My experience as an intern of the Wealth Management Department in Hwabao Securities

October 30, 2022 by Wenxuan HU

My experience as an intern of the Wealth Management Department in Hwabao Securities

In this article, Wenxuan HU (ESSEC Business School, Global BBA, 2021-2023) shares her internship experience as an intern in the Wealth Management Department in Hwabao Securities in China.

The Company

Hwabao Securities is a securities company of China Baowu Steel Group, one of the world’s top 500 companies. With the strong support of shareholders, Hwabao Securities adheres to the business purpose of “creating value for customers, opportunities for employees, returns for shareholders and benefits for society” and continues to provide professional, high-quality and personalized comprehensive financial services for investors.

Logo of Hwabao Securities
Logo Hwabao Securities
Source: Hwabao Securities.

Wealth Management is an important business unit of Hwabao Securities. From 2019 to 2021, approximately 80% of Hwabao Securities’ revenue is derived from wealth management business and securities proprietary business.

Headquarters of Hwabao Securities
Headquarters Hwabao Securities
Source: Hwabao Securities.

My Internship

My missions

I worked as an intern in the Wealth Management Department of Hwabao Securities. I was mainly responsible for supporting the department staff in business analysis and compliance management.

I coordinated and analyzed the company’s 2021 interim brokerage business operation. In practice, I used the Vlookup function and pivot table, etc. to count the market share of the sales department, business revenue, commission breakdown, etc., and created data visualization charts to report to the company president and other managers in the interim meeting. In addition, I calculated the performance of the marketing staff. Based on their performance I adjusted their rank.

Moreover, I was responsible for investor eligibility management (a review system that requires institutions to Know Your Customer( KYC) and identify the customer’s risk tolerance) and branch compliance training and participated in developing compliance test questions for branch heads. In addition, I created a PowerPoint presentation for the training of new regulations of positive repo risk control and compliance management work report to assist the compliance officer in personnel training. I also assisted the compliance officer in completing the company’s risk compliance management work, preparing and integrating multi-departmental internal control compliance checklists, and formulating branch compliance cross-check work plans. I wrote an article about typical case of compliance to improve the construction work of the company’s compliance system. The article was appreciated by the department manager and the staff of the Shanghai Stock Exchange (SSE).

Required skills and knowledge

The Wealth Management Department is an important department of a financial institution, directly managing all branches and sales staff, and an important line of defense to ensure business compliance. Working in the Wealth Management Department requires less computer skills and mathematical abilities but requires financial knowledge and legal background. Interns are required to keep an eye on changes in market regulations to assess the risk of financial transactions between the company and its clients. Interns also need to have strong communication skills and be willing to give advice to colleagues in different departments. In addition, departmental staff should also have a high level of ethics and self-discipline and adhere to the legal bottom line.

What I have learnt

My internship at Hwabao Securities gave me a good understanding of the composition of the entire financial institution and the operation of the financial market. This experience allowed me to master many financial terms and trading processes and raised my awareness of compliance and the different types of risks related to investments. The knowledge I learned in class was also applied during the internship, such as money and credit, macroeconomics, credit management, bank management, risk management, compliance management, and law.

While writing the article about the revision of SSE’s investor eligibility management regulations, I also found areas where compliance management could be improved. My article was called “Dispute over account opening for the visually impaired – enhancing investor satisfaction with personalized services”. In the article, the investor’s application for online account opening at the company was rejected due to the investor’s visual impairment and the company’s lack of corresponding hardware facilities. In order to effectively protect the rights and interests of vulnerable groups, the company developed a personalized off-site account opening business process applicable to the visually impaired investor. The company took several measures to take care of the physical conditions of special groups while achieving compliance. For example, the company let the investor open the account offline with professional staff, rather than online. To ensure compliance, the company informed the investor of the investment risks in detail and made a recording.

The article was adopted and commended by SSE as China’s management methods for special group investors are not yet perfect. For special groups, under the condition of meeting the requirements of regulatory laws and regulations, providing better and more humane services in a targeted manner can better protect the interests of investors. Actively fulfilling social responsibility can reflect the social responsibility of enterprises.

Three key financial concepts

Here are three useful financial concepts I learned in Wealth Management Department.

Anti-money-laundering

Money laundering is the process by which monetary gains are cleansed from their illegal origins. The money laundering process has three stages and often incorporates an important international dimension: placement, layering, and integration. Financial institutions are often used, wittingly or unwittingly, by criminals in this cleansing process.

For securities firms, there are usually a variety of measures in place to fight money laundering:

Establish various anti-money laundering systems.
Establish internal working mechanism, staff with professional personnel and improve operation process.
Improve business systems to meet the needs of AML work and ensure accurate and efficient information collection.
Identify customers and reasonably classify and adjust customer risk levels. Strengthen identification and supervision for high-risk customers or accounts.
Manage customer information, including identity information and transaction records.
Establish abnormal transaction detection indicators and models to identify large or suspicious transactions.
Conduct anti-money laundering assessments to provide system-wide risk prevention capabilities.
Organize anti-money laundering training and strengthen training for personnel in key positions to effectively communicate the latest regulatory requirements.

The Eligibility Management of Investors

The Eligibility Management of Investors is an obligation that sell-side institutions should fulfill for investors. (A sell-side institution is a party that sells its own products or services. Unlike the physical industry, sell-side institution in the financial industry sell virtual products, such as industry research reports, liquidity services, financing services, etc.) The investor eligibility management system was established by the China Securities Regulatory Commission (CSRC) and the China Financial Futures Exchange (CFFEX), taking into account the characteristics of the stock index futures market. The system requires financial institutions to understand their customers, objectively and comprehensively measure their risk appetite and risk-taking ability, and adhere to the principle of “providing the right products to the right investors”. The eligibility obligation was first introduced in the U.S. to regulate misconduct by securities firms. In recent years, the content of the appropriateness obligation has been gradually enriched and improved, and has played an increasingly important role in the trials of Chinese courts at all levels.

The eligibility management of investors has become a direct legal basis for investors to seek remedies in financial disputes. The purpose of investor suitability management is to ensure that customers can make investment decisions and bear the resulting benefits and risks on the basis of a full understanding of the risks of the relevant financial products. In essence, the investor eligibility management system is the investor protection system.

Repurchase Agreement and Reverse Repurchase Agreement

In my internship, I was responsible for compliance training for staff. I produced PowerPoints on the new regulations for Repurchase Agreement risk control.
Repurchase Agreement (Repo) is a transaction in which a party pledges a certain size of bond to raise funds and promises to repurchase the pledged bond at a later date. It is also one of the open market instruments frequently used by The People’s Bank Of China (PBC), which can achieve the effect of repatriating funds from the market by using positive repo operations. Compared with PBC bills, Repurchase Agreement will reduce operating costs, while locking in funds more effectively and reducing liquidity.

Reverse Repurchase Agreement is a transaction in which the PBC purchases marketable securities from a primary dealer and agrees to sell the marketable securities to the primary dealer on a specific date in the future. Reverse Repurchase Agreement is an operation in which the PBC puts liquidity into the market, and the expiration of Reverse Repurchase Agreement is an operation in which the PBC takes back liquidity from the market, called Repurchase Agreement. Simply put, a Reverse Repurchase Agreement is a transaction in which the investor actively lends funds and obtains a bond pledge is called a Reverse Repurchase Agreement transaction, at which time the investor is the financier who accepts the bond pledge and lends the funds.

Useful resources

Hwabao Securities

Shanghai Stock Exchange

The People’s Bank Of China (PBC)

China Securities Regulatory Commission (CSRC)

China Financial Futures Exchange (CFFEX)

About the author

The article was written in October 2022 by Wenxuan HU (ESSEC Business School, Global BBA, 2021-2023).

My experience as a junior financial analyst at ACE

March 24, 2022 by William LONGIN

My experience as a junior financial analyst at ACE

In this article, William LONGIN (EDHEC Business School, Global BBA, 2020-2024) shares his experience as a junior financial analyst at ACE Finance et Conseil, which is a wealth management firm specialized in financial investments.

ACE Finance et Conseil

First, let me present ACE Finance et Conseil. It is a wealth management firm created by Gabriel Eschbach in 2002. It is located in Strasbourg in the East of France. ACE Finance et Conseil currently manages a portfolio of 230 clients who are individual investors. The profile of these investors varies in terms of wealth and investment objectives. Most of the clients of ACE Finance et Conseil are living in the East of France, especially in the Strasbourg area. The ambition of the company is to expand its base of clients at the national and even international level.

Logo of ACE Finance et Conseil.

Source: ACE Finance et Conseil.

The founder of the company, Gabriel Eschbach, is a graduate student from the University of Strasbourg. Gabriel also attended a program in wealth management at ESSEC Business School. Building on his past professional experience in large financial institutions and insurance companies, he has developed extensive skills and knowledge on financial markets and asset management.

My personal experience at ACE Finance et Conseil

My job was to find relevant information on the firms of interest for ACE. To find such information, I used the Bloomberg Terminal. Beyond the search of information about companies, I also spent time on building a portfolio based on our current knowledge of the market conditions. During my internship, the stock market was bullish (Summer 2021). ACE’s strategy was to find the most interesting stocks based on the risk level that the firm was willing to take on behalf of its clients.

Bloomberg – Terminal and keyboard
Bloomberg terminal and keyboard
Source: Bloomberg.

My most valuable experience in the firm was to be able to understand the investment philosophy of the firm, which relied on a rigorous analysis of the relationship between risk and (expected) return on the one hand, and on a clear understanding of the investors profile of its clients on the other hand.

Everything is planned! And what I came to realize is that investing has nothing to do with gambling. No technical analysis, no gibberish, only careful analysis of companies through the fundamental analysis of their financial accounts (balance sheet and income statement), financial ratios and company news. As we are unable to predict the future, ACE has an investment philosophy based on the rigorous investment process combining the analysis of the relationship between risk and (expected) return of financial assets and a clear understanding of the risk profile of its clients on the other hand.

The ACE Finance Conseil team.

Source: ACE Finance et Conseil.

Core missions and duties

During my internship I had to do research on companies and create short presentations for ACE clients. For example, I prepared presentations on Chinese companies for a new client who was not familiar with the Chinese stock market. The Chinese companies involved were the so-called BATX that stands for Baidu, Alibaba, Tencent and Xiaomi. My presentations’ focus was on Tencent and Alibaba, two companies that stroked our interest at that time. The Bloomberg Terminal gave information about the profits made by each business units of the company, and its future estimates. Unlike other sources of information, Bloomberg standardizes information about the different drivers that generate revenue in a company. This gives an excellent overview of the current state of the company in addition to the existing important financial indicators such as the P/E and EPS ratios, the working capital, and the quick ratio (these financial indicators are defined below).

At ACE everyday was a different day, I had many types of missions. Every morning, I prepared a morning briefing. This allowed me to learn many things on the link between political news and companies. I really enjoyed the diversified aspect in my work, and I hope to find a job where I can thrive the same way I did at ACE Finance et Conseil.

About the skills and knowledge

For this type of internship, the prerequisites were to know how to read financial statements as well as knowing what the key financial indicators are, how they are calculated, and how they can be interpreted. Being able to browse the internet with ease and to be familiar with financial tools like the Bloomberg Terminal were important to be efficient in the job. Have an interest in the geopolitical field was an advantage to be able to interpret the news and extract the important information that would affect the economic world and the value of companies.

At ACE I understood that there is a whole other side to the iceberg, companies that are focused on b2b sales (business to business) that play a major role in the economy. These companies in the shadows are mostly part of a supply chain for major b2c (business to consumer) whose brand is known by the public. b2b businesses rarely make it on to the front pages of mainstream news medias but a lot of information is available on media for investors.

Unfamiliar with the region of the East of France I learned many things on the culture and way of living in an anchored European city. Strasbourg is considered as a capital of Europe as it hosts major European institutions such as the European Parliament and the Council of Europe. Because of its ties to both Germany and France after World War II, Strasbourg served as a symbol of reconciliation between peoples.

Key concepts

I present below some key concepts that are useful to understand the internship that I did at ACE Finance et Conseil.

Asset management

Asset management consists in managing capital in the best way by respecting the level risk decided to be taken by the manager, with respect to an estimated rate of return. The responsibility of asset management’s firm is to know how to invest and manage assets correctly and accurately.

ACE Finance provides private investors with more comprehensive advice as part of their investment advisory services and fully documents discussions. The objective is to create transparency regarding the costs and risks associated with their investments. With ACE, clients can module their portfolios and are able to express their preferences after receiving advise from the firm based on fundamental research.

Asset allocation

Asset allocation is a step-in asset management which consists in defining the weight to be given to each category of assets within an investment portfolio. Allocation is generally made by sector (cyclical, defensive, sensitive), by profile (growth, value), by geography and/or by asset class (equities, bonds, real estate, commodities, etc.)

In determining the best asset allocation, the key is to be able to balance between the expected return on assets and the riskiness associated with each of them. Asset allocation depends on the time the investor is intending to invest his/her assets, his/her tolerance for risk and the volatility of the various assets.

As mentioned earlier ACE accompanies clients in their investment and gives them the opportunity to have a say on the way of allocating assets. The level of risk, the geographical or sectoral distribution of the portfolios and the type of products used, or the time horizon of the investments is different specific to each client.

Example of equity portfolio.

Source: ACE Finance et Conseil.

Active and passive asset allocation

There are two types of asset allocation management styles: passive and active. Passive management is management based on a buy-and-hold strategy. Active management is based on rebalancing of the portfolio via discretionary decisions or decisions based on quantitative models. Stock picking and market timing are key to a successful active management.

ACE is mostly focused on active management of assets. The goal in active management of assets is to be able “beat the market”, the benchmark. The work done by ACE is to select the assets, using various analysis tools, the mostly likely assets that are likely to grow faster than the benchmark and market in general. This management method, as opposed to passive management, concerns all funds and portfolios that do not aim to reproduce the performance of a reference market, but to do better than the reference market.

Stock picking

Stock picking is a methodic process were an investor searches for stocks that are likely to bring future cash flows. The analyst’s or investor’s view for the price of the stock will determine whether the position is long or short.

When it comes to stock picking ACE does research on various companies and keeps track of the news. The financial statements (balance sheet, income statement and cash flow statement) with the focus on key business indicators (sales and profits) are important to understand the structural investments in the company. ACE also pays great attention to key financial ratios such as: P/E, EPS, working capital, quick ratio, and the EBITDA.

ACE also has partner companies such as JP Morgan and Gemway Equity that collaborate with ACE in this process. Getting insight and trying to understand other people point of view is part of the culture at ACE and how it has done so well for these past 20 years.

Financial indicators

EPS ratio

The Earnings Per Share (EPS) ratio is a financial ratio that shows the amount of net profit that a stock can generate. To calculate the EPS, we divide the total earnings (net income) of the company by the number of outstanding shares issued by the company (or average of outstanding shares).

Earnings per share formula

Note that if the company issued common and preferred shares, the EPS ratio is adjusted to take into account the preferred dividends. The EPS can be positive or negative based on the positive or negative earnings (profits or loss). In case of a negative EPS the company in question does not present a profitable overall activity. However, having a negative EPS is not as rare as you might think. As firms are not always making a profit due to heavy investment (start-ups for example). A company which presents a very fluctuating EPS from one year to another or an EPS which does not stop decreasing from year to year, could cause the downfall of the stock price.

At ACE, the EPS is a ratio that we looked at as an indicator of where the wind was blowing but did not base our decisions uniquely on this ratio since it does not look at the investments made by the firm that could generate important future cash flows.

P/E ratio

The price to earnings ratio (P/E or PER) is an indicator used in stock market analysis. The calculation of PER is very straightforward, divide the market capitalization by the net earnings or by dividing the market price of a share by the earnings er share (EPS). Another way of calculating it is by dividing the individual price of a share by the net income per share. You can calculate PER based on quarterly and yearly results and even projected results which would give the expected PER ratio.

Price earnings ratio (PER)

The PER represents the number of years it would take for a company to buy all its stocks. For example, a PER of 20 means that a company would take 20 years to “redeem” all its floating capital with constant profits.

This indicator can be used to evaluate a company to its competitors despite their differences in size as it looks at firm valuation according to their profits. A lower PER indicates a cheap stock, a higher PER an expensive stock.

Analysts may consider two types of PER: the trailing PER and forward PER. Simply put, the trailing PER looks at historical earnings to calculate PER. The forward PER considers expected earnings.

Bloomberg Terminal – Relative value function (RV) – Baidu – 14.06.2021
Bloomberg RV function
Source: Bloomberg.

The RV function on the Bloomberg Terminal gives us indications on the relative value of the firm. At ACE when doing some research on Baidu, the PER was one of lowest amongst its competitors. The value of the PER is important as it reflects investors’ expectations. Thus, the PER can reveal the speculations of investors, who anticipate a strong increase in future profits: in which case, the higher the PER, the greater the expected increase in profits. So it is important to monitor and the progress of the PER.

Working capital

Working capital is an accounting concept which represents the amount the business has available to pay total operating expenses such as suppliers and employees. This indicator gives information on the company’s ability to cover its expenses.

Working capital

Quick ratio or Acid test

The quick ratio, or acidity test, is used to determine short-term liquidity in a company. To calculate this ratio, the value of the company’s current assets, excluding inventory, is divided by the company’s current liabilities (see formula). The goal of an acid test is to estimate the financial stability of a firm by measuring the company’s ability to immediately pay its debts using cash.

Acid test ratio

Assets used to calculate the quick ratio include cash and other very liquid assets such as marketable securities and accounts receivables. Inventory is also excluded from the quick ratio formula because it cannot be sold immediately to generate cash flow.

EBITDA

EBITDA (earnings before interest, taxes, depreciation, and amortization) is an indicator that is used to compare companies on their potential ability to generate wealth regardless of the balance sheet differences. EBITDA does not consider the investment and financing policy and the impact of taxes. On the contrary, a negative EBITDA means that the company is not profitable. The EBITDA is computed as follows:

EBITDA

EBITDA is a financial indicator that measures a company’s revenue before subtracting interest, taxes, depreciation and amortization charges and provisions on fixed assets.

Why should you be interested in this post?

If you are looking at getting an internship in an investment firm, this post will surely be interesting to you. This post provides a little reminder of the basics of asset management. There are plenty of investment firms in the world however ACE is unique by its approach to understanding the markets and counselling its clients. In this post I detail some of the core missions that I had as a newcomer to the professional investing field.

Word of conclusion

As my first internship inside of an asset management firm, this initiation to the financial world was exactly what I was looking for before applying at ACE Finance et Conseil. ACE Finance et Conseil differentiates itself from other companies by its simplicity in functioning and the richness of its experience. This unique experience has made me want to explore the financial world even more.

Useful resources

ACE Finance et Conseil

Bloomberg terminal

Bloomberg market concepts

About the author

Article written in March 2022 by William LONGIN (EDHEC Business School, Global BBA, 2020-2024).