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BITSians on Wall Street
By Anupendra Sharma (’87 Eco Instru), Sandeep Mukherjee (’95 Phy Mech)
Investment Management
Investment management (also known as Asset Mgmt, Fund Mgmt or Money
Management) describes the business of managing savings by investing
them in various securities and assets to provide returns to investors.
Investment management
companies in the US control over $9 trillion in assets. Of this,
approximately $8 trillion is held by 8,300 mutual funds, and the rest
by closed end and exchange traded funds. Hedge funds (which are largely
unregistered) control close to $1 trillion in assets through 7,000
hedge funds. George Soros (Soros), Julian Robertson (Tiger) are famous
names. Steve Feinberg, Cereberus, the world’s largest hedge fund
has control over more revenues than Coke or Exxon Mobil.
The rest of the Investment Management industry also has famous
superstars including the legendary superstars - Peter Lynch (Manager of
Fidelity Investments) and John Bogle (Founder and CEO of Vanguard).
Capital is increasingly becoming global as investors are looking to
various parts of the world to diversify their investments. The
flow of money around the world is also becoming much easier given the
easier convertibility of various currencies into one another, a more
global workforce, and much improved financial instruments that allow
this flow of money (technology clearly has an important role in this
trend). A Partner at a top fund recently said that America’s
biggest export is fast becoming capital, not goods or services.
Investment vehicles
known as hedge funds have resulted in a significant move into the
sector of both people and capital. Hedge funds have arrived in very
large numbers as increasingly wealthy and sophisticated investors look
to generate absolute returns that are uncorrelated to broader market
returns. This is a sector that is fraught with risk due to the
unregulated nature of the industry, and high profile bankruptcies and
meltdowns.
Hedge funds use
aggressive strategies that are not allowed for most mutual funds. This
allows them to raise the risk profile and the rewards. Hedging
strategies tries to reduce the rewards within predictable outcomes.
Only accredited investors with $250,000 in income and net worth of over
$1 million are allowed to invest in hedge funds.
Hedge Funds - Just a new payout mechanism?
 Hedge
funds receive 1-2% management fees, and 20% of the profits. This
structure is similar to the PE and VC industry. However, some Hedge
Fund managers with outstanding records keep up to 40% of the profits.
When there are three partners running a $5 billion fund that makes a
40% profit in a year, that’s $300 million per partner. No
wonder experts from so many different fields have ended up in Hedge
Funds – Nobel Prize winners, Research Analysts, Mutual Fund
managers, Private Equity and Hedge Fund managers.
There are five BITSians in the Hedge Fund Industry in the US. Anand Haridh (’84, Wharton MBA), Pradeep Kumar (’84, PhD Economics, Alabama, Drake), Sanjay Rajpal (’84, PhD Mathematics, Dartmouth), Manish Sinha (’89, PhD Mechanical, Johns Hopkins, Litespeed) and Adri Guha (’88, APM Capital).
There are three BITSians in Investment Management. Harish Kumar (Mech, PhD Columbia Business School) is a Managing Director at New York Life Investment Management. Krishna Memani is a Managing Director at Putnam Investments (Edward Jones Group) responsible for Fixed Income Mutual Funds. Rajesh Chelapurath (’88, MBA Tulane, CEERA Investments) is the CEO of his own company, a Registered Investment Advisor based in Houston.
Tracing their paths
Anand Haridh joined Merrill
Lynch Capital Markets in the Strategic Solutions and New Products Group
straight out of Wharton. This was a small high profile group that
worked with selected clients often discretely. The hugely
profitable group worked across products (equity, debt, cash,
derivatives) which was rare in Wall Street in the 90s. He played
a key role in building what is now a multi-billion dollar market in
preferred securities in Europe. In the process his group financed much
of the corporate consolidation in Europe in the late 1990s.
Anand says willingness to move to London gave him the big break.
“I got an opportunity to start this group at Merrill Lynch in
Europe along with a senior banker. Not many of my peers wanted to
move to London - New York was the preferred place. I took the
opportunity and it paid off as the business took off.” At
Goldman, due to his past experience, he invests across the capital
structure which requires both debt and equity markets experience as
well as a more "event/deal" oriented analysis of investments that comes
from having worked in banking. Anand is now a Fund Manager at J.Goldman
& Co.
 Pradeep Kumar
was a Civil Engineer, but developed an interest in Economics and a
simultaneous lack of interest in Civil Engineering. He pursued a
doctorate in Economics at the University of Alabama. He also got the
CFA, but he says that at the least an MS or an MBA is a must. Pradeep
worked as an emerging market strategist at Citigroup for 8 years. He
was a Director in the fixed income research group before he decided to
quit and join Drake. Pradeep is a portfolio manager at Drake
Management-a $ 3 billion global fixed income hedge fund. He
trades and manages emerging market fixed income products and currencies.
Sanjay Rajpal
studied Mathematics and Computer Science at BITS, and then completed
his PhD in Math at Dartmouth, with a specialization in combinatorial
geometries. He started as a Research Associate at a global
investment manager. He worked there for a number of years learning
about various aspects of the investment management process from
technology to research to trading to portfolio management to
performance attribution. Subsequently, he moved to a financial
analytics startup and then moved to a mid-sized quantitative hedge fund
where he co-developed their statistical arbitrage program. After rising
to Research Director, he left to join a major international bank as
head of a quantitative trading desk.
Manish Sinha
did not get into Hedge Funds directly. He joined McKinsey &
Co. as a Management Consultant, right after his PhD. To get into
McKinsey, he took Accounting/Finance courses in Night School, got
involved in extra-curricular activities while remaining faithful &
diligent toward his fluid mechanics research program. He worked with
McKinsey for three years, and the move to hedge funds, although
unusual, was relatively easy. At Oaktree Capital Management, he
learnt hedge-fund by investing as part of the Global Emerging Market
Hedge Fund group.
 Harish Kumar completed
his Mechanical Engineering degree at BITS, and followed it up with an
MS in Mechanical Engineering from University of Colorado at Boulder.
But he saw limited growth in engineering due to globalization, but the
most developed capital markets in the world. He saw a trend to apply
quantitative methods to traditional areas of Finance such as investment
management, so he decided to get a PhD from the Columbia Business
School. At Columbia, Harish focused his dissertation on
computational finance, option pricing, bond indexation and credit
derivatives. He also worked simultaneously as an Associate,
Credit Derivatives at The Chase Manhattan Bank. After his PhD, he moved
on to Aeltus Investment Management where he served as Quantitative
Analyst and Portfolio Manager, enhancing models for all Large Cap
products, as well as supporting ING/Aeltus’ suite of products.
Before joining Aeltus, he managed more than $1.2 billion in Large Cap
Aggressive Growth Strategy as Senior Portfolio Manager at ING
Investment Management and led a team responsible for managing Large Cap
Disciplined Core and Large Cap Dividend Growth Strategies. One of the
main obstacles was the transition from a Quantitative analyst to being
a money manager. Investors are particular about who they give their
assets to; they want a seasoned professional with good track records.
Harish says “A strong backing from senior management and the
desire to retain me assisted me in making the transition.” Now
Harish is Managing Director and Head of Growth Portfolios at Equity
Investors Group. This role entails the development, growth and
management of multiple strategies in domestic growth equities.
 Rajesh Chelapurath
worked at Larsen & Toubro for a few years after graduating from
BITS and then obtained an MBA from Tulane University to get the
academic training he needed to make the career transition to finance.
At business school, Rajesh decided to focus on buy-side money
management because he wanted to evaluate and invest in different
businesses and the managers who run these businesses and make
managerial decisions. He also saw this career as a flexible
lifestyle choice, where he could work from anywhere in the world if he
were to set up his own firm and make it a success. Rajesh, who
was part of a team that managed over $100 million in assets at Burnham
Securities as AMD, left to start his own firm (Ceera Investments, LLC;
www.ceera.com ) this year. As portfolio manager at Ceera, he
manages investments for various types of clients. Rajesh’s
value-based investment philosophy revolves heavily around the thoughts
and teachings of investing legends such as Warren Buffett, Philip
Fisher, Ben Graham, and Peter Lynch. He is also the Chief
Investment Officer of the BITSAA Investment Committee that oversees the
surplus funds / endowments of BITSAA International.
Life in the Investment Management industry
Hedge Funds are very entrepreneurial but within a structured
environment – kind of best of both worlds. Anand says the
day goes by very quickly and the earnings potential is of course
tremendous. On the flip side, you work with big egos and constant
tense environment can wear you down quickly. Asset management is
going through a shift from relative to absolute returns and this is
affecting money flow in a fundamental way.
Harish says “On
a day to day basis, my job involves decision making in buying and
selling equities for the client’s portfolios and assist the
company in gathering and retaining assets through presentations to
clients, both in the retail and institutional community.”
Harish loves his job
because new situations present themselves everyday. There is constant
change and challenges to adapt. Harish says “There has been a
tremendous growth in alternative strategies, also known as “hedge
funds” which has resulted in increasing volatility and efficiency
in the equity markets. Technology has influenced investment management
in a huge way, affecting everything - from the speed of information
flow to trading methodologies. The days where brokers could generate
huge revenues from being middlemen are gone with the rise of electronic
exchanges.”
Anand says “On a
day to day basis, I research investment ideas, talk to other market
participants and trade. I usually check up on Asian markets late
night before going to bed. I am up early in the morning to
commute to New York and get my reading done during the commute.”
Qualifications and Skills
The advice differed between professionals, but a lot of the messages were similar.
Harish advises that
one should get an advanced degree in finance. Do an internship at a
Wall Street firm. Network with Wall Street professionals.
Sandeep says “I
felt that my lack of formal education in finance would be a major
stumbling block, but the reality turned out to be quite different.
There is room on Wall Street for all sorts of backgrounds! It is,
however, critically important to choose the right work
environment.”
The MBA is the degree of choice, especially if it is from a good
school. Wharton probably has the highest number of people working in
the industry. The CFA could be considered as a way to supplement
particular sector expertise with financial skills that can lead to a
career in research and fund management. However, with CFA one has
to use other means such as networking to get a break into Wall Street.
The PhD is more
relevant if one wants to go into fixed income research or
advanced modeling. Harish agrees “An advanced degree in
quantitative methods in Finance is essential in what I do.”
Sanjay does not
believe his area of specialization in Math is directly relevant to
quantitative trading, but he says that it is the entire process of
original research and the discipline of formal proofs that is more
useful. According to him, “Understanding the markets is a
continuous research process that involves a certain level of scientific
rigor so that one can be extremely objective about one’s
beliefs.”
 Manish Sinha
agrees. He did not apply any core engineering skill sets in his career.
Instead, several skill sets he honed along the way proved to be
invaluable. It was primarily the analytical and quantitative skills
that he developed as an engineer/researcher.
In hindsight, none of the BITSians felt that the discipline/degree
mattered as much if one was determined to enter the industry. Being an
engineer has its advantages on Wall Street since engineers can
“slice and dice” real world issues. But persistence,
passion and hard work are bigger predictors of success for those
wanting to get in.
So what does it take
to win in this industry? Anand says “In terms of stumbling block,
you are competing with people with extensive friends and family network
within the industry. Without such advantages, mistakes are
inevitable. By not giving up easily and keeping at it day in and
day out, you eventually come out OK.”
Sanjay says “a
quantitative background with strong computing skills tends to be quite
useful in my field. The traits that probably matter the most are a deep
interest in markets, flexible thinking, and perseverance.”
Anand advises that one
should “Talk to people and do your research. It can be a
very satisfying and remunerative career for those with the
aptitude. If you are early on your career, the major investment
banks are recruiting heavily again and can provide the right entry
platform to a career in finance. For others, history is full
examples of late bloomers. Wall Street has many people such as
doctors, math professors and meteorologists who have made a switch to
Wall Street later on life.”
Hedge Funds HEADED FOR meltdown?
On the positive, there is fundamental shift in investment management
from relative to absolute returns which favours hedge funds.
However, as Hedge Funds have become so large, and the competition has
increased, it has been harder to generate adequate returns for many.
This has resulted in diversification. Capital is heading for offshore
markets. Hedge Funds have gotten into the Private Equity and Venture
Capital game with more capital than there are good ideas. This is
turning some Hedge Funds into full-service sources of capital –
and even investing in real estate developments.
Hedge Funds first
caused a panic in the markets when Long-Term Capital Management started
to melt down with exposure to over $1 trillion in securities. This
almost caused the start of a major collapse in the US markets,
resulting in the Federal Reserve to move in to bail out the
company. There was another recent collapse, with Bayou Management
LLC. Since hedge funds use derivative securities, the collapse of one
fund could lead to a series of effects Hedge Funds first caused a panic
in the markets when Long-Term Capital Management started to melt down
with exposure to over $1 trillion in securities. This almost caused the
start of a major collapse in the US markets, resulting in the Federal
Reserve to move in to bail out the company. There was another
recent collapse, with Bayou Management LLC. Since hedge funds use
derivative securities, the collapse of one fund could lead to a series
of effects across the industry. SEC is trying to rein in funds.
SEC registration is going to be mandatory.
The future of Investment Management
In the West, the aging population needs to manage its retirement
savings. In countries like India and China, only a fraction of
personal net worth is invested in the financial markets but
increasing. Both of this means there will be demand for talent to
manage money. There are also related jobs in investment
management such as risk management, marketing and distribution of
mutual funds, personal financial planning which are all set to grow,
particularly in India.
Manish says
“India has been “hot” in recent times as the equity
market has taken off. There has been a lot of
funds/liquidity flowing through to India. Action on the private equity
front and distressed debt side is also picking up as many reputed
global firms are in the midst of opening offices in India.”
Joining Investment Management
The most important aspect of getting into the field is networking. It
should continue to grow after one has entered Wall Street. Since Wall
Street is an apprenticeship business, the first salary, the first sign
on bonus is not important. Where you work and who you work with is the
most important. BITSian seniors want more people to join Wall Street,
so they are willing to help.
There are other things
that one must do. Read as much as possible on history, recent events
etc. in financial markets and do some basic reading on
macroeconomics. This is easy to digest without financial
knowledge. Suggestions on this would include The Great Crash of
1929 (Galbraith), History of Financial Euphoria (Galbraith), Bull
(Mahar), You can be a Stock Market Genius (Greenblatt) etc. Skip
sections that seem totally unfamiliar but see how interesting you find
all of this. If one finds this interesting, then read more
technical books such as Graham Dodd. But to make this step
forward, one needs basic accounting skills that can be got by taking a
few classes to get the basics.
For those already involved in a specific industry and wishing to
migrate to finance using that industry knowledge, I would suggest them
trying to get the "big picture" of the industry through extra
reading. Read industry reports by say  Economist
or ask a friend in the brokerage industry for industry reports.
If you can talk about your own company onjectively from a financial
perspective (margins, leverage, valuation etc), then you are most of
the way there. This can then provide the basis to start talking
to people about careers in the money business. For example, "The
Prize" is an excellent read on the politics and economics of the oil
industry.
For those who can afford it, set aside a pool of money for
investing. Document each trade/investment you make along with
your rationale for the investment. Build the portfolio and you
can use that as a basis for discussion.
Reinventing oneself is
necessary in any field these days. Ability to work under
pressure, quick thinking, global perspective – these are all
transferable and sought after skills that you hone in this
industry. They just need to be repackaged if you want to or are
forced to change careers.
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