Structured Finance as a Fantastic Career Option for Engineers

After finishing my engineering, I headed straight into a Investment and Business Researh firm called Evalueserve. I worked for two years doing equity research in several sectors such as Human Resource Staffing industry, Airline Services, FMCG and Consumer goods,etc. However, the charm of equity research started waning for me after the first year beacuse of its 'non-quanty' nature. The first year in equity research can be both challenging and intellectually simulating for an engineer because learning to analyse financial statements such as income sheet , balance sheet and cashflow statements requires you to think very differently from the typical 'enginering' bent of mind.
I had learnt several advanced techniqes in financial modelling and analysis in my CFA Level II and had completely mastered financial statement analysis. So after two years of working in equity research, I found it not very intellectually challenging for me. So I started exploring other options within finance something more quantitative to satisfy my apetite for high-end number crunching and analysis.
This was 2008, the year of sub-prime crisis. Securitisation and structured products was what every one was talking about , of course in the negative sense. Although, I had studied topics of securitisation as a part of my curricullum in CFA Level 2, I had not gone into researching too much detail about it. I started exploring about Structured Finance market and to my surpise I found it very exciting. It is a heavily quantitative filed, I will talk about the different job profiles withi in it later. After devouring several websites on securitisation, sub-prime crisis and its reasons, I was eager to get into the Structered Finance market at a point which was probably the lowest in its history. What's more risky in terms of career decision was that, people in the industry were getting fired all over the place across the world. So essentially I was trying to enter a field which everyone was either exiting or looking to exit.
Nonetheless, blind in love with Structured Finance, I joined Standard and Poor's Structred Finance division as a Credit Analyst. My job was to analyse some of the sub-prime securities that had caused all the havoc in the world !

Non-IT careers for Engineers

A few years back, the most important decision an engineer had to make while still studying, was whether to opt for a job in the core-technical area or go for IT services. Recently several new areas have emerged where engineers find ample opportunity to apply their analytical and quantitative skills.I would go on to elaborate some of them:

Data Analytics:

Lots of analytics work being outsourced to India now. The job involves performing statistical analysis using software packages such as SAS, SPSS. Matlab and VBA are also popular in financial analytics.But most credit card and insurance companies tend to use SAS. Some typical companies offering such positions include :

1. Capital One : Its a consumer finance company(credit cards and stuff) and regularly recruits in top engg. instis in India. Most of the data analysis work is regarding credit card operations/transactions of its customers. They have an office in Mumbai and Bangalore. Pay for entry-level analyst is excellent. Most analytics jobs involve SAS.

2. American Express: Same as Capital one. There is a huge risk management team in Gurgaon (close to Delhi) which handles several aspects of credit card risks. Work involves building several SAS-based statistical models for credit card transactions. There is a team which also builds and monitors corporate risk as well although its more common to find engineers in the retail credit risk division than corporate risk division.

3. Bank of America Continuum Solutions: They have several back-office work related to derivatives, equities and bonds. Many of them are IT back-office work, but here we are talking about analytics and financial research related work. Offices are in Mumbai, Gurgaon , Hyderabad.

4. E-serve: It has been taken over by TCS and is mainly a BPO. But it also has some profiles which involve high-end analytics.


5. Market Rx: They provide sales and marketing solutions to companies in the healthcare segment. Has office in Gurgaon. They recruit from several engineering colleges for the role of providing analytics driven market research. The profiles require the use of statistical packages such as SAS, SPSS and databases such as SQL and MS Access.
6. Genpact- It has an excellent analytics team.
7. Fractal Analytics: Office in Mumbai.
There are plenty of more KPOs which offer such positions to engineers as listed below:
Absolutdata

Evalueserve

Modelytics

Boston Analytics

Global Analytics India Pvt. Ltd

Inductis (India) Pvt. Ltd.

Dunnhumby

Ameriprise

Accenture business analytics- Gurgaon

Hewitt – Human resource analytics

HSBC Analytics

Z S Associates (although a consulting firm, its offices in Pune and Gurgaon perform analytics)

It is important understand that analytics work exists in different flavours. The kind of work in a credit card would typically be related to risk management 1) operational risks 2) credit risk 3) country risk.
A lot of behaviour modelling techniques would be used in analytics used in consumer driven industries such as telecom, retail, HR, insurance. Today analytics finds application in lots of industries.

HOW TO LAND AN ANALYTIC JOB

1. Its important to know a lot of statistical analysis. Some imp techniques are multivariate analysis, factor component analysis, logit/probit regression and its tests such as serial correlation, heteroskedasticity, stationarity, etc. I would advice one to complete one of the core technical paper of Acturial Series like CT3, CT6

2.Learn SAS/SPSS, preferably SAS. Infact there are SAS certifications available which one can complete with a bit of effort. In case you want 2 prcatice pirated SAS software is available at Nehru Place, Delhi.

Having both 1 and 2 under ur belt is just an unbeatable strategy.

Financial analytics is a completely different field and it requires the application of stochastics, differential equations,etc. VBA in Excel and Matlab programming are used. Plus certifications such as FRM and PRM might be useful if u dont have a masters. Also check the CQF certification.

Strategy Consulting:

Several strategy consulting firms also recruit engineers who fall under one of these categories:
(i) Fresh B-Tech grads
(ii) Having relevant experience in a specific industry (say oil and gas, power, chemicals)
(iii) Having 1-2 year experience in a KPO in the business research division.
Some of the strategy consulting companies accepting engineers are :
PriceWaterhouseCoopers
Ernst and Young
Deloitte (both front office in Delhi and back-office in Hyderabad)
Bain Capability Centre(not purely consulting, more back office)
Capgemini
Everest Consulting(Gurgaon)
Inductis
ZS Associates(Pune)

Real Estate Firms :
With lots of activity seen in the real estate sector in India, there are quite a few real estate investment firms requiring research analysts.Some of them are

1. Jones Lang LaSalle
2. Fire Capital
3. DTZ
4. RedFort Capital

Others

Some other interesting options include

Flagstone Reinsurance- Recruits engineers from premiere colleges for Actuarial work. Progress in clearing Actuarial papers would be beneficial
Swissre- Another reinsurance companies that recruits fresh engineering graduates for Actuarial work.
FuturesFirst- Engineers are recruited for trading roles in bonds, derivatives.

Actuaries: Another maths-heavy domain.

Actuaries:

One of the most under-hyped yet rewarding area within finance, with excellent career opportunities. An actuarial professional tries to assess risk and uncertainty of events and understand its financial impact. A typical job may involve designing insurance products (life, general, casualty), pension plans, etc.

Acturial Science is an extremely mathematical area of profession which is what makes the course challenging. Creamy engineers like us are the most suited candidates for such a profession, esp. if you like probability, modeling etc. Actuary as a profession has been rated at one of the top five professions to work by several employment surveys. (e.g.Almanac). It is one of the rare areas of finance which gives a great work-life balance, typically work hours vary from 30-45 hours per week.

Actuaries as a career has been ranked as one of the best professions to be working in (source :US Almanac)

Exam: Conducted by Institute of Actuaries India.

A total of 14 or 15 (don’t remb. exactly??) papers to be passed. Exams are held twice every year . One can appear for three papers at a time.

Fees: Minimal (Rs. 1000 registration, Rs.1500 for books) per paper.

Just clearing the first three papers may land you up in a decent job in a top insurance company. Clearing 6-8 papers may land you up in the London division of the same company! Most of these companies sponsor your remaining papers plus give you time to study.

Let me elaborate a bit on the whether the course is international or not

Every country has its actuarial society, but it is based on either the model followed in US or the one in UK. The US and UK model differ in pattern if not in scope. Institute of Actuaries India follows the UK-model. Actuarial societies of different countries have mutual agreements wherein they recognize each others exams. Exams conducted by Institute of Actuaries India are completely recognized by the UK acturial society. Say you complete 8 papers and are transferred to the London office of an insurance company, you can continue to give papers by appearing for papers of UK actuaries.

However, if you are interested in a career in the US, you will have to opt for the US actuaries right from the beginning (and it is pretty costly).

Exams are held in May and October/Nov. So a student graduating in may 2008 can appear for the may 2008 exams. if successfully completes 3 papers, could straight go to work in an insurance firm.

There are a handful of people in India who have completed all the 15 or 16 or so papers required ( I think some 300 or 400 hundred or may be less). hence it is a low supply and high demand scenario ( = opportunity in economic terms).

Career:

Consulting companies, Insurance firms, reinsurance firms, government, Investments

Financial Risk Management - Engineers most welcome

What is Risk Management ?
Without using any finance heavy jargons, financial risk managemt consists in providing as much as possible stability to the future earnings of a firm . Suppose your company is about to receive its payments in dollars next month when a certain project is complete. Today the dollar-rupee exchange rate is Rs45.00, but next month you expect it to be at Rs 40.So every dollar you receive next month will translate into lesser Rs for you, which is a loss.To tackle such kinds of uncertainities in cash flows, we use finnacial instruments called derivatives.the process is called hedging. The scenario is just one of the uncertainities, there can be uncertainity due many other factors.

Derivatives are a highly mathematical area of subject, and hence engineers are a best fit in risk management. You would be using partial differential equations learnt in ur B-Tech to price a certain derivatives.A highly interesting field for engineers in general.

Why work in Risk Managemnt?

As a risk manager, one can work in any industry/ company, exposed to market/credit/operation risk not just in financial services. This area is highly mathematical and is more suited to engineers like us. Grappling with the accounts/fin. statement part of the CFA course can be frustrating for engineers, for them this area is more appropriate. Plus there is considerably less competition from CA/CPAs as in equity research. One can work at risk management div. at major banks, insurance companies, consulting companies. One can also get into i-bank, specially in the credit derivative side


How to gain Entry into the field?

Apart from MBA, there are two certifications that engineers may want to do in order to gain entry into the field.

1. FRM (Financial Risk Management by GARP):

Exam : It is single exam held once a year in November. The course is challenging but is very comprehensive in nature.

Fees: Around Rs 25,000

Preparation: Schweser notes, handbook, some other textbooks (Philip Jorion etc)

2. PRM (Professional Risk management by PRMIA):

It is organized by PRMIA which was formed after GARP(which conducts FRM) split in 2002.

Exam: The syllabus of FRM and PRM as almost same. However PRM has some distinct advantages over FRM in terms of convenience. The entire coursework has been broken up into 4 sections. One can appear for all these sections together at one go, or appear for separate exams on different dates. This could be a huge advantage for working professionals hard-pressed for time. Also, PRM exams are held throughout the year. One can opt for days just like GRE and GMAT exams.

Preopartion: PRM handbook

PRM vs FRM:

Both the courses are equally reputed. Since FRM is older than PRM, it has a larger membership pool, but PRM seems to be catching up. PRM is supposed to be slightly more quantitative than FRM. PRM has its definite advantage as it is held throughout the year. But one problem for PRM is that the handbooks are not the best source of preparation(based on perception of actual exam-takers). Really, nothing much to choose between the two.

CFA vs FRM/PRM

This is one of the most debated questions in various blogs and forums. Heres my take:

CFA has a completely different focus than FRM/PRM. After your CFA charter, you are a finance generalist but generally people love getting into Investment management/I banks(ER not IBD) after their CFA. FRM/PRM have a risk focus. There are considerable overlap between CFA course and FRM/PRM but the same course is taught from valuation perspective in CFA but from a risk perspective in PRM/FRM. Many people have both certifications.

What should you opt for?

If you are one of those rare people who know exactly what field in finance you want to be , its not a tough decision.

If you just want to dive into finance just because of the kind of rewards it can give you, go for FRM/PRM first and then pursue CFA. Heres my reasoning:

Say you graduate in 2008 May. You will appear for CFA L1 in either December 2008 or June 2009. Results are out by Jan end/july end respectively. Assuming most of you will be in software/ manufacturing industry, CFA L1 will not give you a major boost.

Real benefits will come only after Level 2 , which will be held in June 2010.

However if you opt for FRM, you can appear for it in November 2008. results out on jan.

Since FRm/PRM are more specific courses, one can easily get a foot hold into the finance industry. You can then proceed to appear for CFA level1 in June 2009.

One option ( if you really are some geek god), appear for CFA L1 in dec 2008, go for CFA L2 in June 2009.

Bottomline: Given a typical fresh engineering graduates' circumstances, pursue FRM/PRM from a short-term goal of getting into the finance industry. Once there, explore what your interest areas are and then decide whether to go for CFA or another area of study.

Disclaimer: I repeat CFA and FRM/PRM cater to separate sets of financial professionals(with a bit of overlap of course). The aforementioned solution is relevant given the average Indian mindset of just getting a foothold into the ‘seemingly lucrative’ industry

CFA demystified

It is arguably the most respected financial certifications recognized across all countries. It is simply the gold standard for careers in Investment Management. The CFA curriculum encompasses almost all subject areas required for a career in investments, much like a MS Finace course. However, personally I feel,the concentration areas of the CFA charter are financial statement analysis, asset valuation and portfolio management. Although corporate finance is also touched upon, it is not covered in much detail.Hence it is not apt for a typical career in corp. finance in an i-bank.For other areas such as research and asset management, it is the simply the best.

Exam Pattern: Exams are conducted at three leves, Level 1 , Level 2 , Level 3.

Level 1: This exam is organized twice a year, first week of June and December in all countries. Candidates successful in passing this level can proceed to appear for Level 2.

Level 2 : Held once a year in June.

Level 3 : Held once a year in June.

Exam Fees:

Level 1 fees now cost around Rs 45,000 (Charge for study materials is included in it)

Level 2 and 3 cost somewhere around Rs 28,000 each along with the study materials.

Any one who passes all three levels and has four years of relevant experience are awarded the CFA charter.

Preparation:

1. CFA Institute Material: This is supplied by the CFA Institute once you register for the exam. Its costs are included in the enrollment fees. However, the material is voluminous in nature and its difficult for working people to study the entire material.
2. Schweser notes: They are condensed notes sold by Kaplan and are very exam-specific. The material is costly, but most people in India manage to get a pirated version at cheap dirt prices.

Career Paths: Ideal careers for CFA's are Equity research divisions in Investment banks, investment management firms, third-party research firms. Good opportunities in India open-up only after completing Level 2. However, entry-level jobs are also available after CFA level 1 at investment research divisions of KPOs. CFA charter holders generally earn more than MBAs in the US (but remember CFA are only employed in the Financial service industry unlike the versatile MBA)

FAQs:

1. I am an engineer, have no background in finance. Am I capable of qualifying the CFA levels?

Ans: Of course. Many of the CFA charterholders have had no background in finance.CFA levels are tough to crack because people appera for the exams while working and are unable to devote sufficient time to preparation.

2. I work as a software engineer. Will the CFA enable me to switch my career from IT to financial services industry?

Ans. Generally No. CFA can rarelt act as a career changer, for that you would rather do an MBA.However, in someway it can transition your career. For example, in an IT firm, you could be promoted to the position of a business analyst early on in your career. The main role of a BA is to act as an interface between clients and the programmers.
That is because you understand both the business and the technical side of the project.You may choose to work in an IT firm whose client base consists of I-banks, Hedge funds,and the likes.

3. I plan to do my MBA in future. Will it make sense to get a CFA before MBA?

Ans. Depends. If you want to work in finance even after ur MBA, yes it makes lot of sense.If you wud rather get into marketing or operations, no ways will CFA help.

4.I have been working as an engineer in the Chemicals/Power/Oil and Gas/Construction industry for the last 5 years. How will the CFA help me ?

Ans: It might help you to get a break in Equity Research. Equity research has two broad facets, (i) knowing the industry you track.
(ii) knowing how to interpret finacials.

In a typical ER job, you track companies operating in a specific sector, e.g, Chemicals/Power/Construction. If you have a decent amount of experience in the industry, (i) holds gud for you. CFA will give you (ii).This is more predominant in niche/ specialised industrries such as technology, semi-conductors, Biotechnology, pharma, telecom, etc

5. MBA vs CFA.


These are two different degrees. MBA is a foot deep and a mile wide, whereas CFA is a foot wide and a mile deep.MBA is getting a broad understanding of all aspects of running a business, operations, finance, IT, HR, S&M. CFA is all about investments only.


If you are already working in the Financial service industry and are sure that you want to work in research or investment management for your entire life, go for CFA.

If you are a prospective career changer, you want to leave your field completely or arent sure whether u want to be in HR or finance or S&M, go for MBA.

Many go for both. MBA gives them breadth, CFA the depth.(provided you work in fin.services)

Finance and Outsourcing

The last few years has seen unprecedented growth of financial markets across the globe, especially in the Asian economies. The soaring Sensex in India suddenly hogged the limelight,replacing discussions on cricket matches and saas-bahu soaps. Whether it was the still-in-college amateurs saving their money to invest in stocks to make some quick bucks or the professional fund manager trying to beat benchmarks, the stock market has seen its share of participation to really soar.

In the meanwhile, all major I-Banks had started outsourcing financial research to either wholly-owned captives or third-party KPO vendors in India. Initially it was more of an experimentation to cut down the costs associated with research work in US; it has now become more of a necessity to outsource to low cost destinations.With bulge-bracket companies joining the bandwagon, this sector has seen some major job-creation for Indians. It is now possible for grads to make a backdoor entry into i-banks,AMCs,PE industry(atleast in terms of quality of entry-level work).Given the wage arbitrage between the US/Europe wages and the Indian wages, salaries in this sector in India seems to be flying through roof-top.

With all this happening in a small span of time, jobs in financial services has suddenly become red-hot, something that had happened with IT in the late 90's.Interestingly, the mad rush to grab these lucrative jobs is not just restricted to MBA's and CA's , even engineers from premiere colleges are now vying for their share of the pie, by leveraging their analytical and quantitative skills.Areas such as financial analytics, quant. fin. will continue to generate interest among engineers. Many engineers are now trying to beat CAs and MBAs in their home turf by opting for various financial certifications.Many of these certifications are very focussed in terms of imparting theoretical knowledge and cover topics with far greater depth than a traditional MBA.The purpose of this blog is to precisely explore some broad areas of opportunity for engineers, and possible entry points into them.Some of the popular certifications related to various fields are also discussed.

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