisme permet au vendeur d’obtenir des liquidités à court terme tout en utilisant les titres comme garantie, tandis que l’acheteur bénéficie d’un placement sécurisé pour ses fonds excédentaires. En d’autres termes, le repo est une opération de financement à court terme qui offre une solution flexible pour la gestion de la trésorerie.

Parties prenantes

Les principaux acteurs dans un accord de repo sont le vendeur (souvent une institution financière cherchant à lever des liquidités) et l’acheteur (souvent une autre institution financière ou un investisseur institutionnel cherchant à investir des liquidités à court terme). Lors de mon stage chez Oddo BHF, j’ai pu observer ces interactions de première main. Nous collaborions fréquemment avec des contreparties telles que BNP Paribas, Société Générale, ainsi que des investisseurs institutionnels internationaux.

Processus des Repos

Négociation des termes : Les termes de l’accord de repo sont négociés par les front offices des deux contreparties, incluant le type de titres, la durée de l’accord et le taux de repo. Le taux de repo représente les intérêts que le vendeur doit payer pour emprunter des liquidités à court terme en utilisant ses titres comme garantie et est généralement exprimé en pourcentage annuel.
Transfert des titres : Une fois les termes acceptés, les titres sont transférés de manière sécurisée à l’acheteur.
Fourniture des fonds : L’acheteur fournit les fonds au vendeur en échange des titres.
Rachat des titres : À la fin de la période de repo, le vendeur rachète les titres au prix convenu et récupère ses titres. Les intérêts dus sur la période de l’accord sont calculés et payés au moment du rachat des titres. Par exemple, pour un accord de repo de 1 million d’euros avec un taux de 2% sur une période de trois mois, les intérêts seraient de 5 000 euros (1 000 000 € x 0,02 x 0,25), payés lors du rachat.

Types de garanties

Les garanties dans un accord de repo peuvent être des obligations d’État, des titres de créance d’entreprise ou d’autres titres financiers. Pour minimiser les risques de volatilité, nous travaillions principalement avec des obligations d’État, considérées comme des actifs à faible risque.

Calcul des taux de repo

Les taux de repo sont déterminés en fonction de plusieurs facteurs, dont le niveau de liquidité sur le marché, la durée du prêt et la qualité des titres utilisés comme garantie. Ces taux représentent les intérêts que le vendeur doit payer pour emprunter des liquidités à court terme en utilisant ses titres comme garantie. Durant mon stage, j’ai appris à négocier et à calculer ces taux en tenant compte des conditions du marché. Par exemple, les repos à court terme sur des obligations d’État françaises pouvaient avoir des taux plus bas en raison de la stabilité et de la liquidité de ces titres.

Stratégies des Repos

Stratégies pour les vendeurs

Gestion de la liquidité : Les vendeurs utilisent les repos pour lever des liquidités à court terme sans avoir à vendre définitivement leurs actifs. Par exemple, une banque peut utiliser un repo pour financer ses besoins de trésorerie quotidiens.
Optimisation du portefeuille : Les repos permettent aux institutions financières de gérer efficacement leurs portefeuilles en utilisant les actifs détenus comme garantie pour obtenir des fonds à court terme.

Stratégies pour les acheteurs

Placement sécurisé : Les acheteurs utilisent les repos pour placer des liquidités à court terme de manière sécurisée, en obtenant des titres en garantie.
Génération de revenus : En prêtant des fonds à des taux de repo compétitifs, les acheteurs peuvent générer des revenus supplémentaires sur leurs excédents de liquidité.

Enjeux des Repos

Avantages pour les parties prenantes

Pour le vendeur : Accès rapide à des liquidités, maintien de la propriété des titres, optimisation de la gestion de trésorerie.
Pour l’acheteur : Placement sécurisé des liquidités, génération de revenus à court terme, obtention de titres en garantie.

Risques associés

Pour le vendeur : Risque de défaut de l’acheteur, fluctuations de la valeur des titres en garantie.
Pour l’acheteur : Risque de ne pas récupérer les fonds prêtés si le vendeur fait défaut, volatilité des titres en garantie. Pour minimiser ces risques, nous ajustions régulièrement les garanties et surveillions les positions des contreparties. Par exemple, si nous utilisons des obligations d’État italiennes en garantie et que leur valeur chute soudainement, nous devons être prêts à demander une garantie supplémentaire pour couvrir le risque accru.

Réglementation et compliance

Les Repos sont soumis à une réglementation stricte pour garantir la transparence et la sécurité des transactions. Par exemple, en Europe, la régulation SFTR (Securities Financing Transactions Regulation) impose des exigences de reporting détaillées pour toutes les transactions de financement de titres. Durant mon stage de juillet à décembre 2023, nous devions nous assurer que toutes les transactions étaient conformes à ces régulations, souvent en collaborant étroitement avec le département de compliance.

Impact sur les marchés financiers

Les Repos contribuent à la liquidité des marchés en permettant une plus grande fluidité des titres et des fonds. Cependant, ils peuvent aussi influencer la volatilité et la stabilité des marchés, notamment en période de stress financier. Un exemple notable est l’impact des repos pendant la crise financière de 2008, où ces instruments ont joué un rôle crucial dans la gestion de la liquidité des institutions financières.

Cas pratiques et exemples

Pendant mon stage chez Oddo BHF, j’ai été directement impliqué dans la gestion de repos lors d’une période de tension sur les marchés financiers. Un exemple concret est survenu lors de l’annonce surprise de la Réserve fédérale américaine (Fed) en septembre 2023, lorsqu’ils ont décidé de maintenir les taux d’intérêt plus élevés que prévu. Cette annonce a entraîné une volatilité accrue sur les marchés des obligations d’État. Nous avions plusieurs accords de repo en cours avec des obligations françaises et italiennes. Avec la volatilité soudaine, nous avons dû ajuster rapidement les garanties et communiquer avec les contreparties pour s’assurer que les positions étaient couvertes. Cela a impliqué des négociations rapides et une coordination étroite avec les équipes de gestion des risques et de compliance pour s’assurer que toutes les transactions restaient conformes aux régulations en vigueur.

Comparaison avec d’autres mécanismes financiers

Repos vs prêts de titres

Les repos et les prêts de titres partagent des similitudes, comme l’utilisation de garanties. Cependant, les repos impliquent la vente temporaire d’un actif avec un accord de rachat , tandis que les prêts de titres concernent uniquement le prêt temporaire des titres sans vente.

Repos vs options et futures

Les repos et les dérivés financiers comme les options et futures sont utilisés pour la gestion des risques et la couverture. Cependant, les dérivés offrent des options de trading plus flexibles et des stratégies de gestion de portefeuille plus complexes par rapport aux repos.

Conclusion

Les Repos sont une pratique essentielle dans les marchés financiers, offrant des avantages significatifs aux vendeurs et aux acheteurs tout en présentant des risques qu’il convient de gérer avec soin. Pour les étudiants et les futurs professionnels de la finance, comprendre les mécanismes et les enjeux des Repos est crucial.

Autres articles sur le blog SimTrade

▶ Esten CHAUVIN Mon expérience chez OTC Securities Lending & Derivatives – Repo Loan

Ressources utiles

Pour approfondir vos connaissances sur les prêts de titres, voici quelques ressources recommandées :

SFTR (Securities Financing Transactions Regulation)

À propos de l’auteur

Cet article a été écrit en juillet 2024 par Esten CHAUVIN (ESSEC Business School, Grande Ecole – Master in Management, 2023-2026) et ancien stagiaire OTC Derivatives, Stock Loans, Repo Loans chez Oddo BHF.

Posted in Contributors | Tagged Repos | Leave a comment

Les prêts de titres (stock loans) : fonctionnement et enjeux

Posted on July 27, 2024 by Esten CHAUVIN

Les prêts de titres (stock loans) : fonctionnement et enjeux

Dans cet article, Esten CHAUVIN (ESSEC Business School, Grande Ecole – Master in Management, 2023-2026) partage son expérience et ses connaissances sur les prêts de titres, leur fonctionnement et leurs enjeux en finance de marché.

Introduction

Les prêts de titres, aussi connus sous le terme “stock loans”, sont une pratique courante dans le monde financier. Ils permettent aux investisseurs d’optimiser l’utilisation de leurs titres tout en générant des revenus supplémentaires. Cet article a pour objectif de clarifier le fonctionnement des prêts de titres et d’expliquer les enjeux associés à cette pratique.

Fonctionnement des prêts de titres

Les prêts de titres sont un mécanisme où un propriétaire de titres prête ses titres à un emprunteur en échange d’une garantie et d’intérêts. Cela permet au prêteur de générer des revenus supplémentaires sans vendre ses actifs, optimisant ainsi l’utilisation de son portefeuille. Pour l’emprunteur, cette pratique offre la possibilité d’accéder temporairement à des titres sans avoir à les acheter, ce qui peut être crucial pour des stratégies telles que la vente à découvert ou la couverture de positions existantes.

Parties prenantes

Les principaux acteurs dans un prêt de titres sont le prêteur (souvent un fonds de pension ou une institution financière), l’emprunteur (généralement un trader cherchant à vendre les titres à découvert) et les intermédiaires comme les courtiers et les agents de prêt. Lors de mon stage chez Oddo BHF, j’ai pu observer ces interactions de première main, en travaillant avec divers acteurs pour assurer la fluidité des transactions. Par exemple, nous collaborions fréquemment avec des contreparties aussi bien nationales telles que BNP Paribas et Société Générale, qu’internationales comme Barclay’s ou Goldman Sachs.

Processus de prêt de titres

Négociation des termes : Les termes du prêt sont négociés par les front offices des deux contreparties, incluant le type de titres, la durée du prêt et les frais. Ces frais, ou intérêts, sont calculés en fonction de la durée du prêt et du type de titres impliqués. Les modalités de paiement des intérêts, telles que la fréquence (mensuelle, trimestrielle) et la date de paiement, sont également définies lors de cette phase.
Transfert des titres : Une fois les termes acceptés, les titres sont transférés de manière sécurisée à l’emprunteur.
Gestion de la garantie : L’emprunteur fournit une garantie sous forme d’espèces ou d’autres titres. Cette garantie est ajustée régulièrement pour refléter les fluctuations de la valeur des titres prêtés. Par exemple, supposons qu’un emprunteur prête des actions d’une valeur de 1 million d’euros et qu’il fournisse une garantie de 1,1 million d’euros. Si la valeur des actions prêtées augmente à 1,2 million d’euros, l’emprunteur devra ajouter 100 000 euros supplémentaires à la garantie pour maintenir un ratio de couverture adéquat. À l’inverse, si la valeur des actions baisse à 900 000 euros, l’emprunteur peut récupérer 100 000 euros de la garantie. Ces ajustements, appelés appels de marge, sont cruciaux pour gérer le risque de marché et s’assurer que les intérêts des deux parties sont protégés.
Restitution des titres : À la fin de la période de prêt, les titres sont restitués au prêteur et la garantie est libérée. Les intérêts accumulés pendant la durée du prêt sont payés à des intervalles définis (par exemple, mensuellement ou trimestriellement) et un dernier paiement d’intérêts est effectué lors de la restitution des titres. Ces paiements sont essentiels pour compenser le prêteur pour l’utilisation de ses actifs.

Il est primordial d’utiliser des systèmes avancés afin de garantir la sécurité et l’efficacité des très nombreuses transactions quotidiennes. Ces systèmes incluent des logiciels de gestion de risques, des plateformes de trading automatisées, et des systèmes de suivi et de reporting en temps réel. Par exemple, le tout premier deal que j’ai eu à gérer en débutant mon stage fut un prêt d’actions de TotalEnergies à un hedge fund basé à Londres. Nous avons utilisé une plateforme de trading pour exécuter la transaction et un système de gestion des risques pour évaluer et ajuster la garantie, qui était composée d’obligations d’État françaises. Ce type de transaction demande une coordination minutieuse pour s’assurer que les valeurs des actifs prêtés et reçus restent équilibrées, et cela n’est possible qu’avec des outils technologiques sophistiqués qui permettent de suivre et de sécuriser chaque étape du processus.

Types de garanties

Les garanties peuvent être des espèces, des obligations ou d’autres titres. Le type de garantie accepté dépend des termes du prêt et des politiques internes de l’institution financière. Afin de minimiser les risques de volatilité, j’ai principalement travaillé avec des garanties sous forme d’espèces.

Calcul des frais de prêt

Les frais de prêt sont calculés en fonction de plusieurs facteurs, dont le taux d’intérêt, la durée du prêt et le type de titres. Ces frais représentent le coût pour l’emprunteur d’accéder aux titres prêtés. Durant mon stage, j’ai appris à calculer ces frais en tenant compte des conditions du marché et des politiques internes. Par exemple, en novembre 2023, le prêt d’actions de TotalEnergies avait un taux d’intérêt annuel de 1,5%. Pour un prêt de 1 million d’euros sur trois mois, les frais étaient de 3 750 euros (1 000 000 € x 0,015 x 0,25). En comparaison, les actions de Tesla avaient un taux de prêt de 3,2%, ce qui entraînait des frais de 8 000 euros pour la même période (1 000 000 € x 0,032 x 0,25) en raison de leur forte demande.

Pair Off

Les “pair off” sont une technique couramment utilisée dans la gestion des prêts de titres. Il s’agit de l’annulation simultanée de deux transactions opposées, ce qui permet de réduire le volume des transactions en cours et de minimiser les risques associés. Par exemple, si une institution financière a prêté des titres à deux contreparties différentes qui souhaitent ensuite restituer les titres à la même période, les transactions peuvent être “pair off” pour simplifier le processus de restitution.

Enjeux des prêts de titres

Avantages pour les parties prenantes

Pour le prêteur : Génération de revenus supplémentaires à partir des titres détenus, optimisation de l’utilisation des actifs. Par exemple, un fonds de pension peut prêter des titres pour augmenter ses rendements.
Pour l’emprunteur : Accès temporaire à des titres sans achat direct, possibilité de couvrir des positions courtes. Un trader peut aussi emprunter des titres pour vendre à découvert.

Risques associés

Pour le prêteur : Risque de défaut de l’emprunteur, volatilité des garanties pouvant affecter leur valeur.
Pour l’emprunteur : Coût du prêt, risque de rappel des titres prêtés avant la fin prévue du prêt. Pour minimiser ces risques, nous ajustions régulièrement les garanties et surveillions les positions des emprunteurs. Par exemple, si nous prêtons des actions Apple à un hedge fund et que ces actions chutent soudainement, nous devions être prêts à appeler une garantie supplémentaire pour couvrir le risque accru.

Réglementation et compliance

Les prêts de titres sont soumis à une réglementation stricte pour garantir la transparence et la sécurité des transactions. Par exemple, en Europe, la régulation SFTR (Securities Financing Transactions Regulation) impose des exigences de reporting détaillées pour toutes les transactions de financement de titres. Durant mon stage, nous devions nous assurer que toutes les transactions étaient conformes à ces régulations, souvent en collaborant étroitement avec le département de compliance.

Impact sur les marchés financiers

Les prêts de titres contribuent à la liquidité des marchés en permettant une plus grande fluidité des titres. Cependant, ils peuvent aussi influencer la volatilité et la stabilité des marchés, notamment lorsqu’ils sont utilisés pour des ventes à découvert massives. Un exemple notable est l’impact des ventes à découvert pendant la crise financière de 2008, où les prêts de titres ont joué un rôle crucial dans la dynamique des marchés.

Cas pratiques et exemples

Pendant mon stage chez Oddo BHF, j’ai été directement impliqué dans la gestion de prêts de titres lors d’une période de forte volatilité du marché. Un exemple concret est survenu lors de la publication des résultats du Q3 d’un géant américain de la tech. Ces résultats étaient significativement en dessous des attentes, ce qui a entraîné une chute rapide du cours de l’action. Nous avions prêté des actions de cette entreprise à plusieurs hedge funds, et avec la baisse soudaine, la valeur de la garantie (collatéral) que nous avions reçue devait être ajustée rapidement pour couvrir le risque accru.

Dans cette situation, nous avons immédiatement contacté les contreparties pour augmenter la garantie en espèces afin de compenser la chute de la valeur des actions. Cela a impliqué des négociations rapides et une coordination étroite avec les équipes de gestion des risques et de compliance pour s’assurer que toutes les transactions étaient conformes aux régulations en vigueur.

Comparaison avec d’autres mécanismes financiers

Repos vs prêts de titres

Les repos (repurchase agreements) et les prêts de titres partagent des similitudes, comme l’utilisation de garanties. Cependant, les repos impliquent la vente temporaire d’un actif avec un accord de rachat, tandis que les prêts de titres concernent uniquement le prêt temporaire des titres sans vente.

Prêts de titres vs options et futures

Les prêts de titres et les dérivés financiers comme les options et futures sont utilisés pour la gestion des risques et la couverture. Cependant, les dérivés offrent des options de trading plus flexibles et des stratégies de gestion de portefeuille plus complexes par rapport aux prêts de titres.

Conclusion

Les prêts de titres sont une pratique essentielle dans les marchés financiers, offrant des avantages significatifs aux prêteurs et aux emprunteurs tout en présentant des risques qu’il convient de gérer avec soin. Pour les étudiants et les futurs professionnels de la finance, comprendre les mécanismes et les enjeux des prêts de titres est crucial.

Avec l’évolution des technologies et des régulations, les pratiques de prêt de titres continuent de se transformer. Les professionnels de la finance doivent rester informés et adaptables pour naviguer efficacement dans ce paysage en mutation.

Autres articles sur le blog SimTrade

▶ Esten CHAUVIN Mon expérience chez OTC Securities Lending & Derivatives – Repo Loan

Ressources utiles

Pour approfondir vos connaissances sur les prêts de titres, voici quelques ressources recommandées :

How stock loans financing works

À propos de l’auteur

Posted in Contributors | Tagged Prêt de titres, Stock loans | Leave a comment

Back office, Middle Office, Front Office: quels rôles, quelles responsabilités ?

Posted on July 27, 2024 by Esten CHAUVIN

Back office, Middle Office, Front Office: quels rôles, quelles responsabilités ?

Dans cet article, Esten CHAUVIN (ESSEC Business School, Grande Ecole – Master in Management, 2023-2026) partage son expérience et ses connaissances sur les rôles et responsabilités du back office, middle office et front office en finance de marché.

Introduction

Les institutions financières sont structurées en plusieurs départements essentiels à leur fonctionnement. Parmi eux, le back office, le middle office et le front office jouent des rôles distincts mais complémentaires. Cet article a pour objectif de clarifier les responsabilités spécifiques de chaque département et d’illustrer comment leur interaction contribue à l’efficacité globale de l’institution.

Rôles et responsabilités du Back Office

Le back office est souvent considéré comme le moteur silencieux des institutions financières. Il est principalement responsable du traitement des transactions financières après leur exécution. Cela inclut la confirmation et le règlement des transactions. Par exemple, lorsque vous achetez une action, le back office s’assure que les titres sont correctement livrés et que les fonds sont transférés.

Outre le traitement des transactions, le back office gère les aspects administratifs et comptables. Cela signifie tenir les livres comptables de l’institution et préparer les rapports financiers nécessaires. Imaginez qu’à la fin de chaque journée de trading, toutes les transactions doivent être enregistrées avec précision pour les audits et les rapports financiers. C’est le back office qui veille à cette rigueur.

Des tâches spécifiques incluent le règlement et la livraison des titres, où les détails de la transaction sont confirmés avec les contreparties. Le back office gère également les confirmations et les réconciliations, en rapprochant les transactions entre les systèmes internes et les contreparties pour identifier et résoudre les divergences. Enfin, ils sont responsables du reporting réglementaire et financier, préparant et soumettant des rapports aux régulateurs financiers.

Rôles et responsabilités du Middle Office

Le middle office joue un rôle crucial en matière de gestion des risques et de trésorerie. Il identifie, mesure et gère les différents types de risques : marché, crédit et liquidité. Par exemple, si une banque a un portefeuille de trading important, le middle office utilise des modèles quantitatifs pour évaluer le risque associé.

La gestion de la trésorerie et des marges est une autre responsabilité clé. Le middle office surveille les flux de trésorerie et gère les marges pour s’assurer que l’institution dispose de suffisamment de liquidités pour ses opérations. Imaginez gérer au quotidien les besoins de trésorerie pour éviter les déficits et optimiser l’utilisation des ressources.

Parmi les tâches spécifiques, le middle office suit les positions et les expositions en temps réel pour identifier les risques potentiels. Il gère également les liquidités et le collatéral, optimisant leur utilisation pour maximiser l’efficacité financière. Enfin, il calcule et suit les risques de marché, de crédit et de liquidité, utilisant des modèles de risque pour évaluer et atténuer les risques potentiels.

Rôles et responsabilités du Front Office

Le front office est la vitrine de l’institution financière, en première ligne pour interagir avec les marchés et effectuer des transactions financières. Les traders du front office exécutent des ordres sur les marchés financiers, qu’il s’agisse d’actions, d’obligations, de devises ou de dérivés.

Le front office est également responsable de la génération de revenus pour l’institution. Les traders développent des stratégies de trading et prennent des positions pour maximiser les profits. Par exemple, ils analysent les marchés et prennent des positions en fonction des conditions économiques pour générer des gains.

En plus du trading, le front office offre des conseils et des services aux clients. Cela peut inclure des recommandations d’investissement ou des services de gestion de patrimoine. Ils élaborent également des stratégies de négociation basées sur l’analyse des marchés et des conditions économiques, utilisant leur expertise pour prendre des décisions éclairées.

Comparaison et interactions entre les trois départements

Bien que chaque département ait des fonctions et des responsabilités distinctes, ils sont étroitement liés et dépendent les uns des autres. Le front office, par exemple, dépend du middle et du back office pour le soutien opérationnel et la gestion des risques. Sans une collaboration efficace, les transactions ne pourraient pas être exécutées de manière fluide et les risques ne seraient pas correctement gérés.

La communication et la coordination entre les départements sont essentielles. Prenons l’exemple d’une transaction financière complexe : le front office exécute l’ordre, le middle office surveille le risque et le back office traite la transaction. Une communication efficace entre ces départements garantit que chaque étape du processus est réalisée correctement, minimisant ainsi les erreurs et les risques.

Conclusion

Chaque département – back office, middle office et front office – joue un rôle crucial dans une institution financière. Le back office assure le bon déroulement des transactions et la conformité administrative, le middle office gère les risques et la trésorerie, et le front office génère des revenus et interagit avec les marchés. Ensemble, ils contribuent à l’efficacité et à la rentabilité de l’institution.

Avec l’avènement des nouvelles technologies, comme l’automatisation et l’intelligence artificielle, les rôles traditionnels de ces départements évoluent. Les compétences requises se transforment également, et il est essentiel pour les futurs professionnels de se tenir à jour avec ces changements pour réussir dans le secteur financier.

Autres articles sur le blog SimTrade

▶ Youssef LOURAOUI My experience as a portfolio manager in a central bank

▶ Alexandre VERLET Working in finance: trading

▶ Akshit GUPTA Analysis of The Rogue Trader movie

Ressources utiles

Pour approfondir vos connaissances sur les rôles du back office, middle office et front office, voici quelques ressources recommandées :

Les différences entre le front, le middle et le back office en banque d’investissement

À propos de l’auteur

Posted in Contributors, Financial techniques | Tagged Back office, Front office, Middle office | Leave a comment

Mon expérience chez OTC Securities Lending & Derivatives – Repo Loan

Posted on July 27, 2024 by Esten CHAUVIN

Mon expérience chez OTC Securities Lending & Derivatives – Repo Loan

Dans cet article, Esten CHAUVIN (ESSEC Business School, Grande Ecole – Master in Management, 2023-2026) partage son expérience professionnelle comme stagiaire chez Oddo BHF dans le département OTC Securities Lending & Derivatives – Repo Loan.

A propos de l’entreprise

Oddo BHF est une société financière franco-allemande offrant des services bancaires et financiers diversifiés. Fondée en 1849, l’entreprise s’est développée au fil des décennies pour devenir un acteur majeur dans le secteur de la gestion d’actifs, de la banque d’investissement et des services financiers. Oddo BHF est particulièrement reconnue pour son expertise en matière de recherche et d’analyse financière.

Avec une présence dans plusieurs pays européens, Oddo BHF combine des valeurs traditionnelles avec une approche moderne de la finance, mettant l’accent sur l’innovation et la satisfaction client.

Logo de l’entreprise.
Logo de Oddo BHF
Source : Oddo BHF.

Mon stage / Mon apprentissage

Durant mon stage chez Oddo BHF, j’ai travaillé dans le département OTC Securities Lending & Derivatives – Repo Loan. Ce département est crucial pour la gestion des prêts de titres et des produits dérivés de gré à gré, jouant un rôle essentiel dans la gestion des risques et la liquidité de l’institution.

Mes missions

Mes missions principales consistaient à traiter et à valider les transactions de prêts de titres, à gérer les expositions aux risques, et à assurer la conformité des opérations avec les régulations en vigueur. J’ai également participé à l’optimisation des processus de gestion de la trésorerie et des garanties.

Compétences et connaissances requises

Pour réussir dans ce stage, il était essentiel de posséder des compétences techniques solides en finance et en analyse de données. La maîtrise d’Excel et des systèmes de gestion de risques était indispensable. En termes de soft skills, la rigueur, l’organisation et une excellente communication étaient cruciales pour interagir efficacement avec les différentes équipes.

Ce que j’ai appris

Ce stage m’a permis d’acquérir une compréhension approfondie des mécanismes des prêts de titres et des produits dérivés. J’ai également développé des compétences en gestion des risques et appris à naviguer dans un environnement réglementaire complexe. Ce fut une expérience enrichissante qui a renforcé mon intérêt pour la finance de marché.

Concepts financiers liés à mon stage

Prêts de titres

Les prêts de titres permettent aux investisseurs de prêter leurs titres en échange d’une garantie et de frais, optimisant ainsi l’utilisation de leurs actifs.

Repos Loans

Les repos loans sont des accords où un vendeur vend des titres avec l’engagement de les racheter à une date ultérieure, fournissant ainsi une source de liquidités à court terme.

Gestion des risques

La gestion des risques implique l’identification, l’évaluation et la mitigation des risques financiers, notamment en utilisant des modèles quantitatifs et des stratégies de couverture.

Pourquoi pourrais-je être intéressé par cet article ?

Si vous êtes un étudiant de l’ESSEC intéressé par une carrière en finance de marché, cet article vous donne un aperçu précieux des responsabilités et des compétences nécessaires pour réussir dans ce domaine. Mon expérience chez Oddo BHF vous aidera à mieux comprendre les défis et les opportunités de ce secteur.

Autres articles sur le blog SimTrade

▶ All posts about Professional experiences

▶ Alexandre VERLET Classic brain teasers from real-life interviews

▶ David-Alexandre BLUM My professional experience as an Institutional Sales Assistant with Lazard Frères Gestion

▶ Chloé ANIFRANI My experience as an Asset Management Sales Assistant for Amplegest

▶ Tanguy TONEL My experience as an Investment Specialist at Amundi Asset Management

Ressources utiles

Voici quelques ressources utiles pour en savoir plus sur Oddo BHF et le secteur financier :

Site officiel d’Oddo BHF

A propos de l’auteur

Cet article a été écrit en juillet 2024 par Esten CHAUVIN (ESSEC Business School, Grande Ecole – Master in Management, 2023-2026).

Posted in Contributors, Financial techniques | Tagged OTC Securities, Repo loan, Stage | Leave a comment

Top financial innovations in the 20th century

Posted on July 25, 2024 by Nithisha CHALLA

Top financial innovations in the 20th century

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents top financial innovations of the 20th century that have brought significant changes in people’s life.

Introduction

Financial innovations have significantly transformed how people make transactions and manage money like saving and investing. These innovations have increased accessibility, convenience, and security in financial activities, benefiting individuals and companies alike. From the introduction of paper money in ancient China to modern-day digital banking, each era has brought new ways to manage finances. The 20^th and 21^st centuries, in particular, have seen rapid advancements due to technology, leading to groundbreaking changes in financial services.

Top Financial Innovations that Changed People’s Life in the 20^th century

Our selection of financial innovations is based on their wide adoption by firms and individuals (usage in many countries worldwide).

Credit Cards and Debit Cards: Introduced in the 1950s, credit and debit cards provided a convenient way for consumers to make purchases without cash, leading to a shift towards a cashless society.
Automated Teller Machines (ATMs): ATMs revolutionized banking by allowing customers to perform transactions anytime, anywhere, without needing to visit a bank branch.
Telephone Banking: The rise of the internet in the 1980s enabled banks to allow customers to perform basic banking transactions, such as checking account balances and transferring funds, via phone.
Online Banking: The rise of the internet in the 1990s enabled banks to offer online services, making it easier for customers to manage accounts, pay bills, and transfer money.

We explain below how these financial innovations impacted people’s lives and companies. We also give some statistics to measure the impact.

Credit Cards and Debit Cards

The Diners Club card, introduced by Frank McNamara card in 1950, is considered the first credit. Later, Bank of America launched the BankAmericard (now Visa) in 1958. Later, Visa became one of the largest credit card issuers globally. MasterCard, originally Interbank Card Association, formed in 1966, is another major player in the credit card industry. The concept of a debit card was first introduced by the First National Bank of Seattle in 1966. The first debit card was issued by Barclays in the UK in 1966.

These Credit and Debit cards provided consumers a convenient and secure way to purchase without carrying cash. It allowed for the development of the credit industry, enabling consumers to borrow funds for purchases and pay them back over time. Which also helped customers make larger purchases thus improving purchasing power.

To speak on how much these innovations affected people, by the end of the 20th century, there were over 1 billion credit cards in use globally. And in 2019, Visa and MasterCard together processed over 171 billion transactions worldwide. In terms of debit card transactions, it recorded over 100 billion debit card transactions globally in 2020.

First ever credit card picture

Source: Time news letter

Figure 1 below presents the evolution of the size of the credit card industry in the United States from 2013 to 2023.

Figure 1. The market size of the US credit card industry
US market evolution of Credit cards industry
Source: Time news letter

Automated Teller Machines (ATMs)

John Shepherd-Barron is credited with inventing the first ATM, which was installed by Barclays Bank in London in 1967. Later, Diebold Nixdorf and NCR Corporation became the major manufacturers of ATMs in the 1980’s till date.

These ATMs provided 24/7 access to banking services, allowing customers to withdraw cash, check balances, and perform other transactions without needing to visit a bank branch. Hence enhanced convenience and reduced the need for in-person banking services. Helping in reducing queues at banks and improving transaction speed. Overall, this innovation has increased accessibility, convenience, and efficiency both for banks and for the consumers.

To speak on how much these innovations affected people, by 1990, there were around 100,000 ATMs worldwide. As of 2020, there are approximately 3.2 million ATMs globally. The global ATM market was valued at around $18.4 billion in 2019.

First ever ATM picture

Source: Time news letter

Figure 2 below presents the evolution of the globally installed of ATM bases in the period of 2009 to 2020.

Figure 2. ATM global evolution

Source: Time news letter

Telephone Banking

Midland Bank (now part of HSBC) launched the first telephone banking service in the UK in 1989. HSBC pioneered telephone banking services and Citibank also offered telephone banking as part of its service portfolio being one of the early adopters of telephone banking. This is considered the innovation of the 1980-1990 decade.

This innovation has allowed customers to perform basic banking transactions, such as checking account balances and transferring funds, via phone. Provided a convenient alternative to visiting a bank branch, especially for those without internet access, and reduced risks associated with carrying cash or checks.

To speak on how much these innovations affected people, by the late 1990s, telephone banking was widely adopted, with millions of users globally. Despite the rise of online and mobile banking in the 21^st century, telephone banking remains a valuable service for many customers, particularly the elderly and those in rural areas. In 2019, an estimated 5% of U.S. adults still used telephone banking. And by 2000, more than 50% of U.S. banks offered telephone banking services.

First ever touch-tone telephone banking machine in 1973.
First ever telephone banking machine picture
Source: ZB Media

Figure 1 shows what the first ever telephone banking machine looked like in 1973.

Online Banking

The concept of online baking was developed by banks like Stanford Federal Credit Union, which offered the first online banking services in 1994. Bank of America was one of the early adopters of online banking and Wells Fargo Launched its first internet banking service in 1995.

This innovation has provided customers with the ability to manage their accounts, pay bills, transfer funds, and perform other banking activities from the comfort of their homes. It reduced the need for physical bank branches and made banking services more accessible.

To speak on how much these innovations affected people, by 2019, 76% of U.S. adults used online banking. The global online banking market was valued at $9.2 billion US dollars in 2019. And global online banking users are expected to reach 2.5 billion by 2024.

First ever Online banking machine in 1980.

Source: Fintech Magazine

Figure 1 shows what the first-ever Online banking machine looked like in 1980.

Conclusion

Financial innovations have profoundly transformed the way individuals and businesses interact with money. From the widespread adoption of credit cards to mobile payments these innovations have made financial services more accessible, efficient, and secure. As technology continues to advance, the financial landscape will undoubtedly see further changes, continuing to shape and improve people’s lives worldwide.

Why should I be interested in this post?

Management students, as future leaders and decision-makers, should understand financial innovations for several compelling reasons. These innovations not only influence the financial landscape but also have significant implications for strategic decision-making, operational efficiency, and competitive advantage.

Useful resources

Wikipedia Financial Innovations

Fintech Magazine Online Banking 1973 – History of Computers

ZB Media Technology in Fintech and the story of Online Banking

Research gate The emergence of financial innovation and its governance – a historical literature review

Axis bank Credit card: A cashless surge

Allied market research Mobile Payment Market Expected to Reach $12.06 Trillion by 2027

Cambridge University Press Banking and Finance in the Twentieth Century

About the author

The article was written in July 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Posted in Contributors | Leave a comment

The Yield Curve

Posted on July 11, 2024 by Ziqian ZONG

The Yield Curve

In this article, Ziqian ZONG (ESSEC Business School, Global BBA exchange, 2024) presents a comprehensive overview of the yield curve and its importance in bond markets. The article also explores the different types of Treasury securities and the various term structures of yield curves.

This article is structured as follows: we start with an introduction to the concept of the yield curve. Then, we discuss the types of Treasury securities and the different term structures of yield curves. Next, we delve into the reasons for different yield spreads and the importance of the yield curve. Finally, we explain the phenomenon of the inverted yield curve and its implications.

Introduction

The yield curve is a fundamental concept in bond markets that depicts the relationship between interest rates (or yields) and different maturities of debt securities, typically government bonds. It is a powerful tool for analyzing the economic outlook, making investment decisions, and pricing bonds.

The type of the yield curve

The term structure of the yield curve shows the yields of bonds with equal credit quality but different maturity dates. It provides a snapshot of how interest rates vary over short, medium, and long-term maturities. For example, there is a yield curve for the securities issued by the government in each country. In the United States, Treasury securities, issued by the U.S. Department of the Treasury, are called according to their maturity: Treasury bills, Treasury notes, and Treasury bonds.

Treasury Bills (T-Bills)

Treasury bills (T-Bills) are short-term securities with maturities of one year or less. They do not pay periodic interest; instead, they are sold at a discount from their face value, and the interest earned is the difference between the purchase price and the face value paid at maturity. T-Bills are primarily used for short-term government financing needs and generally offer lower yields due to their shorter maturities and lower risk of interest rate fluctuations.

Treasury Notes (T-Notes)

Treasury notes (T-Notes) are medium-term securities with maturities ranging from two to ten years. They pay semi-annual interest at a fixed rate and return the face value at maturity. T-Notes are used for intermediate-term government financing and typically offer higher yields than T-Bills, reflecting the increased risk associated with a longer investment period.

Treasury Bonds (T-Bonds)

Treasury bonds (T-Bonds) are long-term securities with maturities exceeding ten years, often up to 30 years. They also pay semi-annual interest at a fixed rate and return the face value at maturity. T-Bonds are utilized for long-term government financing and offer the highest yields among the three types of Treasury securities, compensating investors for the longer maturity and greater interest rate risk.

Figure 1 below gives the yield curve for the Treasuries in the United States on June 28, 2024.

Yield curve for US Treasuries (28/06/2024)

Source: U.S. Department of Treasury

You can download below the Excel file for the data used to build the figure for the yield curve for US Treasuries.

Different types of yield curves

Normal Yield Curve

This upward-sloping curve indicates that longer-term bonds have higher yields to maturity (YTM) than shorter-term bonds. This shape reflects expectations of rising interest rates and economic growth, as investors demand higher returns for locking in their money over a longer period.

Inverted Yield Curve

This downward-sloping curve occurs when shorter-term bonds have higher YTM than longer-term bonds. This unusual situation often signals an impending economic recession, as investors expect future interest rates to decline.

Flat Yield Curve

When YTM across various maturities are similar, it suggests economic uncertainty, with no clear direction for future interest rates. Investors are indifferent to holding bonds of different maturities, reflecting mixed signals about future economic conditions.

Hump-Shaped Yield Curve

This curve shows higher YTM for medium-term bonds compared to both short-term and long-term bonds. This shape, often referred to as a “hump,” can indicate specific market conditions, such as expectations of moderate economic growth or short-term inflation pressures. This leads to increased demand for intermediate-term securities like T-Notes, pushing up their yields relative to both short-term and long-term bonds.

Figure 2 below gives different types of yield curves.

Types of yield curves

Source: Ziqian ZONG

You can download below the Excel file used to build the figure for the different types of yield curve.

Reasons for different yield spreads

Market expectations of future interest rates play a crucial role in shaping the yield curve. The link between spot rates (current interest rates for immediate borrowing or lending) and forward rates (expected future interest rates) is essential in this analysis. In a two-period model, for example, the yield on a two-year bond can be seen as a combination of the yield on a one-year bond today and the expected yield on a one-year bond one year from now. This relationship helps investors infer the market’s expectations of future rates from the current yield curve.

The term premium, which compensates investors for the risk associated with holding longer-term securities, also plays a crucial role in shaping the yield curve. Changes in risk aversion and market uncertainty can lead to fluctuations in the term premium, which in turn can affect the slope of the yield curve independently of monetary policy actions. When investors perceive higher risks, they demand a higher term premium, causing long-term yields to rise relative to short-term yields. Conversely, when market uncertainty decreases, the term premium declines, potentially flattening or inverting the yield curve even if central bank policies remain unchanged.

Importance of the Yield Curve

The yield curve serves as a crucial barometer for various aspects of the financial markets, providing insights into economic conditions, guiding investment decisions, and informing monetary policy.

The shape of the yield curve is a widely recognized predictor of economic growth or recession. Historically, an inverted yield curve, where short-term yields exceed long-term yields, has often preceded economic recessions. For example, prior to the 2008 financial crisis, the yield curve inverted in late 2006 and early 2007, signaling the forthcoming downturn. However, it’s important to note exceptions, such as the 1966 and 1998 inversions, which did not lead to immediate recessions, illustrating that while the yield curve is a powerful tool, it is not infallible.

Investors closely monitor the yield curve to determine the relative attractiveness of short-term versus long-term investments. A steep yield curve, where long-term yields are significantly higher than short-term yields, suggests expectations of economic growth and inflation, encouraging investment in long-term bonds. Conversely, a flat or inverted yield curve might indicate economic uncertainty or a potential recession, prompting investors to favor shorter-term securities. For instance, during the late 1990s dot-com bubble, the yield curve flattened, signaling caution and influencing investment strategies towards shorter maturities.

Central banks, such as the Federal Reserve, scrutinize the yield curve to gauge the impact and effectiveness of their monetary policies. A steepening yield curve often signals that monetary easing, such as lowering interest rates, may be warranted to stimulate economic growth. Conversely, a flattening or inverted yield curve can indicate that monetary tightening is needed to curb inflation. For example, in the early 1980s, the Federal Reserve, under Chairman Paul Volcker, aggressively raised short-term interest rates to combat inflation, leading to a significant inversion of the yield curve.

The Inverted Yield Curve

An inverted yield curve is a financial phenomenon where short-term interest rates surpass long-term rates. An inversion of this curve is seen as an anomaly and is closely monitored by economists and investors for its historical role as a predictor of economic recessions.

Common Indicators to Measure Yield Curve Inversion

10-Year Treasury Note vs. 1-Year Treasury Note is one of the most commonly used indicators to measure the yield curve. It compares the yield on the 10-year U.S. Treasury note with the yield on the 1-year U.S. Treasury note.

Reasons for Inversion

Monetary Policy: When central banks raise short-term interest rates to combat inflation, it can lead to an inverted yield curve.
Economic Expectations: Investors may expect slower economic growth or a recession, leading them to prefer long-term bonds for their perceived safety, driving down long-term yields.

Why should I be interested in this post?

Understanding the yield curve is essential for analyzing economic conditions, making informed investment decisions, and understanding market expectations. This article provides valuable insights into how interest rates affect the bond market and the broader economy, offering practical knowledge for anyone involved in finance or investment.

Useful resources

Academic resources

Fabozzi, F.J., & Mann, S.V. (2012) Appendix 2: Yield Curves. In The Handbook of Fixed Income Securities (8th ed.). Wiley.

Business resources

U.S. Department of the Treasury. Interest Rate Statistics.

About the author

The article was written in July 2024 by Ziqian ZONG (ESSEC Business School, Global BBA exchange, 2024).

Posted in Contributors | Leave a comment

The environmental impact of cocoa

Posted on July 10, 2024 by Mathis DIALLO

The environmental impact of cocoa

In this article, Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026) explains what the environmental repercussions of the production and supply of cocoa are.

Introduction

The carbon footprint is an which measures the anthropogenic greenhouse gas emissions, i.e. a measure of the emissions that can be attributed to that human activity. Unfortunately, chocolate produces a lot of green gas emissions. Growing and harvesting cocoa, making chocolate, transportation, packaging: each stage of production produces greenhouse gases.

Figure 1 gives the process flowchart for cocoa production designed by Sucden (a French trading company specializing in soft commodities and mainly in sugar).

Process flowchart for cocoa production

Source: Sucden.

Global cocoa production therefore has a significant environmental impact. However, chocolate can also influence the climate and deforestation. Indeed, the manufacture of this product has a negative impact on the environment. Certain prints also have an impact on cocoa plantations.

Cocoa’s carbon footprint

It seems fair to say that chocolate’s carbon footprint is far from acceptable. A kilo of chocolate has a carbon footprint of around 13.7kg of CO² (data from the Agribalyse database). The two factors that will influence the increase or decrease of this figure are either the type of chocolate, or its impact on deforestation. It means that some types of chocolates may need more transformation than others, which implies that there will be more chances to require some other products which have some influence in the green gas emissions.

Cocoa production is responsible for 70% of chocolate’s CO² emissions. All subsequent stages are included in the remaining 30%: processing from cocoa to packaging, addition of other foods and transport to the point of sale.

Most cocoa is grown using conventional agricultural methods such as pesticides, machinery and fertilizers. These processes are energy-intensive and directly produce greenhouse gases, with the result that agriculture currently accounts for around 20% of global emissions.

In the case of cocoa beans, there are also processing steps. The cocoa beans are first ground into cocoa powder, then the other ingredients are added:

Cocoa per kilo consumes more greenhouse gases than cow’s milk for milk chocolate or white chocolate, mainly due to the methane associated with livestock farming.
Sugar, palm oil (also responsible for deforestation), preservatives, etc. all contribute to the carbon footprint of chocolate.

The carbon footprint of chocolate is further increased by transport, as cocoa is grown only in countries located around the equator.

The current environmental problems of deforestation caused by cocoa

We have cleared areas of primary forest in Côte d’Ivoire to grow more cocoa. This country, which used to export the most cocoa in the world, has destroyed 90% of its forests in 60 years!

The primary cause of deforestation in West Africa is cocoa farming, which accounts for 70% of the world’s cocoa production.

Since 1960, Côte d’Ivoire has lost 90% of its afforestation. If the trend does not change, the entire Ivorian forest will disappear by 2034, according to some ecologists.

So, given all these problems linked to the production and delivery of cocoa to our market, it’s understandable that some people are reacting. For many specialists, chocolate is the symbol of our globalized system, which he does not hesitate to criticize: “The international cocoa-chocolate market today is the portrait of a capitalism at the end of its rope, locked in its own contradictions: the enormous amount of money invested and mobilized to maintain the levels of production and consumption necessary for the survival of the model completely paralyzes action and innovation”, he explains, painting a rather bitter picture of today’s market.

A glimmer of hope for the future

Even if the market seems to be ticking a lot of the wrong boxes, some people are still trying to change things.

In December 2022, a new European regulation was introduced to prevent the import of products derived from deforestation (the European Union (EU) deforestation-free regulation (EUDR)). . This applies to products such as coffee, cocoa, rubber and palm oil.

By requiring the companies concerned to guarantee that the products they export involve zero or negligible risk of deforestation, these regulations will certainly help the cocoa sector to become more responsible in the future, to the benefit of both producers and our planet.

Why should I be interested in this post?

Thus, we can see how much the process of production of cocoa a significant impact in our environment may have, be it with deforestation, but also with the process of supply chain itself.

▶ Mathis DIALLO The cocoa production

▶ Mathis DIALLO The price of cocoa

▶ Mathis DIALLO Different types of chocolate

▶ Mathis DIALLO The Armarajo hedge fund’s corner in the cocoa market in 2010

Useful resources

Anna Gardner (07/05/2022) The Cocoa Industry: Its Environmental Impacts ClimaTalk

Sucden Products and activities – Cocoa

About the author

The article was written in July 2024 by Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026).

Posted in Contributors | Tagged Cocoa, Commodity | Leave a comment

The cocoa production

Posted on July 10, 2024 by Mathis DIALLO

The cocoa production

In this article, Mathis DIALLO ((ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026) explains all the process of the cocoa production (cocoa grinding, types of cocoa).

Introduction

Despite a fairly complex process, cocoa production has continued to increase since the 1980s. In the early 2000s, the cocoa-producing countries as a whole were already producing around 2.9 million tonnes of cocoa.

Between 2000 and 2010, cocoa production even increased by 40%, reaching 4 million tonnes in 2010.

A very old crop

The first links between cocoa and mankind date back a very long time. At that time, cocoa was not cultivated intensively; cocoa trees grew naturally in tropical countries. Indigenous populations used to pick the fruits of the cocoa tree to eat the mucilage that surrounds the cocoa beans. It wasn’t until the pre-Columbian era that the Mayans and Aztecs began to process cocoa beans into cocoa paste, mixing it with other ingredients to make a chocolate drink, the ancestor of our hot chocolate!

Types of cocoa and origins

There are three main types of cocoa: trinitario, forastero and criollo.

However, they are not found in equal quantities around the world.

Criollo accounts for only 5% of world production. Its distinctive features are a light-coloured bean and a fruity, slightly acidic flavour, giving it the ability to produce a fairly fine chocolate. Its rarity makes it a much sought-after chocolate.

Forastero, on the other hand, is the type of cocoa most commonly found in nature, accounting for 80% of the world’s production. It has an earthy, woody flavour, and is used to make chocolate with an intense taste.

Finally, the trinitario, which accounts for around 15% of world production, is in fact a cross between the last two mentioned above. It has a fairly fruity taste with earthy undertones, which is why it is so popular with the general public.

These types of cocoa are mainly found in countries such as Ghana and Côte d’Ivoire, which are now the world’s leading cocoa producers.

The grinding process

Cocoa grinding is an essential stage in the chocolate-making process. It is the process of grinding roasted cocoa beans to produce chocolate liquor, which forms the basis of all chocolate products. Cocoa grinding may seem simple, but it is a complex process that requires specialised equipment and expertise.

Cocoa is ground in several stages: roasting, grinding and refining the cocoa beans. The duration of this process varies from a few hours to several days, depending on the equipment and the desired final product.

Roasting the cocoa beans is the first stage in the cocoa-grinding process. By removing excess moisture, the natural flavours and aromas of the cocoa beans are brought out through roasting. The beans are generally roasted for 10-30 minutes at a temperature of 120 to 140°C.

Once the beans have been roasted, they are cooled and ground to obtain cocoa nibs. The beans are then crushed to obtain a fine cocoa paste, known as chocolate liquor or cocoa liquor. Grinding takes several hours and involves the use of specialised equipment such as blade grinders, paddle grinders and conical stones.

The chocolate liquor is then refined to reduce the granulometry and give the chocolate more texture. Refining involves passing the chocolate liquor through a series of rollers that crush the particles to make them finer. This process can take several hours and involves specialised equipment such as chocolate refiners.

Conching is the final stage in the cocoa grinding process and involves continuously mixing and kneading the chocolate liquor at a controlled temperature. Conching improves the flavour and aroma of the chocolate, as well as its texture and mouthfeel. This phase varies from a few hours to several days depending on the final product desired.

Conclusion

In conclusion, despite a fairly complex process, cocoa production has continued to increase since the 1980s. In the early 2000s, the cocoa-producing countries as a whole were already producing around 2.9 million tonnes of cocoa.

Between 2000 and 2010, cocoa production even increased by 40%, reaching 4 million tonnes in 2010.

Today, production stands at around 5 million tonnes.

Why should I be interested in this post?

Understanding cocoa production is crucial to appreciating its economic, environmental and social impacts, as well as encouraging sustainable and ethical farming practices.

▶ Mathis DIALLO The environmental impact of cocoa

▶ Mathis DIALLO The price of cocoa

▶ Mathis DIALLO Different types of chocolate

▶ Mathis DIALLO The Armarajo hedge fund’s corner in the cocoa market in 2010

Useful resources

International Cocoa Organization (ICCO) Summary of the process of transforming cocoa beans into chocolate

European Cocoa Association (ECA) Cocoa Story: The production process – from cocoa beans to semi finished products

About the author

The article was written in July 2024 by Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026).

Posted in Contributors | Tagged Cocoa, Commodity | Leave a comment

The price of cocoa

Posted on July 10, 2024 by Mathis DIALLO

The price of cocoa

In this article, Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026) explains why the price of cocoa may vary so much.

For a long time, the price of cocoa and the fluctuation of its price within the financial markets has been the result of a combination of factors, such as weather conditions (whether favourable or unfavourable), diseases affecting crops (they are not always present, may re-emerge at certain times), etc.

This situation has always raised concerns about the future viability of the cocoa industry and highlights the importance of sustainability and resilience in the global chocolate supply chain.

Evolution of cocoa price.

Source: Trading Economics.

Evolution of the cocoa market price : the drivers of the supply and demand for cocoa

Let’s start with the weather:

The major cocoa-producing regions, such as Côte d’Ivoire and Ghana, are confronted with often unpredictable weather conditions, including droughts and climatic accidents. It is clear that these phenomena can contribute to a reduction in production and therefore to a drop in supply on the world market.

In addition to difficult weather conditions, cocoa crops are also affected by diseases such as the swollen shoot virus. These diseases weaken crops and further reduce the production of cocoa beans for processing.

It’s important to remember that the world’s cocoa production is heavily concentrated in West Africa, particularly Côte d’Ivoire and Ghana. The slightest problem affecting these regions will have a real effect on world cocoa supply and therefore on market price volatility.

The role of speculation

Speculative funds can sometimes fuel price rises, with the latest financial crisis prompting hedge funds to position themselves on the commodities markets. The cocoa side of the NYSE or City is even more susceptible to speculation. Whether there is a shortage or a surplus, speculation is based on the actual causes of the physical market, but exaggerates the trends. In 2017, an overproduction of just 200,000 tonnes caused a 30% fall in the market price, leading to a speculative spiral. Today, the rise in speculation is at the root of this all-time record for cocoa prices. In recent months, financial operators have invested a record 8.7 billion dollars on the New York and London stock exchanges to speculate on a rise in cocoa prices.

So hedge funds are not directly responsible for the increase. They are based primarily on actual causes. Despite their massive injections of liquidity, the market no longer reflects the physical realities of cocoa.

Recent market development (2023-2024)

Figure 2 represents the evolution of the price of cocoa from 2023 to 2024 (USD/T).

Figure 2. Evolution of cocoa price (1923-2024).

Source: Trading Economics.

Background: The last record price was set in 1977 at $5,300 per tonne. It was broken in February 2024. Barely two months later, and defying all projections, the price of cocoa doubled to $10,600 per tonne on 15 April 2024. The following week, it reached $11,479. In one year, the price of cocoa has risen by 268%.

Explanation:

With Easter approaching, a time of year when people consume much more chocolate than usual (buying chocolate eggs), the price of cocoa is hitting record highs on the international market. The price of cocoa has just passed the 6,000 dollars a tonne mark, a rise unprecedented since 1977.

Worse still, on 27 March 2024, the price of a tonne of cocoa exceeded 10,000 dollars a tonne. This was unprecedented for the raw material of chocolate, to the point where Bloomberg noted that the cocoa bean was overtaking Nvidia at that point.

This is the third year in a row that the market has been in deficit, with harvests in West Africa down due to the vagaries of the weather, strong demand and speculation.

The gap between supply and demand is expected to rise to around 430,000 tonnes of cocoa in 2024 (around 8% of normal world production). It is therefore impossible for there to be enough for everyone at the end of the year, and some populations are likely to experience shortages of this product.

But a few weeks later, the price of cocoa ended up declining, and not without reason: 1) renewed rainfall in Nigeria led to a significant increase in production; 2) the Intercontinental Exchange (the main cocoa market) raised the margin on contracts, making it more difficult to find buyers or sellers on the market.

Recent events have largely confirmed the volatility of this type of product on the international financial markets, which is far too dependent on environmental hazards, the number of players on the market and financial market speculation.

Why should I be interested in this post?

It shows how much volatile may the market of raw materials be and enables us to understand better about the fluctuations of price of cocoa.

▶ Mathis DIALLO The environmental impact of cocoa

▶ Mathis DIALLO The cocoa production

▶ Mathis DIALLO Different types of chocolate

▶ Mathis DIALLO The Armarajo hedge fund’s corner in the cocoa market in 2010

Useful resources

Trading Economics Cocoa

International Cocoa Organization (ICCO) Cocoa Market Report for March 2024

World Wide Chocolate Cocoa Cost Soars to Historic High – Why is Cocoa’s Cost Rising? | April 20244

About the author

The article was written in July 2024 by Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026).

Posted in Contributors | Tagged Cocoa, Commodity | Leave a comment

Different types of chocolate

Posted on July 10, 2024 by Mathis DIALLO

Different types of chocolate

In this article, Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026) explains about the different types of chocolate.

Introduction

There are many different types of chocolate. Chocolate can be classified into different categories according to its colour, composition, uses, taste, price, etc. Nevertheless, the names of many products are subject to strict regulations, whatever its type or form (paste, bar, confectionery, etc.). For instance, it must contain at least 35% cocoa beans inside (according to the international standards).

Varieties of chocolate

Dark chocolate

The first chocolate to come to mind is often dark chocolate. The designation of dark chocolate is regulated. Chocolate must contain at least 35% cocoa beans to be considered chocolate.

Legislation requires a cocoa concentration of at least 43%, including 26% cocoa butter and 14% cocoa, to qualify as fine or superior dark chocolate. The terroir of the cocoa has a considerable influence on the flavour of dark chocolate. Dark chocolate lovers look for its sometimes bitter, intense and deep flavour.

It is possible to create different dark chocolates that are more or less intense or bitter by adding sugar or flavourings. Master chocolatiers can be creative and create innovative dark chocolates by adding other ingredients such as candied or dried fruit, for example, although the chocolate must have a minimum percentage to be considered a dark chocolate.

Milk chocolate, known as tasty and smooth

Taste is the first thing that distinguishes milk chocolate from dark chocolate. Milk chocolate is appreciated not only by children but also by adults because it is sweeter and less bitter than dark chocolate.

Milk chocolate is made up of :

At least 30% dry, fat-free cocoa.
At least 18% milk.
25% fat, including cocoa butter.
At least 3.5% milk fat.

This type of chocolate can be found in the form of tasting products or ingredients for pastries. It is particularly interesting for creating gourmet desserts, especially at Christmas and Easter, because of its cocoa milk flavour.

White chocolate, a must for pastry chefs

White chocolate is often less appreciated because it seems to be a more neutral chocolate. Its white colour is due to the fact that it contains no dry cocoa, which distinguishes it from other types of chocolate. It is ideal for pastries because of its neutral taste, which goes well with red fruits such as lemon, vanilla or coconut.

White chocolate is made up of :

At least 20% cocoa butter
About 60% sugar
At least 14% of milk

Cocoa butter is generally deodorised before being used to make chocolate.

In pastry-making, white chocolate is a precious ally. Cocoa butter captures flavours and can be used in a variety of flavours. It is widely used to make the insides of macaroons.

Blond chocolate

Pastry chef Frédéric Bau created blond chocolate, also known as ‘Dulcey’ chocolate because of its golden colour. According to the story, after melting white chocolate in a bain-marie, he forgot to turn off the heat. The chocolate was left to cook in this way for fifteen hours. The recipe has been refined since this discovery. To create Dulcey chocolate, the chef gently mixes cocoa beans with sugar and milk and cooks the mixture at a temperature of between 93 and 135 degrees Celsius.

Filled chocolate, tasty and delicious

Filled chocolate is a distinct type of chocolate because it is made from different types of chocolate, such as dark, white or milk. Filled chocolate is a type of chocolate with a chocolate exterior. This outer part can be made with any type of chocolate. To qualify as filled chocolate, the chocolate must represent at least 25% of the total weight of the product. When it comes to fillings, there is a wide variety to choose from: liqueur, ganache, candied fruit, dried fruit, marzipan, etc.

Eating chocolate

Chocolate can be eaten in a variety of ways: in bars, in sweets, simply as a snack, in powder form or as butter. For example, when cocoa powder is mixed with sugar, it becomes chocolate powder, which is often used to make hot drinks. Cocoa butter is used in cooking to add fondant, shine and fluidity to chocolate, among other functions. Once crystallised, it is also responsible for the brittleness and crunchiness of a bar. Finally, when it comes to tasting, it’s intriguing to know that chocolate can be enjoyed in combination with other foods. Chocolate can be stored at temperatures below 18 degrees Celsius and is delicious at 20 to 22 degrees Celsius.

Why should I be interested in this post?

This post could help people to make informed consumer choices and to promote the diversity and quality of chocolate.

▶ Mathis DIALLO The environmental impact of cocoa

▶ Mathis DIALLO The cocoa production

▶ Mathis DIALLO The price of cocoa

▶ Mathis DIALLO The Armarajo hedge fund’s corner in the cocoa market in 2010

Useful resources

Investment Corporation of Dubai (ICD)

About the author

The article was written in July 2024 by Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026).

Posted in Contributors | Tagged Cocoa, Commodity | Leave a comment

The Armarajo hedge fund’s corner in the cocoa market in 2010

Posted on July 10, 2024 by Mathis DIALLO

The Armarajo hedge fund’s corner in the cocoa market in 2010

In this article, Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026) explains the story of the hedge fund’s corner in the cocoa market created by Anthony Ward in the 2010’s, and its repercussions.

Speculative funds can sometimes fuel price rises, with the last financial crisis prompting hedge funds to position themselves on the commodities markets. The cocoa side of famour markets such as the NYSE or the City is even more susceptible to speculation. Whether there is a shortage or a surplus, speculation is based on the actual form of the market but exaggerates the trends.

Anthony Ward
Logo of Angie
Source: The Guardian.

The financial operation of the British hedge fund Armajaro

In this way, it is easy to understand that speculation on commodities can reach excessive proportions that could have harmful repercussions on the market. The latest example of this is the purchase in 2010 by the British hedge fund Armajaro of almost 240,100 tonnes of cocoa on the London market of NYSE Liffe. This is equivalent to 7% of world production, or 15% of global stocks.

The aim of this manoeuvre was to dry up the world cocoa market and reduce the supply of cocoa beans in order to drive up cocoa prices, much to the chagrin of chocolate consumers. This action was to take on its full meaning when set against the fall in supply from the world’s two largest cocoa producers, Ghana and Côte d’Ivoire, as well as increased consumption from the emerging countries.

But buying up almost all European stocks in one fell swoop was bound to have consequences, and the action alone caused prices to soar. In fact, shortly after the hedge fund’s operation, the market price per tonne rose to £2,725 (in 2010, equivalent to €3,247), the highest level since 1977, according to Business Insider.

By way of comparison, all those tonnes of cocoa would fill around 160 Olympic-size swimming pools with chocolate beans, which is obviously an aberration.

Faced with these unprecedented dynamics, it was hardly surprising that small manufacturers feared that Armajaro, with its huge stock, would set prices as it saw fit. A week after this financial coup, they launched a petition denouncing price manipulation by the trader.

The high-risk corner strategy

This strategy, which aims to attack the market head-on, is known as the ‘corner strategy’. This was not Anthony Ward’s first attempt at such a strategy. Less than a decade earlier, in 2002, he had already undertaken the same type of action on the commodities market, making huge profits in the process. At the time, however, the banks had no hesitation whatsoever in financing its activities. On the contrary, they financed these activities with complacency, a symbol of a particularly marked affairism at the time, showing the role of speculation within the commodities market.

However, these operations do not always produce winners, precisely because they are risky enough and the promise of future profits is not always there. This is somewhat the case here. In fact, the poor performance of the agricultural commodities market – and therefore of cocoa at the same time – initially made the fund heavily loss-making. Then, over the years, prompted by cases of manipulation of certain prices (aluminium in particular), new regulations were introduced by financial bodies to ensure greater transparency in transactions linked to the purchase of raw materials.

It was against a backdrop of intensifying regulation of this market, and also pushed into a corner by certain non-governmental organisations seeking to stand in the way of these speculators, that the man known as the Chocolate Finger finally withdrew his trading activity from this market just three years later in 2013. Eventually, the trader got rid of his cocoa, coffee and sugar trading arm.

Divesting his cocoa, coffee and sugar trading arm was a major turning point for him at the time, as three years earlier he was extolling the virtues of commodities trading. Since then, this activity has become Armajaro’s ball and chain, with a net loss of 10.3 million dollars in 2012 compared with profits of 24.3 a year earlier. That was the end of the empire.

Why should I be interested in this post?

Is is interesting because the massive purchase of cocoa by the Armajaro fund in 2010 has caused prices to soar, illustrating very well the impact of some speculative strategies on commodity markets and sparking debate on financial regulation. It has also affected a lot producers‘incomes and consumers’ costs.

▶ Mathis DIALLO The environmental impact of cocoa

▶ Mathis DIALLO The cocoa production

▶ Mathis DIALLO The price of cocoa

▶ Mathis DIALLO Different types of chocolate

Useful resources

Quite interesting article from the New-York Times in 2010, explaining the links between this operation and the fact that prices went up at this time:

New York Times Trader’s Cocoa Binge Wraps Up Chocolate Market

Very good article from the French newspaper Le Monde, which deals about the successes and the bad aspects of that kind of operation:

Marc Roche (12/11/2013) Le plus célèbre spéculateur du cacao rend son tablier Le Monde.

About the author

The article was written in July 2024 by Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026).

Posted in Contributors | Tagged Cocoa, Commodity | Leave a comment

Exploring the SARR Fund: A New Approach to Innovative Corporate Financing

Posted on July 9, 2024 by Gilles de MALBOSC

Exploring the SARR Fund: A New Approach to Innovative Corporate Financing

In this article, Gilles de MALBOSC (Manager of the SARR fund and CIO at Harmony Family Office) explores a new approach to innovative corporate financing : the Stable and Recurring Revenue (SARR) Fund.

Exploring the SARR Fund: A New Approach to Innovative Financing

In the ever-evolving landscape of financial investments, the SARR Fund stands out as a pioneering solution for growing enterprises. This fund is designed to provide innovative financing options that cater to companies with stable and recurring revenue models. Here’s a closer look at what makes SARR Fund a unique investment opportunity.

Introduction to SARR Fund

SARR stands for Stable and Recurring Revenue. The SARR Fund is a private fund that aims to invest a minimum of 95% of its total assets in private subscription investments. Unlike traditional investment vehicles, SARR focuses on purchasing future revenues from companies, offering them a financing method that doesn’t rely on real estate or personal guarantees. This approach allows companies to secure funding quickly, without diluting ownership or adversely affecting their debt ratios.

Why SARR Fund?

SARR both finances real-life growing companies in an entrepreneur friendly fashion, and it leverages technology like no other fund :

Innovative Financing Solutions

SARR helps entrepreneurs.

Quick Financing: Companies can receive financing within 48 hours, which is crucial for businesses needing rapid capital to seize growth opportunities.
Non-Dilutive Capital: By selling future revenues instead of equity, companies retain full control over their operations. For entrepreneurs, it’s like being granted some debt, in 48 hours, and without impacting their debt-ratio
Data-Driven Decisions: Financing decisions are based purely on data, ensuring fairness and transparency regardless of the entrepreneur’s background. Because SARR relies on “clean” data since it’s provided by trusted third parties

Timing and Technology

The fund leverages two modern concepts to provide its innovative solutions:

Open Banking: This technology gives investors comprehensive insights into companies’ financial health, enhancing the accuracy of risk assessments. This allows them to make decisions based on data that comes directly from 3 trusted third parties: the bank, the accountant and the subscription manager
XaaS Model: Companies operating on a subscription-based model offer predictable and stable revenue streams, making them ideal candidates for the fund.

How Does SARR Fund Work?

A typical transaction involves a company, such as a growing CRM software provider, seeking additional funding to expand its product offerings. The step-by-step process is described below:

Marketplace Registration: The company registers on a fintech marketplace, which evaluates their financial data to determine a trading limit and risk profile.
Funding Request: The company submits a funding request based on their trading limit.
Revenue Sale: SARR Fund purchases a portion of the company’s future recurring revenue at a discount, providing the necessary capital upfront.
Revenue Collection: The fund collects the full value of the purchased revenue in monthly installments over the next 12 months.

Process of a transaction.

Source: The company.

Benefits for Investors

Investing in the SARR fund presents the following Benefits for Investors: Low Risk and High Stability, Performance and Security.

Low Risk and High Stability

Senior Repayment Position: SARR Fund is positioned ahead of most senior lenders, reducing the risk of default.
Diversification: The fund invests in more than 100 companies, ensuring that no single investment exceeds 2% of the total Asset under Management (AUM).
Monthly Liquidity: Investors have access to 7.5% of the fund’s total AUM each month, providing a level of liquidity uncommon in similar investment vehicles.

Performance and Security

Collateral: Investments are secured by collateral from the outset, and covenants are in place to protect the principal.
Consistent Returns: The fund aims for positive performance each month, leveraging the stability of recurring revenue models.

Target Audience

The SARR Fund is suitable for a wide range of investors, including company treasurers, family offices, business angels, financial advisors, and high net worth individuals. Its structure and risk management strategies make it appealing even to conservative investors seeking stable returns with low volatility.

Conclusion

The SARR Fund represents a significant innovation in the field of private equity and venture financing. By focusing on stable and recurring revenue streams, it offers a low-risk, high-stability investment option that benefits both investors and growing enterprises. This unique approach not only provides quick and non-dilutive financing but also ensures robust returns for investors through meticulous data-driven decision-making and strategic partnerships with leading fintech platforms.

For more detailed information on the SARR Fund, prospective investors are encouraged to review the fund’s prospectus and consult with financial advisors to understand the full scope of benefits and risks associated with this innovative investment vehicle.

Useful resources

The Future of Data-Driven Finance and RegTech: Lessons from EU Big Bang II European Banking Institute Working Paper Series 2019/35

From FinTech to TechFin: The Regulatory Challenges of Data-Driven Finance

New York University Journal of Law and Business, Forthcoming European Banking Institute Working Paper Series 2017 – No. 6

Risk-based Investment Management in Practice (Global Financial Markets), by Frances Cowell

Banks and the real economy: An assessment of the research, Allen N. Berger, Phil Molyneux, John O.S. Wilson

About the author

The article was written in July 2024 by Gilles de MALBOSC (Manager of the SARR fund and CIO at Harmony Family Office).

Posted in Contributors, Financial techniques | Tagged SARR | Leave a comment

Top 5 Private Equity firms in Germany

Posted on July 9, 2024 by Margaux DEVERGNE

Top 5 Private Equity firms in Germany

In this article, Margaux DEVERGNE (ESSEC Business School, Global BBA, 2020-2024) presents the top 5 Private Equity Firms in Germany.

Introduction

Germany is home to some of the largest and most influential private equity firms in Europe. These firms manage billions of euros in assets and invest in high-growth potential companies through buyouts, growth financing, and turnarounds. Key players in the German private equity landscape include international heavyweights such as Permira, Cinven, and EQT, alongside German-origin firms like Triton and Advent International. With strategically located offices in cities such as Frankfurt, Munich, and Berlin, these firms are well-positioned to identify and finance premier investment opportunities in one of Europe’s most dynamic and innovative markets.

Methodology

To define the top five private equity firms in Germany, several criteria and financial metrics are typically considered: Assets Under Management, Transaction Volume. Investment Profitability, Geographical Presence, Investment Sectors, Tenure and Reputation, and Recent Fundraising

Assets Under Management (AUM)

One of the primary criteria for evaluating the significance of a private equity firm is the size of its assets under management. AUM represents the total capital managed by the firm across its various investment funds. Higher AUM indicates greater capacity for making substantial investments.

Transaction Volume

The total volume of acquisition deals conducted by a private equity firm over a given period (typically the past 3-5 years) is a good indicator of its activity and market presence in Germany. Large-scale transactions, or mega-deals, are particularly scrutinized.

Investment Profitability

The financial performance of the funds managed by the firm is analyzed, focusing on internal rates of return (IRR) and multiples of invested capital. Firms demonstrating high IRRs on past investments are more highly valued.

Geographical Presence

A strong local presence in Germany, with offices in major cities such as Frankfurt, Munich, or Berlin, is advantageous for capitalizing on domestic investment opportunities.

Investment Sectors

Private equity firms specializing in key sectors of the German economy, such as industry, financial services, healthcare, or technology, receive higher ratings.

Tenure and Reputation

The experience, longevity, and established reputation of a private equity firm in the German market play a significant role in its ranking.

Recent Fundraising

The amount of recent funds raised by the firm, reflecting the confidence of institutional investors, is also considered.

By cross-referencing these quantitative and qualitative metrics, analysts and specialized media compile rankings of the leading private equity firms active in Germany. Although subjective, these rankings provide a comprehensive overview of the landscape and major players in the sector.

How did I get these ranking results?

To establish a ranking of the top 5 private equity firms in Germany (Permira, Cinven, EQT, Triton and Advent International), the most important criteria used were as follows:

Assets under management (AUM): EQT appears to have a dry powder of €25.28 billion, which puts it in the lead for this criterion.

Transaction volume: Triton is listed in the top 3 most active companies in Germany according to Private Equity Monitor, which suggests that its transaction volume is high.

Investment sectors: EQT stands out as having strong expertise in technology sectors, which may be an advantage given the importance of the TMT sector in Germany.

From this we obtained the 5 firms to rank:

Permira
Cinven
EQT
Triton
Advent International

To compile the ranking, we will analyze each firm using the metrics mentioned above.

Permira

Assets Under Management: Approximately €32 billion
Notable Recent Transactions: Acquisition of Siemens Logistics in 2020 (€1.1 billion), buyout of Camfil in 2022 (€4.8 billion)
Profitability: Net IRR of 22.5% on mature funds
Presence: Offices in Frankfurt, Munich, and other German cities
Key Sectors: Technology, services, consumer goods
Established: 1985

Logo of the company.
Logo of Permira
Source: The company.

Cinven

Assets Under Management: Over €30 billion
Transactions: Acquisition of Compressors Systems in 2022 (€3.9 billion)
Profitability: Gross IRR of 27% on European funds
Presence: Offices in Frankfurt and Munich
Sectors: Business services, healthcare, technology
Established: 1977

Logo of the company.
Logo of Cinven
Source: The company.

EQT

Assets Under Management: €84 billion
Transactions: Buyout of Freenet in 2022 (€1.3 billion)
Profitability: Net IRR of 24% on private equity funds
Presence: Offices in Munich, Frankfurt, and other cities
Sectors: Technology, healthcare, services, industry
Established: 1994

Logo of the company.
Logo of EQT
Source: The company.

Triton

Assets Under Management: €18.5 billion
Transactions: Acquisition of Flender in 2021 (€1.9 billion)
Profitability: Gross IRR of 32% on mature funds
Presence: Headquarters in Frankfurt, offices in Munich
Sectors: Industrial, services, consumer, healthcare
Established: 1997

Logo of the company.
Logo of Triton
Source: The company.

Advent International

Assets Under Management: $88 billion (approximately €80 billion)
Transactions: Buyout of Obier in 2022 (€1.1 billion)
Profitability: Net IRR of 22% on mature funds
Presence: Offices in Frankfurt and Munich
Sectors: Financial services, healthcare, industry, retail
Established: 1984

Logo of the company.
Logo of Advent International
Source: The company.

Conclusion

The private equity landscape in Germany is dominated by a few major players, comprising both leading international firms and well-established German companies. At the forefront of this ranking is Permira, with approximately €32 billion in assets under management, closely followed by Cinven, managing over €30 billion. The Swedish giant EQT ranks third with an impressive portfolio of €84 billion in assets.

German firm Triton, with €18.5 billion under management, and the American firm Advent International, boasting $88 billion (approximately €80 billion) in assets, round out the top five. These substantial figures underscore the financial strength of these firms, enabling them to execute significant transactions, such as EQT’s recent acquisition of Freenet for €1.3 billion.

Beyond the size of the assets managed, these private equity firms also demonstrate remarkable performance, with net internal rates of return (IRR) ranging from 22% to 32% on their mature funds. This high profitability ensures the confidence of institutional investors, allowing these firms to continue raising substantial funds and maintaining their status as key players in the German market for acquisitions and growth financing.

Why should I be interested in this post?

As a French-German ESSEC student enrolled in the SimTrade course, exploring the realm of private equity could be highly beneficial. This post offers an insightful examination of the key players in the German industry, providing valuable insights into their distinctive characteristics. It presents an opportunity to deepen your understanding of the sector and potentially identify your future employer among these influential firms.

Useful resources

Permira Company

Cinven Company

EQT Group Company

Triton Partners Company

Advent International Company

About the author

The article was written in July 2024 by Margaux DEVERGNE (ESSEC Business School, Global BBA, 2020-2024).

Posted in Contributors, Financial techniques | Leave a comment

My experience as a junior consultant in a communications agency

Posted on July 9, 2024 by Margaux DEVERGNE

My experience as a junior consultant in a communications agency

In this article, Margaux DEVERGNE (ESSEC Business School, Global BBA, 2020-2024) shares her professional experience as a trainee in Angie, a communications agency in Paris (May-August 2021).

About the company

Angie is a distinguished French communications and influence agency based in Paris, recognized for its comprehensive and innovative approach to brand communications.

Founded in 1988, Angie initially started as a press relations agency. Over the years, it has expanded its scope to provide a broad range of communications strategies and support for brands across various industries. This evolution reflects Angie’s commitment to adapting to the changing landscape of communications and influence.

Angie positions itself as a “co-influence and engagement” agency, offering an extensive array of services. These services encompass media relations, crisis management, public affairs, social media, influencer marketing, and data intelligence. Additionally, Angie excels in editorial services, including content creation, storytelling, website content, and reporting. The agency also specializes in internal communications, conducting audits, managing transformations, and producing internal magazines and newsletters. Furthermore, Angie offers expertise in corporate social responsibility (CSR) communications and business to business (B-to-B) marketing, providing content marketing, thought leadership, loyalty programs, and social selling. Their capabilities in user experience (UX) and technology, including search engine optimization (SEO) and website/app development, further enhance their service offerings.

With a team of around 60 employees (in 2020), Angie adopts an integrated approach that covers strategy, creative services, production, and execution across multiple channels (LinkedIn, Twitter, Instagram, newsletters, etc.). Angie adopts an integrated approach that covers strategy, creative services, production, and execution across multiple channels to ensure a coherent and effective campaign. This holistic methodology ensures that clients receive tailored and effective communication solutions.

Angie boasts a diverse portfolio of clients from various sectors. Well-known clients include La Poste, the French postal service, and Pôle Emploi, the French employment agency. This diverse clientele underscores Angie’s ability to cater to different industries and their unique communication needs.

As an independent communications group headquartered in Paris, Angie has expanded its capabilities by establishing subsidiaries such as Angie Edition, Angie Interactive, and 35 Mai Productions. These subsidiaries enable Angie to offer in-house content creation and production services, further solidifying its position in the market.

Although specific financial figures are not publicly available, Angie’s reputation in the French communications industry speaks volumes. The company is known for its innovative and integrated approach to brand communications and influence, establishing itself as a reputable player in the industry.

Logo of the company.
Logo of Angie
Source: Angie.

My internship

As a junior consultant trainee at Angie, I have been fully immersed in a dynamic and creative environment at the core of multidisciplinary teams. Each day, I collaborate with strategists, creatives, digital experts, and press relations officers to develop innovative 360° communication strategies for high-profile clients. My responsibilities include content curation, social media posting, weekly monitoring, newsletter writing, and performance analysis (a systematic approach used to evaluate the effectiveness and efficiency of various processes, projects, or systems within an organization). I conduct in-depth market research, analyzing online trends and conversations to uncover relevant marketing insights. Additionally, I actively contribute to the design of impactful marketing campaigns by proposing creative concepts and producing compelling editorial c (for instance newsletters, monitoring, etc…).

This internship provided me with the opportunity to develop cutting-edge expertise in the fields of influence, digital marketing, and public relations. I am gaining insights into the latest crisis management and brand communication techniques (brand messaging, visual identity, social media engagement, public relations…). Most importantly, I benefit from the personalized support of experienced consultants who generously share their expertise. Their sound advice and considerate mentoring guide me through my training at this prestigious agency. Each day presents a new opportunity to learn, grow professionally, and prepare for future challenges in this exciting sector.

My missions

As a junior consultant intern at Angie, my mission involves engaging with major business to business (B-to-B) and business to consumer (B-to-C) accounts in the luxury, lifestyle, care, and travel sectors. My responsibilities include curating high-quality content and writing tweets and LinkedIn posts for prominent companies. I am also learning to navigate and utilize the Sprinklr platform (a comprehensive customer experience management (CXM) platform designed to help businesses manage their social media presence, marketing, advertising, research, and customer service across various digital channels) effectively. Additionally, I am strengthening my skills in using X (Twitter), LinkedIn, and Canva to enhance digital communication strategies for our clients. This role allows me to contribute to the development of impactful social media content while gaining valuable experience in digital marketing and client engagement.

Required skills and knowledge

In my dynamic role as a Junior Consultant at Angie, I quickly realized the extensive range of responsibilities and the continuously evolving skill set required. Central to my role was mastering the art of communication, both written and oral. Whether crafting newsletters, coordinating with media personnel, or pitching new ideas, my goal was always to achieve clarity and resonance with the audience. It was crucial to adapt my tone and style to fit the specific audience and occasion. For example, my main clients were Orpea (a nursing home organisation) and Accor (the hotel group). Their presence on social networks is not at all the same, and neither is the target audience. For Orpea, I had to speak in such a way that families potentially interested in the services offered by Orpea could understand and appreciate the messages transmitted through the posts. On the other hand, the Accord group gave us a lot more flexibility when it came to the visual identity of the posts on social networks, because the target audience is generally young, dynamic and travel-loving.

Effective communication was not just about creating the message; it also involved measuring its impact. Here, data analytics became an invaluable tool. Metrics such as engagement rates and conversion rates provided insights into the effectiveness of our campaigns and identified areas for improvement. As the digital landscape expanded, I deepened my proficiency with tools like Sprinklr to enhance the companies’ visibility in the vast online environment.

A critical aspect of my role was crisis management. While not every day presented challenges, being prepared for them was essential. Specialized workshops in crisis communication equipped me with the knowledge and strategies to handle issues effectively, ensuring the companies’ reputations remained intact. Crisis communication is a critical aspect of public relations and organizational management that involves the strategies and practices used to manage the dissemination of information during a crisis. Effective crisis communication aims to protect and maintain an organization’s reputation, mitigate the impact of the crisis, and ensure transparent and accurate information flow to stakeholders. Key elements of crisis communication include preparedness, rapid response, consistent messaging, and empathy. By having a well-defined crisis communication plan, organizations can navigate crises more effectively, minimizing potential damage and maintaining public trust.

Understanding the essence of the concerned brands enabled me to create cohesive narratives across all communication platforms, fostering consistency and a deeper connection with the audience. The communications field is vast, with each project having its own timelines and nuances. Efficiently organizing, prioritizing, and monitoring tasks became second nature, facilitated by tools and platforms that ensured timely delivery and kept stakeholders informed.

Visual storytelling, a key component of modern communication, often involved close collaboration with graphic designers. A foundational understanding of design tools ensured that our visual campaigns aligned seamlessly with our narratives. Regular participation in industry events kept me connected and informed about the latest trends.

This journey was more than just a job; it was a continuous learning experience, keeping me up to date with best practices and evolving trends in corporate communication.

What I learned

As a junior consultant intern at Angie, a leading French communications agency, I gained invaluable hands-on experience and insights into the dynamic world of integrated marketing communications.

Strategic Planning and Execution:

I had the opportunity to participate in developing comprehensive communication strategies for high-profile clients across various industries. This involved conducting market research, analyzing consumer trends and online conversations, and translating insights into actionable plans. I learned how to craft compelling narratives, position brands effectively, and execute multi-channel campaigns seamlessly.

Content Creation and Storytelling:

Content is at the heart of modern marketing, and at Angie, I honed my skills in creating engaging content tailored for different platforms and audiences. From crafting compelling social media posts and website copy to developing thought leadership articles and multimedia assets, I learned the art of storytelling and how to captivate audiences through creative and informative content.

Digital Marketing and Analytics:

Angie’s expertise in digital marketing allowed me to gain hands-on experience with various tools and techniques. I learned about search engine optimization (SEO), pay-per-click (PPC) advertising, social media marketing, and influencer collaborations. Additionally, I developed skills in data analysis, interpreting metrics, and using insights to optimize campaigns for better performance.

Media Relations and Crisis Management:

As an integrated communications agency, Angie handles media relations and crisis management for its clients. I had the chance to observe and assist in developing press releases, organizing media events, and managing crisis situations. This experience taught me the importance of effective communication, reputation management, and maintaining a positive brand image.

Collaboration and Teamwork:

Working alongside experienced strategists, creatives, digital experts, and public relations professionals, I witnessed the power of collaboration and teamwork. I learned how to contribute effectively in a cross-functional environment, communicate ideas clearly, and leverage the diverse expertise of team members to deliver exceptional results for clients.

Overall, my internship at Angie provided me with a comprehensive understanding of the communications industry, from strategy development to execution across multiple channels. The practical experience, mentorship, and exposure to real-world projects have equipped me with valuable skills and a solid foundation for a successful career in this dynamic field.

Financial concepts related my internship

Budgeting and Cost Management

One of the critical aspects of executing successful marketing campaigns is effective budgeting and cost management. During my internship, I learned how to develop comprehensive campaign budgets, allocating resources across different channels and activities, such as content creation, media placements, influencer collaborations, and event management.

I worked closely with project managers and account executives to ensure that campaigns were delivered within the allocated budgets, while maximizing the return on investment (ROI) for clients. This involved analyzing cost estimates, negotiating with vendors, and identifying opportunities for cost optimization without compromising the campaign’s effectiveness.

Return on Marketing Investment (ROMI)

In the world of marketing and communications, it is essential to measure the effectiveness of campaigns and demonstrate their impact on business objectives. At Angie, I gained exposure to various metrics and analytical tools used to calculate the return on marketing investment (ROMI).

This concept involves evaluating the revenue generated or other business outcomes achieved because of a marketing campaign and comparing it to the total investment made in that campaign. By analyzing ROMI, clients can assess the profitability and overall success of their marketing efforts, enabling data-driven decision-making for future campaigns. During my internship, I assisted in collecting and analyzing data related to campaign performance, such as website traffic, lead generation, sales conversions, and brand awareness metrics. This data was then used to calculate ROMI and provide insights to clients on the effectiveness of their marketing strategies.

Client Profitability Analysis

As a consulting agency, Angie’s success is closely tied to the profitability of its client engagements. During my internship, I learned about the importance of client profitability analysis, which involves evaluating the revenue generated from each client against the costs associated with servicing that client.

This analysis considers various factors, such as billable hours, resource allocation, project complexity, and overhead costs. By understanding the profitability of each client relationship, the agency can make informed decisions about pricing strategies, resource allocation, and client portfolio management.

I had the opportunity to assist in compiling data and conducting profitability analyses for various client accounts. This involved tracking project expenses, monitoring resource utilization, and identifying areas for efficiency improvements or potential scope creep that could impact profitability.

By understanding these financial concepts and their application in the communications industry, I gained valuable insights into the business aspects of marketing and communications campaigns. This knowledge will be invaluable as I continue to pursue a career in this dynamic field, enabling me to contribute to the financial success of future client engagements and agency operations.

Why should I be interested in this post?

If the world of communication within the largest French companies interests you, this post is for you! Through this experience, I realized that a significant amount of work is outsourced to specialists in the field. Combining communication, marketing, and finance primarily revolves around budget allocation and return on investment (ROI). Marketing teams must justify their expenditures by demonstrating the financial impact of their campaigns on sales, market share, or brand valuation. Calculating marketing ROI allows for assessing the profitability of investments and optimizing budget allocation.

Useful resources

Angie website

Berlo, D. K. (1960). The Process of Communication: An Introduction to Theory and Practice. New York: Holt, Rinehart and Winston.

Entreprise et medias (l’Association des Directeurs et Directrices de la Communication).

Coombs, W. T. (2015). Ongoing Crisis Communication: Planning, Managing, and Responding (4th ed.). Thousand Oaks, CA: SAGE Publications.

About the author

The article was written in July 2024 by Margaux DEVERGNE (ESSEC Business School, Global BBA, 2020-2024).

Posted in Contributors, Professional experiences | Leave a comment

My experience as an apprentice student in internal audit at Atos SE, during the split of the company

Posted on July 9, 2024 by Margaux DEVERGNE

My experience as an apprentice student in internal audit at Atos SE, during the split of the company

In this article, Margaux DEVERGNE (ESSEC Business School, Global BBA, 2020-2024) shares her professional experience as a part-time student in internal audit at Atos SE, from September 2022 to December 2024.

About the company

Atos SE is a global leader in digital transformation with a rich history dating back to its founding in 1997. The company emerged from a series of mergers and acquisitions, including the merger of Axime and Sligos, which formed Atos Origin. Over the years, Atos has continued to expand its footprint through strategic acquisitions, such as the purchase of Siemens IT Solutions and Services in 2011 and the more recent acquisition of Syntel in 2018. These moves have positioned Atos as a key player in the IT services and consulting market.

Atos offers a diverse portfolio of products and services, including cloud computing, cybersecurity, high-performance computing, and digital workplace solutions. The company is also known for its contributions to the fields of big data and artificial intelligence. Atos serves a wide range of industries, including healthcare, financial services, manufacturing, and public sector organizations, providing tailored solutions to meet the specific needs of its clients.

In terms of financial performance, Atos has demonstrated steady growth. For the fiscal year 2023, Atos reported revenues of approximately €11 billion. The company’s digital, cloud, and cybersecurity services have been key drivers of this revenue. Despite facing challenges in some segments, Atos has continued to invest in innovation and expand its service offerings to capture new market opportunities.

Atos’ share price has experienced fluctuations over the years, reflecting broader market trends and company-specific developments. As of mid-2024, the share price is under pressure due to restructuring efforts and market conditions, trading around €6 per share. The company is actively working on strategic initiatives to streamline operations and enhance profitability, which could positively impact its stock performance in the future.

After a long battle with Czech billionaire Daniel Kretinsky, David Layani, founder of IT company OnePoint, has finally won the battle to take over Atos SE. The Atos Board of Directors chose Layani’s offer, supported by some of the creditors, which provides for €2.9 billion of existing Atos debt to be converted into equity, making the creditors the main shareholders with around 79% of the capital. Onepoint, Butler and Econocom will inject €175 million to take a 21% stake, while €1.5 billion of new debt will be made available to relaunch Atos’ activities. This major financial restructuring will enable Atos to get back on track after months of difficulties.

Overall, Atos SE stands out as a significant player in the global IT services market, with a strong focus on digital transformation, cloud, and cybersecurity solutions. The company’s commitment to innovation and strategic growth positions it well for future opportunities, despite current challenges.

Logo of the company.
Logo of Atos SE
Source: The company.

My Apprenticeship

Internal Audit at Atos SE plays a crucial role in continuous process improvement and risk management. This independent and objective service aims to assess and improve the effectiveness of the company’s operations, internal controls and governance. Internal auditors examine financial, operational and IT systems to ensure compliance with applicable standards and regulations. By identifying weaknesses and proposing constructive recommendations, internal audit helps to strengthen the company’s overall performance and ensure the reliability and transparency of financial reporting.

My missions

Within the Internal Audit Group, in an international and evolving context, the missions of the student in Internal Audit are based on 3 axes under the supervision of the Group’s internal control manager:

Participate in activities to strengthen internal control for all the Group’s support functions and operations, i.e.
Participate in the strategic risk management process of the company
Preparation (risk mapping) and participation in risk assessment workshops within the management committee of the geographical units.
Consolidation of results.
Assist in the deployment and strengthening of the internal control system, through initiatives such as:
Maintenance and improvement of the control framework
Participation in the Control Testing campaign to assess the maturity of internal control throughout the Group.

Required skills and knowledge

I work in a very international team, whose members were based in France, Portugal, Sweden and India. In terms of soft skills, the interpersonal aspect is crucial, because in auditing we must work with a huge number of departments to obtain the information we’re looking for. In addition, as part of a very international team, the working language is English, not French, which also requires an open mind due to the mix of different cultures. Good communication skills are essential, as is attention to detail and adaptability.

In terms of hard skills, you need to have a good command of Excel, the principles of Environmental, Social, Governance (ESG), the fundamentals of internal control, risk management and audit tools, which are specific to each company.

During my apprenticeship, I started to learn how PowerBI works (it’s a suite of data analysis and visualization tools developed by Microsoft. It enables users to connect, transform, visualize and share data interactively), which is also one of the most widely used tools for analyzing the progress of audits in real time.

What I learned

Internal audit has given me an in-depth understanding of organizational dynamics and internal control mechanisms. By systematically assessing operational processes, I have developed my knowledge of how to identify inefficiencies and risks inherent in the company’s activities. I have also strengthened my communication skills, learning to clearly articulate the conclusions and recommendations of audits to stakeholders. Exposure to various audit techniques, such as data analysis and tests of control, has enabled me to acquire analytical rigor and problem-solving skills. This experience has also improved my adaptability, enabling me to adjust effectively to the specific requirements of each assignment. Finally, an in-depth knowledge of professional standards and regulations has been essential in ensuring operational compliance and promoting a culture of continuous improvement within the organization.

Financial concepts related to my apprenticeship

Internal Controls

Internal controls are the policies, procedures, and mechanisms put in place by an organization to ensure the integrity of financial reporting, operational effectiveness, and compliance with applicable laws and regulations. As an internal audit intern at Atos SE, one of my primary responsibilities is to evaluate the design and operational effectiveness of the company’s internal control framework across various business processes and functions.

By assessing internal controls, I would help identify potential weaknesses or deficiencies that could expose the company to risks such as financial misstatements, fraud, or operational inefficiencies. This evaluation would involve testing key controls, reviewing documentation, and conducting interviews with process owners to understand the control environment.

Risk Assessment

Risk assessment is a critical component of internal auditing, as it helps identify and prioritize the areas that pose the greatest risks to the organization. At Atos SE, I’m involved in the risk assessment process, which typically involves:

Understanding the company’s risk universe and the potential impact of various risks on its operations and financial performance.
Analyzing risk factors such as changes in the regulatory environment, technological advancements, cybersecurity threats, and market conditions.
Evaluating the adequacy of existing risk management strategies and controls.
Providing recommendations for enhancing risk management practices and mitigating identified risks.

By conducting risk assessments, it contributes to the development of an effective risk-based internal audit plan, ensuring that audit resources are allocated to the areas of highest risk.

Compliance

Compliance with applicable laws, regulations, and internal policies is a crucial aspect of corporate governance and risk management. In the internal audit team, we are responsible for assessing the company’s compliance with various regulatory requirements, such as data privacy laws (e.g., GDPR), anti-corruption laws, and industry-specific regulations.

This involves reviewing the company’s compliance policies and procedures, testing the effectiveness of compliance controls, and identifying potential areas of non-compliance. Auditors are also expected to provide recommendations for strengthening the compliance program and addressing any identified deficiencies.

By ensuring compliance, the audit team help Atos SE mitigate legal and reputational risks, avoid potential fines and penalties, and maintain a strong ethical culture within the organization.

Why should I be interested in this post?

If you are currently employed at one of the Big Four accounting firms and are considering a transition to internal audit, a concise summary of my experience as a work-study student at a company specializing in cybersecurity may offer you a valuable perspective.

The primary objective of this post is to provide a clearer understanding of internal auditing from the standpoint of a work-study student who began with no prior knowledge of the field.

For those with an interest in finance, engaging in this sector through internal audit can serve as an excellent introduction. It can also pave the way for future opportunities in consultancy firms or act as a steppingstone towards roles that demand a higher level of precision, whether in internal or external audit.

Useful resources

Atos SE website

Atos SE career website

The Institue of Internal Auditors

Institut Français de l’Audit et du Contrôle Interne

Certified Internal Auditor certification

About the author

The article was written in July 2024 by Margaux DEVERGNE (ESSEC Business School, Global BBA, 2020-2024).

Posted in Contributors, Professional experiences | Leave a comment

Activists in financial markets and the corporate world

Posted on June 23, 2024 by Nithisha CHALLA

Activists in financial markets and the corporate world

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents information how individuals and groups (financial activists) use their influence as shareholders to drive strategic, operational, and governance changes within companies to improve performance, enhance shareholder value, and promote ethical practices.

Introduction

Activism in financial markets and the corporate world refers to the efforts of individuals or institutions (like hedge funds) to influence a company’s behavior. Their objectives can include changes in management, strategy, financial structure, or operational practices. Activists aim to improve company performance, enhance shareholder value, or promote social, environmental, or governance (ESG) objectives.

History

The concept of shareholder activism dates back to the early 20th century, but it gained significant momentum in the 1980s. During this period, activist investors began buying substantial shares in underperforming companies to gain control and enforce changes. For example, Paul Singer and AT&T, where Paul Singer’s Elliott Management took a $3.2 billion stake in AT&T in 2019. Over the decades, activism has evolved, with various methods and strategies being adopted to exert influence on corporate boards and top management.

Types of Activism

There are different types of activism: shareholder activism, Environmental, Social, and Governance (ESG) activism, operational activism, and proxy fights.

Shareholder Activism

Shareholder activism focuses on improving company performance and shareholder returns through changes in governance, strategy, or financial practices.

For example, in the case of Apple in 2015, Carl Icahn’s activism led to increased share buybacks and dividend payments, enhancing shareholder returns.

Environmental, Social, and Governance (ESG) Activism

Environmental, Social, and Governance (ESG) activism aims to promote sustainable and ethical practices within companies, addressing issues like climate change, labor practices, and board diversity.

The most common ESG-related litigation is based on alleged false disclosures in securities filings. Statements in proxy materials about companies’ commitment to diversity could be false and misleading because there is a lack of diversity and/or the companies fail to follow through on promises to increase diversity.

For example, the SEC reached a US$35 million settlement with a gaming company in February 2023 after the company failed to maintain disclosure controls related to workplace misconduct. This settlement came after a wave of shareholders advocated for leadership changes within the company and its board.

Operational Activism

Operational activism involves pushing for changes in the company’s operations, such as cost-cutting measures, divestitures, or restructuring.

For example, in the case of Procter & Gamble (P&G) in 2017, Nelson Peltz’s Trian Partners waged a successful campaign for board representation, leading to significant cost-cutting and strategic refocus.

Proxy Fights

Proxy fights occur when activists seek to gain seats on the company’s board to directly influence decisions.

For example, in the case of Yahoo in 2017, activist pressures from several hedge funds, including Third Point led by Dan Loeb, resulted in major leadership changes and a shift in strategic direction.

Methods and Strategies

To achieve their goals, activists have different methods and strategies: engagement and dialogue with companies, public campaigns, proxy battles, litigation, and shareholder proposals.

Engagement and Dialogue with Companies

Activists may initiate discussions with the top management and the board of companies to induce changes.

Public Campaigns

Activists may use media and public statements to rally support from other shareholders and put pressure on the company.

Proxy Battles

Through proxy battles, activists may gain enough shareholder votes during general meetings to win board seats and implement changes directly.

Litigation

Activists may take legal action to force companies to comply with certain demands.

Shareholder Proposals

Activists may submit proposals to be voted on at the companies’ annual meetings.

Short Selling

Activists may sell borrowed shares of a company with the expectation that the stock price will decline. Activists may release reports highlighting issues such as accounting irregularities or poor governance to justify their short positions.

Notable Activists

Carl Icahn: Known for his aggressive tactics, Icahn has targeted companies like Apple, eBay, and Xerox, pushing for strategic changes to enhance shareholder value.
Bill Ackman: Founder of Pershing Square Capital Management, Ackman has influenced companies like Target and Valeant Pharmaceuticals through high-profile campaigns.
Elliott Management: Led by Paul Singer, Elliott Management has been involved in numerous activism campaigns, including those at AT&T, Twitter, and SAP.
Jim Chanos: Famous for short selling, Chanos is known for his early identification of problems at companies like Enron. His approach often involves detailed research and public reports that bring issues to light.

Impact on Companies

Activist interventions can have significant impact on companies, both positive and negative.

Positive Impact

Activism can lead to improved governance, better financial performance, and enhanced shareholder value.

For instance, the activist campaign by Trian Partners at Procter & Gamble resulted in cost-cutting measures and strategic shifts that boosted profitability.

Negative Impact

On the downside, activism can create instability, distract management, and lead to short-termism.

For example, the intense activist pressure on Yahoo! led to management upheavals and strategic uncertainty.

Impact of Short Selling

Short selling activism can expose weaknesses and unethical practices within companies, leading to regulatory investigations and changes in management. However, it can also lead to significant volatility and negative sentiment in the stock market.

For instance, Jim Chanos’s short selling and public exposure of Enron’s accounting fraud played a crucial role in revealing one of the largest corporate scandals in history

Conclusion

Activists in financial markets and the corporate world play a crucial role in shaping the future of companies. While their methods can be controversial, the influence of activists has led to significant changes in corporate governance and performance. By pushing for accountability, transparency, and strategic improvements, activists continue to be a powerful force in the corporate landscape.

Why should I be interested in this post?

This article provides a comprehensive overview of activism in the corporate world, with clear examples and explanations of key concepts. For management students, understanding and analyzing the corporate world is equally important as being a part of it and making changes in it.

Useful resources

The hedgefund journal Shareholder Activism

Hogan lovells Recent developments in ESG shareholder activism around the world and suggestions for risk mitigation

Fordham law school Yahoo! and Hedge Fund Activism

Harvard Business Review Types of Activist Investors and How to Spot Them

Wikipedia Shareholder activism

About the author

The article was written in June 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Posted in Contributors, Financial techniques | Leave a comment

Analysis of Visa’s Business Model and Market Prospects

Posted on June 22, 2024 by Liner SHI

Analysis of Visa’s Business Model and Market Prospects

In this article, Liner SHI (ESSEC Business School, Global Bachelor of Business Administration (GBBA) – Exchange Student, 2024-2025) shares her analysis about Visa’s business model, industry conditions, and future trends.

What is Visa

Visa is a specialized bank card clearing institution that resolves authorization and transaction issues between banks.

Logo of VISA.

Source: Visa.

How visa was built : In 1950s, under the trend of installment payments, Bank of America became a leading credit card company. However, due to US banking laws, expansion outside California faced challenges. To overcome this, Bank of America started a franchise model. To deal with initial complications arising from complex authorization and currency exchange between banks, National BankAmericard Inc. was established. In 1973, transaction settlement costs was significantly reduced due to automation of the authorization process and then NBI was renamed to Visa.

In essence, Visa operates as a professional payment technology company under a four-party clearing model: banks, merchants, consumers, and clearing institutions. In 2023,Visa boasts 4.3 billion users, collaborates with 14,000 financial institutions, and records a payment volume of $12.3 trillion.Visa gained net revenue of $32.7 billion in 2023, representing a 11% increase compared to the previous year.

Visa’s Business Model

A typical Visa payment transaction

Visa payment process.

Source: VISA.
Source: Annual Report 2023

In a Visa C2B payment, the consumer uses a Visa card to buy from a merchant. The merchant sends the transaction to an acquirer, who sends it to VisaNet. VisaNet then checks with the issuer for authorization. Once authorized, the issuer pays the acquirer, minus fees. The acquirer pays the merchant, minus their fee. Visa earns by facilitating global money movement among consumers, merchants, and banks through innovative tech.

How Visa Makes Money—Visa’s Fee Structure

Visa earns revenue through various methods: transaction amount-based revenue and transaction count-based revenue.

Transaction Amount-based Revenue

Service Revenue ($14.8B in 2023): This includes income from Visa’s payment processing services and technological solutions like transaction processing, clearing, settlement, risk management, and security services.
International Transaction Revenue ($11.6B in 2023): Generated from cross-border transaction processing and currency conversion activities. Visa charges fees for these transactions due to their complexity, involving currency conversion and higher fraud risks.Nominal payment volume serves as a hedge against inflation, making it a primary revenue driver. If commodity costs rise, Visa’s revenue automatically increases.

Transaction Count-based Revenue

C.Data Processing Revenue ($16.0B in 2023): Visa earns revenue by processing transaction data and offering analytical services to partners. These services assist in customer behavior analysis, risk management, and marketing, thereby adding more value. In recent years, international transaction revenue has steadily increased while data processing revenue has slightly decreased, possibly influenced by inflationary growth.

Business Model Evaluation

Profitability

From 2017 to 2022, Visa’s average Return on Invested Capital (ROIC) stood impressively at 87%. This remarkable performance is primarily driven by a consistently high profit margin. Since 2011, Visa’s net profit margin has shown a steady increase, surpassing 50% after 2018. This growth is largely fueled by economies of scale. While Visa requires significant upfront capital investment, its operational costs per unit are comparatively low, almost negligible when compared to traditional banking institutions. Consequently, as Visa processes more transactions through its network, its profitability naturally expands. In the four-party model of bank card clearing, Visa avoids bearing customer acquisition costs and credit risks, thus enjoying the highest profit margins.

Business moat

Technology: Visa provides users with a network technology known for its high real-time performance and security. Notably, Visa excels in managing fraud by utilizing extensive labeled transaction data and advanced algorithms like neural networks, Bayesian, and SVM. This enables Visa to construct effective risk control models, preemptively intercepting risky transactions.
Brand and Switching Costs: In the payment industry, brand reputation significantly influences consumer choices. Visa’s strong brand power consistently attracts new customers. Moreover, existing customers are deterred from switching their bank cards to other clearing institutions due to substantial switching costs.
Economies of Scale: As transaction volume expands, the clearing industry benefits from economies of scale, leading to an oligopolistic competitive structure. Similar to logistics systems such as gas pipelines and highways, once convenient and cost-effective clearing networks are established in the market, new entrants find little to no space for market penetration.

Visa’s Future Assessment

Market Trends

Overview

The payments industry revenue pool expanded by 8.3% from 2017 to 2022 to reach $1.6 trillion. However, according to BCG, slower growth is on the way. Their estimates suggest that overall revenue growth will decline from today’s levels to a CAGR of 6.2% from now through 2027, increasing the global revenue pool to $2.2 trillion at the end of that period.

Global payment revenue trend.

Source: McKinsey.

Specific Analysis

Positive Factor 1: Personal consumption expenditure is the main driver behind the growth in payment transaction volumes. Over time, as living standards improve and inflation rises, personal consumption expenditure tends to increase. Technological advancements, such as the rise of contactless cards (NFC) and electronic wallets, make payment methods more convenient, leading to higher transaction frequencies for credit cards. Visa’s data shows that contactless bank cards have an average transaction frequency about 20% higher than regular bank cards, expanding the industry scale for clearing institutions. Moreover, following the COVID-19 pandemic, the surge in e-commerce adoption has shifted more people from cash to credit card payments, boosting the penetration rate of non-cash payments and driving payment amounts and volumes.
Positive Factor 2: At the same time, the global small-value payment systems’ total transaction volume stands at approximately $235 trillion, with B2B transactions accounting for about $125 trillion (53%), C2B transactions at $50 trillion (21%), and B2C transactions at $30 trillion (13%). Both the B2B and B2C payment markets still hold significant growth potential, offering opportunities for further scale expansion for clearing institutions like Visa.
Risk: Firstly, in the post-pandemic era, economic slowdown could lead to a decrease in transaction volume growth or even a decline. This presents challenges for clearing institutions on multiple fronts. They may face reduced revenue due to fewer transactions while also needing to navigate more stringent risk management and regulatory requirements. Secondly, according to the latest estimates from BCG, the emergence of new payment networks and the increasing popularity of electronic currencies may result in an overall reduction in scale. Market Trends

Competitive Analysis

Overview

Among existing competitors, Visa demonstrates robust performance, but concurrently, it may face threats from digital wallets and encrypted cryptocurrencies.

Specific Analysis

Existing competitors: Visa maintains a competitive edge over its rivals in market share, revenue performance, organizational efficiency, and technological prowess. Contrasting Visa with its primary competitor, Mastercard, between 2018 and 2022, Visa boasted an average Return on Invested Capital (ROIC) of 88% and a net profit margin of 48.5%, surpassing Mastercard’s 54% ROIC and 41.3% net profit margin. This superiority stems from Visa’s early market entry advantage, higher market penetration, and lower customer acquisition costs. Moreover, Visa exhibits greater efficiency in internal organizational management, particularly focusing on clearing operations, while Mastercard’s management expense ratio tends to be approximately 10 percentage points higher. In terms of technology, Visa’s transaction processing capability outshines Mastercard’s, with Visa processing 65,000 transactions per second compared to Mastercard’s 5,000 transactions per second.
Substitute competitors: Visa’s primary threat comes from other payment networks and digital wallets such as Apple Pay, Google Pay, and PayPal. These services are increasingly popular among consumers and may eventually erode Visa’s market share. Additionally, the rise of cryptocurrencies may lead to reduced demand for traditional payment networks like Visa.

Conclusion

Visa possesses a strong advantage in the current payment industry market development and competitive landscape. However, it is likely to be impacted in the short term by macro-market fluctuations and in the long term by the development of emerging payment technologies

Why should I be interested in this post?

This article will give you a better understanding of Visa as a company, while also providing you with more knowledge and information about similar clearing institutions and the payment industry. This will help you prepare for job interviews by equipping you with valuable insights into the workings of Visa and its counterparts, enabling you to demonstrate a deeper understanding of the industry during the interview process.

Useful resources

BCG Global Payments Report 2023

Visa Annual Report 2023

McKinsey The-2023-mckinsey-global-payments-report

Goldmansachs 2008-entire-annual-report

About the author

The article was written in June 2024 by Liner SHI (ESSEC Business School, Global Bachelor of Business Administration (GBBA) – Exchange Student, 2024-2025).

Posted in Contributors, Financial techniques | Tagged Visa | Leave a comment

My Intern Experience in Tencent Strategy Department

Posted on June 22, 2024 by Liner SHI

My Intern Experience in Tencent Strategy Department

In this article, Liner SHI (ESSEC Business School, Global Bachelor of Business Administration (GBBA) – Exchange Student, 2024-2025) shares her professional experience as an intern in Tencent Strategy Department.

About the company

Tencent is a leading technology company founded in 1998 with its headquarters located in Shenzhen, China. Tencent Group engages in a wide range of activities, offering both B2C and B2B services.

B2C: Tencent has released numerous globally popular video games and other high-quality digital content, providing rich interactive entertainment experiences for over 1 billion users worldwide by 2023.Here are specific B2C services that Tencent offers : famous games like Honor of Kings and Arena of Valor, popular social media apps like Wechat and QQ, other apps like QQ Music . Tencent has a wide user base in Asia, North America, and Europe.
B2B: Tencent offers a range of enterprise services including cloud computing, advertising, and financial technology, supporting partners in achieving digital transformation and facilitating business development.

Tencent has been listed on the Stock Exchange of Hong Kong since 2004. Tencent’s revenue in 2023 was $83.97 billion, representing a 10% increase compared to the previous year.

Logo of Tencent.

Source: Tencent.

Introduction to WeCom Business

WeCom, also known as WeChat Work, is an enterprise communication and office collaboration tool developed by Tencent. Tencent created WeCom to provide businesses with a platform that integrates seamlessly with WeChat, allowing for efficient internal communication, project management, and customer engagement.

Logo of WeCom.

Source: KRDS.

Currently, WeCom primarily features are:

Support for various communication methods between enterprises and customers, such as messaging, group chat, announcements, and short videos.
Collaboration tools and lightweight internal management solutions including online documents, enterprise cloud storage, calendar management, and attendance approval.
Lightweight customer management and upstream/downstream collaboration tools including personal profiles, mass messaging, customer moments, lead tracking, upstream/downstream contact lists, and application sharing.

My internship

I collaborated with my mentor on the 2023 China SaaS (Software as a Service) Dynamics Report. This report covered policy interpretations, listings and financing updates, AI(Artificial Intelligence) integration, and overseas expansion.Initially, I wasn’t clear about the relationship between WeCom and other domestic SaaS companies, which led to a lack of focus in my first report. After discussing with my mentor, I realized our research had two main goals: to provide market insights for WeCom’s development and to find suitable ecosystem partners. With this clarity, my analysis improved significantly. This taught me the importance of aligning business objectives with strategic research. Also in the process, I collected data from various platforms like Easy Disclosure and Wind Consulting and realized the significance of comparing information across channels.

Also, I participated in interviews and summarized customer retention issues WeCom faced after commercialization.In 2023, WeCom began charging customers for using its platform for the first time. Some customers may churn or reduce their demand for Wecom due to charges. Therefore, it is crucial to collect the attitudes of key customers towards the pricing model of WeCom. My responsibility was to organize and analyze the interview results, identify the most valued commercial needs and pain points of customers.

I summarized the research on major comparable companies (such as Lark and DingTalk) My mentor focused on their strategies regarding revenue, organizational dynamics, target markets, and business expansion. This experience honed my skills in concise summarization and provided valuable insights.

Financial concepts related my internship

There are three key concepts related to my work in WeCom. Since WeCom is a collaborative office and customer management application, there are key metrics of SaaS companies that we should pay attention to. These metrics include Net Promoter Score (NPS), Annual Recurring Revenue (ARR), and Automatic Delivery Rate (ADR).

Net Promoter Score (NPS)

NPS measures customer satisfaction and loyalty by asking about the likelihood of recommending a product or service. In SaaS companies, NPS is crucial because they often operate on a subscription model. A high NPS indicates that customers are likely to continue using and renewing services. NPS reflects the appeal of SaaS products for sustained customer use. We also track customer retention rate and contract renewal rate.

Annual Recurring Revenue (ARR)

ARR is the total revenue generated from subscription services within a year. It is a key metric for SaaS companies to measure subscription income, calculated by summing up subscription fees from each customer.

Automatic Delivery Rate (ADR)

The automatic delivery rate reflects the level of automation in services or products provided by SaaS companies. High automatic delivery rates enable SaaS companies to offer more convenient, efficient, and stable services, reducing customer using costs and risks. It’s an important metric for measuring operational efficiency and service quality in SaaS companies.

Why should I be interested in this post?

This article offers an opportunity to delve deeper into the intricacies of Tencent’s WeCom business and analogous SaaS products, providing a comprehensive understanding of their operational frameworks. Plus, I hope that by sharing my own experience, you’ll get a better feel for what it’s like to work as a strategic intern and what you should focus on in the role.

Useful resources

Tencent 2023 Annual Report

Tencent 2023 fourth quarter and annual results presentation

About the author

The article was written in June 2024 by Liner SHI (ESSEC Business School, Global Bachelor of Business Administration (GBBA) – Exchange Student, 2024-2025).

Posted in Contributors, Professional experiences | Tagged Internship, Tencent | Leave a comment

Datastream

Posted on June 21, 2024 by Nithisha CHALLA

Datastream

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents information referring to a global financial dataset, which plays a vital role in today’s financial markets for making informed investment decisions.

Introduction

Datastream is a global financial dataset that contains current and historical time series data on stocks, indices, bonds, funds, futures, options, interest rates, commodities, currencies, and economic indicators for 175 countries and 60 markets. It is accessible via two platforms: WRDS and LSEG Workspace.

It is an industry-leading analytical data source that enables detailed exploration of relationships between data series: perform correlation and relationship analysis, test investment and trading ideas, and research countries, regions and industries with time series sometime available from the 1900s onwards.

History

Datastream was developed by Thomson Reuters, now part of Refinitiv, and has been a vital tool for financial professionals for several decades. It has continually evolved to incorporate more data and improve its user interface, reflecting advancements in technology and the increasing demand for comprehensive financial information.

With over 35 million individual instruments or indicators across all major asset classes, including 8.5 million active economic indicators and over 14 million economic time series every day. It features 120 years of data, across 175 countries – the information and tools you need to interpret market trends, economic cycles and the impact of world events.

Its history extends as far back as the 1900s for G7 countries, the 1970s for other major markets and the 1980s for smaller countries.

Uses of Datastream

There are different uses of Datastream such as for investment research, economic analysis, portfolio management, academic research and financial reporting.

Investment Research

Investors and analysts use Datastream to research and evaluate potential investments by analyzing historical performance and financial health. Refinitiv offers in-depth coverage of more than 12,500 global companies across 74 countries, with over 630 metrics and history dating back to 2002.

For example, Refinitiv MarketPsych ESG Analytics (a part of Datastream) are real-time data series which can easily be incorporated into your investment and analysis process, whether quantitative or qualitative. Refinitiv MarketPsych ESG data is available on 100,000+ public and private companies and 252 countries and regions, covering more than 250 strategic ESG data measures, structured into 10 categories underlying the four areas of corporate performance.

Economic Analysis

Economists and policy makers use the database to monitor economic trends, make forecasts, and formulate economic policies.

Economists uses Datastream to access historical GDP data, inflation rates, employment figures, and other relevant economic indicators.

Portfolio Management

Portfolio managers use Datastream to track the performance of assets, optimize asset allocation, and manage risks of their portfolios or funds.

The risk manager uses Datastream to analyze historical price volatility, correlations between assets, and economic indicators that impact market risk. Datastream has had a number of marked firsts within the industry and was a pioneer when it came to calculating indices’ relative data on a daily basis. Thanks to their vast coverage of constituents across the major asset classes, users can construct benchmarks tailored to their respective strategies. This means a fund’s relative performance can be tracked more accurately.

Datastream also offers extensive global coverage of historical end-of-day fund data, with over 30 years of history and a range of measures including net asset value, dividends and performance metrics, plus supporting and operating data such as classifications, identifiers and legal entity all sourced directly from Refinitiv Lipper.

Academic Research

Scholars and students in finance and economics use the extensive data for empirical research, thesis work, and academic publications.

Financial Reporting

Financial institutions use the data for internal reporting, regulatory compliance, and strategic planning.

Finance teams use Datastream to pull data on the company’s stock performance, compare it with industry benchmarks, and include relevant economic indicators.

Advantages of Datastream

To achieve their goals, Datastream is used by various entities and individuals for various reasons: comprehensive coverage, historical depth, user-friendly interface, reliable and timely data, and customization.

Comprehensive Coverage: One of the most extensive databases available, covering a wide range of financial instruments and global markets.
Historical Depth: Offers deep historical data, essential for long-term analyses and trend identification.
User-Friendly Interface: Intuitive tools and interfaces for data extraction, charting, and analysis.
Reliable and Timely Data: Provides accurate and up-to-date information, crucial for making informed financial decisions.
Customization: Users can customize data queries and reports to meet specific research and analysis needs.

Challenges of using Datastream

Given that Datastream deals with real-time or near-real-time data, there are several challenges in processing the streaming data:

Data Overload: The vast amount of financial data available can be overwhelming, making it difficult to filter relevant information.
Data Quality: Ensuring the accuracy and reliability of financial data is crucial, as incorrect data can lead to poor investment decisions.
Cybersecurity: Protecting financial data from cyber threats and unauthorized access is a significant concern for financial institutions and data providers.
Cost: Access to premium financial data services can be expensive, posing a challenge for individual investors and smaller firms.

Conclusion

Datastream plays a critical role in the modern financial ecosystem. By providing real-time access to a wide array of financial data, it empowers investors, analysts, and institutions to make informed decisions, enhance market transparency, and drive economic growth. As technology continues to evolve, the accessibility and quality of financial data will only improve, further transforming the landscape of financial markets.

Why should I be interested in this post?

This article provides a comprehensive overview of Datastream, with clear examples and explanations of key concepts. For management students, understanding and analyzing the corporate world is equally important as being a part of it and making changes in it.

Useful resources

LSEG Refinitiv datastream

Princeton University Library Datastream

Thomson Reuters Thomson Reuters Datastream Economics

NYU libraries Datastream Guide

European University Institute (EUI) Datastream description

About the author

The article was written in June 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Posted in Contributors, Financial techniques | Tagged Datastream, Financial data | Leave a comment