Belgium's Capitant Magazine

8/10/2019 Belgium's Capitant Magazine

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CAPITANTMAGAZINETHE STUDENTS GATEWAY TO FINANCIAL MARKETS


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CONTENTS

3 INTRODUCTION

4 CAPITANT

6 THE TEAMS

10 FINANCIAL MARKETS?

12 GUIDE FOR STARTERS

13 PORTFOLIO AND RISK PROFILE

13 CONTAINMENT OF RISK AND VOLATILITY

14 EMOTIONS AND INVESTING

14 DETERMINANTS OF SHARES

14 RATIOS AND INCOME STATEMENT

14 BALANCE SHEET15 MICRO AND MACROECONOMIC NEWS

15 ASSET CLASSES

15 SHARES

15 BONDS

16 ROADMAP

18 GLOSSARY OF TERMS

22ALUMNI

23 CHRISTOPHE VAN WICHELEN EXCHANGE TRADED FUNDS

24 LUCAS STOOPS INVESTMENT BANKING26 MATT MEEUSEN LEVERAGED FINANCE

27 JONAH LEMAIRE RETAIL PRIVATE BANKING

29 STEFAN VAN BOSSUYT ASSET MANAGEMENT


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WHO ARE WE?Capitant is a student organization aiming to introduce and guide students to the world of financialmarkets. The non for profit company was founded in 2010 and has the following areas of focus. To introduce students to the world of finance throughout extracurricular lectures and workshops

with members from prominent companies.

To gather students with more advanced knowledge about finance and invite them to discussionsand networking events, as well as organize lectures on more advanced subjects.

To offer career opportunities in collaboration with our partner firms and sponsors.

To offer an alumni network in which finance students have a platform for communication andcollaboration.

Furthermore, we wish to extend our focus beyond the financial world in order to truly see it in itsplace within the global economy. We believe that finance cannot be seen as a separate entity fromentrepreneurship and creativity and as a means to create a globally better world.

The founding fathers of Capitant believed that the Capitant initiative is both an opportunity and anecessity for finance students within Flanders. It is an opportunity because its introduction has beenunseen before in the area, where the more traditional faculty clubs pay little attention to developingthe homo economicus outside of the auditoriums. Many students wish to broaden their horizons andknowledge outside of the classrooms and take their first steps into a professional life during theirstudies. Capitant is able to provide these young leaders of tomorrow with a forum for meeting peersand other valuable opportunities. Capitant is not an isolated entity, on the contrary, the organizationhas been developing and maintaining strong ties with both the academic environment and universitiesas well as with the traditional student life.

Capitant is active in Antwerp, Brussels, Louvain and Ghent, with further plans to expand its activitiesto the whole of Belgium and potentially the entire Benelux area. Cultivating an international view,

Capitant is also in the process of collaborating with other financial associations from around the globe.

CAPITANT


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THE TEAMS

ANTWERP

Sam VergauwenDirector

Evelien BoonFinance

Jef ZegeursProject Manager

Christophe Lambot

Marketing

Michal WoutersVice-Director

David van der LaanFinance

Daimy FokMedia

Laurens Van Deun

Marketing

Alexander VerdonckPublic Relations

Kimia NamadchiHuman Resources

Benjamin BergersMedia

Lena Coenjaerts

Communications

Jonas ThysPublic Relations

Nathalie BoeykensHuman Resources

Maureen RutsaertMarketing

Nelke Verhoeven

Communications


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THE TEAMS

BRUSSELS

Alexandra GschwindDirector

Dimitri DekdoukFinance

Phil BuydensMedia & Marketing

Kristof VerbekenVice-Director

Jana StepanenkoFinance

Emre SimsekMedia & marketing

Gill BalcaenPublic Relations

Albert KhaoutievHuman Resources

Josip Jezic von GesseneckPublic Relations

Nicolas ManciniHuman Resources


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THE TEAMS

LOUVAIN

Maarten ArnoutsDirector

Jonas Van De WygaertFinance

Tim VerheydenMedia

Jasmin MichielsenVice-director

Sven DevosHuman Resources

Filip RenaertsMedia

Gregory VansteenbeeckPublic Relations

Nathalie Van RooyHuman Resources

Joeri OvartPublic Relations

Sophie HarletProject


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THE TEAMS

GHENT

Sam ClauwaertDirector

Thijs HosteFinance

Pieter SaelensProject Manager

Kim van der Mark

Marketing

Robin AllaertVice-Director

Eline JanssensFinance

Lennert ThomasMedia

Shana RaesPublic Relations

Astrid De KeyzerHuman Resources

Matthias AdriaensMedia

Thomas BatsleerPublic Relations

Arben DervisholliProject Manager

Thomas ImpensMarketing


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WHY?The primary role of financial markets (FM) is the allocation of capital in a (global) economy. But what iscapital? A broad definition would be to call it all primary means by which wealth can be created. It canbe used in production of goods or services. Price signals reflect how capital can be optimally allocated,rational investors want the best bang for their buck. We could represent it with the following formula:Capital = f (prices).

HOW?Financial markets facilitate the trading of financial securities, commodities, currencies and othertradable items. Consequently, this facilitates the optimal allocation of capital. Entities or people areable to participate in trading, while low transaction costs and frequently updated information increase

functionality. The markets allow for the raising of capital by lending and loaning, the transfer of risk byportfolio balancing, the storage of value and consumption smoothing through liquidity. Furthermore theyestablish the product prices by aggregation of information. The following table shows the relationshipbetween finance participants, with financial markets in the third column.

WHO?Financial markets attract funds from investors and channel them to corporations, thus allowing themto finance their operations and achieve growth. Money markets allow firms to borrow funds on a short

term basis, while capital markets allow corporations to gain long-term funding to support expansion.Without financial markets, borrowers would have difficulty finding lenders themselves. Intermediariessuch as banks and Investment Banks can help in this process. Banks take deposits from those whohave money to save. They can then lend money from this pool of deposited money to those who seek toborrow. Banks popularly lend money in the form of loans and mortgages.

More complex transactions than a simple bank deposit require markets where lenders and their agentscan meet borrowers and their agents, and where existing borrowing or lending commitments can besold on to other parties. A good example of a financial market is a stock exchange. A company can raisemoney by selling shares to investors and its existing shares can be bought or sold.

FINANCIAL MARKETS?

RELATIONSHIP BETWEEN LENDERS AND BORROWERS

LENDERS FINANCIAL INTERMEDIARIES FINANCIAL MARKETS BORROWERS

Individuals Companies

Banks Insurance Companies

Pension Funds Mutual Funds

Interbank Stock Exchange

Money Market Bond Market Foreign Exchange

Individuals Companies

CentralGovernment

Municipalities Public

Corporations


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WHAT?All in all, the different types of FM broadly have seven functions they fulfil:

Lending and loaning. FM allow easy transfer of funds for investments and consumption. Surplussectors (like individuals for example) which save up can easily transfer their money to deficitsectors (like companies), which tend to invest more. This is in fact the engine of a decentralizedmarket economy: you need money to realize your ideas. In this way, the following phenomena canbe realized:

Denomination intermediation: many small savers can fund a larger investment through combinationof funds.

Credit allocation: funds may be transferred between macro-economic entities (families, companies,government and foreign countries).

Transmission of monetary policy (e.g. Basel III): financial markets and more particularly banks have

an intermediation function in which they transparently (at least they should) adapt to regulations,which in turn affects the financial situation of all savers.

Accumulation of wealth. FM allow you to save up money and spread the use of this money overtime. By allowing banks to use this money for investments (asset transformation), they will pay youinterest at set intervals.

Risk transfer. By allowing FM to use your funds, you essentially transfer the risk of your investment

in a bank to the risks of the banks own investments. The bank spreads their risk by investing inwell diversified portfolios following for example the infamous capital asset pricing model, in a bidto continuously achieve optimal risk-reward ratios.

Liquidity. Liquidity usually refers to the ability to finance increases in assets and paying off financialobligations at payment dates without resulting in unnecessary losses or complications in the day today operations of the institution. Efficient FM should have enough liquid assets available for sale tofree up required funds. This should also allow for consumption smoothing: making sure that saverscan use their savings over time.

Price establishing. The institutions in financial markets put a premium on having continuouslyupdated information (attaining real-time), allowing them to make informed decisions. In doing so,

these institutions are able to provide price information on new and existing financial assets.

Aggregation of information. Besides the establishing of prices, the FM institutions aggregate allexisting information of financial assets, leading to economies of scope because research is not needlesslyrepeated.

Efficiency. Ideally, FM should reduce the transaction costs for all parties involved.

(Author:Jelle Kleevens)


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EMOTIONS AND INVESTINGInvestors are often called herd animals, but nothing is further from the truth. Behind the rationalinvestor lies a person who is guided by emotions that affect investment decisions. If the marketsshow a positive trend, investors will often enthusiastically do new purchases. At falling stock marketsthough, the investors are waiting on the sidelines for the storm to settle. Another known phenomenonat enormous price falls is a panic sale. Bad times often bring buying opportunities, especially if high-

quality shares are being punished along with the rest of the market. Market timing is one of the mostdifficult decisions and many professionals consider exact timing impossible.One can never predict with certainty when the stock markets will stop falling or rising, nor can onepredict the right moment to buy or sell shares. Emotions must be separated from investment decisions.The investor must stick to strong principles and shouldnt get carried away in case of exaggeratedmarket sentiment.

The financial markets fluctuate heavily because they are tied to the global economy. Markets arecyclically sensitive. The original weights of assets change constantly in your portfolio. The rebalancingof these weights is often overlooked, but it is important for your investment strategy. Imagine you area defensive investor and you have gained a lot of profit from your stocks. The weight of this asset classwill suddenly be much higher than intended and it seems appropriate to take profits on this section.

The weight of the riskier assets is decreased again and capital is available again to invest according toyour risk profile.

The trade-off between risk and return must be kept in mind while creating the portfolio, and performinga regular check-up on the weight of assets is certainly desirable. Following the example of the problemwith market timing, rebalancing may offer a solution to this question. After all, you sell high whenweight is increased and buy when the weight has fallen too far. Common sense to achieve a nice return.

DETERMINANTS OF SHARESOne of the most important tasks for an investor is to estimate the expected return and the risk pershare. One should keep in mind that not all shares should be treated alike, not even those within thesame sector.

RATIOS AND INCOME STATEMENTBesides evaluating financial ratios of a company (such as the debt ratio, EBITDA, price of the share),which give the executive board an idea about the companys performance, there are always somegeneral rules of application. We refer here to the type of business of the company and its balance sheetand income statement.

The industry sector is a good example of a cyclical sector; it is subjected to variations of market demandof its product and is substantially influenced by the economic climate. Therefore profit will fluctuatemore fickly than for other less risky companies where the expected cash flows are barely correlatedwith the economic situation. Practical examples are to be found in the so-called defensive sectors such

as the telecom sector (the population is not suddenly going to stop watching TV) or the pharmaceuticalindustry (the population will never stop needing medicine to cure diseases). Any changes in theconjuncture will have immediate impact on the most cyclical shares, both up and downward.

BALANCE SHEETThe balance sheet offers a clear overview to the manager on how the company uses its input to generateprofit. By means of technical computations both solvability and profitability of the company can beexpressed in a number of ratios, making benchmark possible with its competitors. When looking at theresults at the end of the year, the focus can be rely more on the operational profit margin for exampleand repeated cash flows.


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MICRO AND MACROECONOMIC NEWSImportant to note is that micro and macro-economic news constitute an extremely important factorfor the valuation of companies. Constantly changing environments will have a significant impact onits performance, both on the economic and financial side. As financial regulation can pressure netprofits (bottom line), political instability can hamper business investments. The real economy, again,can be affected by a drop investments or net profits, causing the investors to grope in the dark. The

consequences are not always obvious, but yet, every investor has to take those uncertainties intoaccount in every investment decision and follow closely the news related to the world of economics,finance and politics.

ASSET CLASSESIn the following section we will explore the commonly known assets. A Healthy mix of those productscan create a good diversified portfolio.

SHARESA share is one of the equal parts into which a companys capital is divided, entitling the holder to

a proportion of the profits. A shareholder is economically seen as a partly owner of the company,although strictly legal he is not. Shares are being traded on the stock exchange like the EuronextBrussels in Belgium. Every day buyers and sellers can trade shares at a price they may deem desirable.Shares are sensitive to variations of the economic conjuncture and therefore extremely volatile. Also,shareholders are the last ones on the list to be refunded when the company goes bankrupt; this meansthat any claim after bankruptcy is as good as non-existent.The two most important rights attached to the ownership of a share is on the first hand voting right onthe general assembly en on the second hand dividend right. This implies that a portion of the annualnet profit will be distributed to the investors. This return on investment is called more specifically thedividend yield.

BONDSA bond is a marketable debt instrument issued by a government, company or other institution. It is aloan that is issued that gives the investor an interest payment. The interest can be fixed or variable.Bonds are considered safe since their return is known.

However, this doesnt mean the investor is safeguarded against risk. Companies change over time. Thismeans that you buy bonds bearing an interest, reflective of the institutions perceived creditworthinessand financial perspective at that time. The companys position can change; it can perform better thanexpected in the future, and thus your bond becomes more valuable (because the risk of the companyhas decreased), or the situation can deteriorate, in which case your bond becomes less valuable. Theinterest you receive isnt reflective anymore of the companys current financial situation and outlook.


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ROADMAPBefore you start investing, we strongly recommend you create a fictitious portfolio. Once youveregistered and logged in, you can create a fictitious portfolio. Pick any shares youre interested in.The advantage of this fictitious portfolio is that you cant lose any money, and you can check how yourchosen stocks react to certain types of news.

DETERMINE YOUR INVESTOR PROFILEThe first step in investing is largely self-knowledge. Determine your personal view on the trade-offbetween risk and return.The different types of investor profiles can be divided into three major groups;

DEFENSIVE CONSERVATIVE INVESTOR:Chooses for security and will give priority for savings products. Invests a lot in funds and obligationsand performs little transactions on a yearly basis. Will prefer long term investments and holds abuy and hold strategy.


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NEUTRAL INVESTOR:Has a better understanding of related risks and will be willing to undertake a higher level ofcalculated risk in exchange for higher profit margins. Mainly invests in funds, obligations andstocks systematically forcing him to perform more transactions than a defensive investor. The needfor fast and accurate information is a must in order to succeed.

DYNAMIC ACTIVE INVESTOR:The most demanding type of investor. Trading within the stock market will account for at least 75%of its transaction wallet. Does also invest in derivative products and performs a very high numberof transactions requiring a vast amount of information.

BROKER / BANK SEARCHWhilst choosing a bank or broker to work with, there are a couple of important points one shouldconsider. Take your decision based on many different factors. A lot of investors are influenced bytransaction costs; costs related to buying and selling financial products. Although these are important,one should certainly take account for other factors such as supply of products, provision (poundage)costs and real-time streaming rates. This is comparable to a situation where you will have the case of

a broker with lower transaction costs but a reduced product portfolio requiring provisions to trade. Incomparison with many big banks, on-line brokers generally do have a substantially smaller productportfolio and will keep their supply of products limited. One should watch out when considering theprovision as a fixed cost as it is payable and calculated for each security line an investor undertakes.This can result in extensive amounts paid on a yearly basis when working with expensive bigger banksunless you dispose of a wide range of financial products. Within most big banks, the use of real-timestreaming rates isnt done considering they use brokers for the execution of orders. This results in aloss of speed whilst executing orders and comes along with high transaction costs we find in most bigbanks. On the other side, the advantage of bigger banks is the fact you will be able to get personalizedadvice whilst aiming for flexibility with a broker.

SELECT A BROKER AND OPEN AN ACCOUNTWhen selecting a broker, make sure you consider the investor profile you have set for yourself in stepa). Some types of brokers focus on specific groups of investors to offer them specific benefits. When youhave decided which broker can offer you most benefits, you can start opening an account.

START TO KNOW YOUR BROKERAfter you have opened an account, it is important to discover what your broker can offer to you. So takeyour time to take a look at the brokers website or online support manual.

MAKE A DEPOSIT AND GET STARTED!

Did you know that? You have to pay 0.25% stock market tax There are 8 stockbrokers active on the Belgian stock market There are 3 stockbrokers that offer a savings account There are 100000 active investors in Belgium and that all online stockbrokers together

have 250000 customers You have to pay a withholding tax of 25% on dividends

If you need more information or if you want to extend your knowledge about investing, dont hesitateand contact the Capitant crew! We will give you the best possible information.


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GLOSSARY OF TERMS

STOCKS

They represent a unit of ownership of the capital ofa corporation which gives the holder voting rights.A shareholder is owner of a part of the corporationin accordance with the number of shares he hasbought. The value of a stock depends on thesuccess of the company and consequently cantrade at higher or lower prices. Stockholders havea legal right on a dividend.

STOCK ISSUE

The issue of new shares.

BROKER

Stock exchange member that mediates the saleand purchase of stocks.

BEAR MARKET

A bear market is a market with declining shareprices and bad prospects. The explanation forthis name is that a bear attacks from above to thebottom.

BENCHMARK

Objective measure which is compared with theresult of an investment

TRADING HOURS

The official trading hours are from 9 am until 5.30pm during which continuously quoted financialinstruments are sold or purchased at the stockmarket of Amsterdam and Brussels. Some seriesof options have different trading hours.

BIDDING PRICE

The price a buyer is prepared to pay for a financialinstrument but without any seller prepared to sellat that same price.

BULL MARKET

A market ruled by raising prices and positiveprospects. The name is related to the attackstrategy used by a bull which starts low and endshigh.

CALL OPTION

A call option gives a buyer the right to purchasea share for a certain predefined price. A selleris obliged to sell the share at a predefined fixedprice if the buyer exercises his right. The buyerspeculates for rising prices while the sellerspeculates for declining prices.

CONVERTIBLE BOND

Bonds that can be converted to shares of a certainenterprise during a predefined period. Theconditions are defined at the moment of emission.

CREDIT RATING AGENCY

Standard & Poors and Moodys judge thecreditworthiness of banks and companies. Withtheir judge, they also give ratings which variesfrom the highest rating AAA or triple A forcompanies that are seen as risk-free until ratingsas BB or lower for risky enterprises.

CYCLICAL STOCKS

Stocks which are sensitive for economicalfluctuation.

DAY ORDER

An order which will be in the market during oneday. If there is no transaction executed at the endof the day, the day order expires.

DEFENSIVE STOCK

Defensive stocks are reasonably secure stocks.There wont be a lot of changes in the marketand these companies are not very sensitive foreconomical fluctuations.


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DERIVATIVE

A financial instrument (marketed exchange oroff-exchange) which derives its value from one ormore underlying values such as index, obligations,commodity prices, other derivate instruments oragreed index or arrangements.

CONTINUOUS ORDER

Market order that can remain on the market duringseveral days when not immediately cleared. Thespecific lead time of the order can be chosen bythe investor. Keep in mind that higher costs ofprovision may be charged because of the longerperiod of activity. Check the conditions that applyfor your bank/broker.

SECURITY PORTFOLIO

The collection of shares, bonds and other financialassets that together form your financial wealth.

FUND

A fund is a collection of, for example, stocksor bonds (or a combination) from differentcompanies. Investing in a fund automaticallyentails some degree of diversification, whichmakes them generally less risky than activeinvesting in individual stocks. Nevertheless,funds are not risk-free and remain subject tothe market climate and fluctuation. Some fundshave a specific focus and can be geared towardsa certain industry or topic, which will impact itsperformance. For example, a fund geared towardsthe financial services industry will be moresensitive to news about the banking sector.

FREE FLOAT

Free float represents the portion of shares of acorporation that are not locked-in by strategicinvestors and freely tradable on financial markets

ANNUAL REPORT

An annual report is a comprehensive report ona companys activities throughout the preceding

year with or without a financial report. It gives atrue and fair view of the position on the balancesheet date and the developments during thefinancial year of the company. There is also aquarterly report (every 3 months) or a semi-annual report.

JUNK BOND

A high-yield bond is a bond that is rated belowinvestment grade. These bonds have a higherrisk of default or other adverse credit events, buttypically pay higher yields than better quality bondsin order to make them attractive to investors.

CAPITAL INCREASE

For a capital increase a company raises its capitalthrough additional shares, for example to be ableto finance an important investment. There areseveral ways in which a company can do this:Current shareholders get in proportion to theirshares some rights that allow them to buy thenew shares for a certain price. That certain priceis always well below the price of the share beforethe capital increase, this is called the discount.Alternatively, the company issues convertiblebonds, which will be refunded if a bond isconverted into new shares.

LOANS, BONDS, SAVING BONDS...

Funding sources that viand the debt of the needy.In case of bankruptcy of the borrower the financierwill be refunded by the suppliers of the equity.They give the holder during a certain period theright to a fixed limited remuneration, the interestfee. They will therefore often get the name fixedincome securities.

LIMIT ORDER

An order based on a fixed price. The price is themaximum you want to pay or receive for a financialinstrument


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BONDS

A confession of debt issued by a government oran enterprise. If you buy a bond you commit to aloan, for which you receive a remuneration. At theend of the term you will receive the nominal value

of your bond. Bonds are exchanged on the stockexchange. A rising interest will result in a declineof the bond price. While a decline in interest willresult in the rise of the bond price.

OLO (LINEAR BOND)

A linear bond is a dematerialized security issuedon the short, long en middle long run. Issued ineuros, with a prefixed interest. They are issued bythe minister of finance in successive installments.There are circa 25 different linear bond lines on

the Belgium market: all bonds in a bond line havethe same characteristics.

PUT OPTION

The buyer of a put option has the right to sell anoption at a prefixed price. The buyers speculate onan interest decline. By underwriting a put optionyou have acknowledged the duty to buy the sharesat a certain prefixed price if the buyer of the optionexercises his right.

CLOSING AUCTION

To make sure that the closing prices of a sharesdoesnt depend on orders which happens to belast, there will be a short commercial break of fiveminutes before closing time of the stock market.

During this time the orders are collected afterwhich a closing auction takes place that yields abroadly supported closing price.

SPREAD

The difference between bid and ask price.

TRACKERS

Trackers are open investment funds which moveas closely as possible with an index, a basket ofstocks or a sector. Management costs are oftenmuch lower than regular investments funds.In the United States trackers are called ETFs(Exchange Traded Funds).

VOLATILITY

Measurement of the degree of volatility of aninvestment. Each share has a different volatilityrelative to the stock market.

WARRANT

The right to acquire shares or bonds of the samecompany for a certain time and under certainconditions. The warrant is actually a long-term(call) option on newly issued shares.

PROFIT PER SHARE

Profit per share is an indication of the maximumdividend that can be paid out per share. The WPAreflects how much profit available is per share.

(Authors: Christophe Van Wichelen and Lucas Stoops)


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22ALUMNI


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During my internship at BlackRock in Brussels,I came in contact with Exchange Traded Funds.Exchange Traded Funds, or ETFs, have changed

the world of investments during the last years.The growth of ETFs is quite spectacular. Sincethe introduction of ETFs in 1993, I grew over1.500 billion dollars. Today there are more as3.253 ETFs worldwide. The reason these fundsare so popular is due to the fact they are above allvery simple and flexible.

ETFs are part of Exchange Traded Products(TNPs), which include other investmentinstruments as well. Think about ExchangeTraded Commodities (ETCs) and ExchangeTraded Notes (ETNs). ETFs are funds that arecollective managed and they can be sold or boughton a regulated market, just as normal sharesyou can buy on the stock market. The benefit ofthese ETFs is that they enjoy the advantages of anormal stock as well as the benefits of the fundsthat are managed collectively.

The big difference with the traditional fund that isworld known, is the fact an ETF follows preciselyan index with help of automated computers. In

other words, an ETF is not trying to outperforman index like a normal fund does. This activemanagement is what you see at the traditional

funds which are trying to achieve as high returnsas they can get and try to beat the index.

As mentioned above, ETFs became mainlypopular because of the fact they are very simpleand flexible. This means among other things theyhave very low management costs, compared totraditional funds. This is because they dont try tobeat the market and dont actively manage theirfunds. The costs that are charged for trading inETF are expressed in the Total Expense Ratio, orTER.

To make sure an ETF achieves the same resultas the index, it has two options. In both options itphysically holds the effects of the index it follows.The first technique is called replication, where alleffects of the index are kept. The other techniqueis replication through optimization, where theETF only holds a few effects of the index. TheETFs in Belgium are composed via the physicalreplication.

EXCHANGE TRADED FUNDS

Christophe Van Wichelen

Associate Professional Consultant bij CSC


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INVESTMENT BANKING

Lucas Stoops

Analyst at J.P. Morgan

The investment banking industry has experienced

some enormous changes over the last couple ofyears. Bad press, more regulation, deleveragingof the balance sheet, massive layoffs, This beingsaid; the industry has changed a lot and the (r)evolution is set to continue over the coming years.In the following article I would like to give somemore background on what investment bankingis, and more specific Equity Capital Markets, andwhat it could mean for you to start your career.

Investment banks advice companies, governmentsand institutions on a variety of topics such as;

raising capital or debt, merger and acquisitions,market making, trading, commodities, As thescope is broad we will focus in this article on EquityCapital Markets (ECM). As this is the division Iam currently working in; ECM is responsible forraising equity for companies.

ECM`s main activities are IPOs (Initial PublicOffering, bringing a company to the market), rightissues (raising capital for a listed company) andthe sale of a large block of shares for institutionalinvestors. Basically, we are in constant dialogue

with the company on how to optimize the equity-side of the balance sheet. Companies need toraise equity to finance their day-to-day operationsor to execute a strategic decision, whether it isan acquisition or large investment to be made.We are massively depended on the stock marketand with the last 5 turbulent years passed, thishas not always been an easy ride. The marketsare again open for business since last yearwith investors and companies looking for goodopportunities to invest or raise capital, meaningour division is very active in 2013! We are the link

between companies and investors. We approachcompanies with solutions on what we think is

the best way to go forward, and if mandated, to

ensure the transaction creates the most value aspossible for both investors and the company.

Why is it such a great environment for you to startyour career? You are at the heart of the action.The learning curve is two-fold I believe. Firstly,you directly learn how companies raise capital viathe different instruments that are available in themarket place. You will get involved in preparingthe presentation materials, gathering investorfeedback and negotiations on price setting.Secondly (and most important), you will learn

indirectly from the people around you. Everyonein the bank is ambitious, goal driven and openminded which creates a place that is challenging,every day. But this in a way that working togetheris essential to achieve success, all the divisionswithin the bank work together to get the dealdone.

The bank, whether it`s Goldman Sachs, MorganStanley,, or J.P. Morgan; gives you an experiencewhich you will enjoy the rest of your career. Thebanks basically all do the same, but they differ

in people and culture. Working hours are indeedlong, you can only adapt to these circumstancesif you are passionate about finance and thecompany you work for. But the dedication comeswith rewards as well; you will challenge yourselfto a limit you never thought you could reach, youlearn how to deal with very stressful situationsand how people interact in these circumstances.So you might be interested in pursuing a job ininvestment banking? Basically, one tip has to begiven; never stop believing you can. It is not astraightforward easy ticket to get in. But I believe

if you are passionate about it you will make it;talk to people in the industry, read how the sector


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evolves and work hard to achieve your goals.Please feel free to contact me if you are interestedin the industry or have questions on how to getin, I will try my best to give you more backgroundon the industry. Wouter and Laetitia are happy toprovide you my contact details.

But never forget to live your life and enjoy everymoment of it, which is much more importantthan having the best CV. That is what I believe thereason Capitant is a good place for you to be rightnow... Let`s make things happen.


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LEVERAGED FINANCE

Matt Meeusen

Repeatedly, I receive the same question: Youreexpert field is finance, so, where should Iinvest in?. If I had the answer, I would be lyingsomewhere on a beach in the Bahamas. Despite

the fact that none of us is a fortuneteller, you caninvest your capital in a rational way in function ofyour risk profile, age, needs, etc. After spendingseveral years in our big, dusty manuals we allknow about the theory. However, inexperiencedpractitioners often compose portfolios Mr.Markowitz would turn in its grave from. Our

joint interest in finance and the lack of practicalexperience within the university frameworktriggered the foundation of Capitant. Capitant hadto bring the primordial, more practical side to thestudents.

Capitant was an essential item which brought meto my current position. Not the theoretical part, butthe entrepreneurial spirit turned out to be crucialas opposed to my grades. The extracurricularactivities in which I truly believed made sure thatI had a strong case while searching for a job. I

dont mean to say that good grades are irrelevant,but trust me, employers are not only looking atgood grades. Social, entrepreneurial and creativeskills are at least equally important. And this goes

for all sectors, not only for finance.I started as an analyst corporate finance and wasactive in this position for 1.5 years. Six months agoI moved to the Leveraged Finance Department ofour bank. We serve the Private Equity players inthe market.

Private Equity players invest in companies werethey truly believe in. Each of these players hasits own set of goals, preferences and investmentstrategies. The financing decision is structuredin equity and debt. The companies involved in

these transactions are typically mature andgenerate stable operating cash flows. An optimaldebt package is determined based on these cashflows. A higher proportion of debt financing canlead to a higher Return on Equity (ROE)

An example will make this clear:

This example shows that the optimal debt package will have an impact on the return the private equity

player realizes. A higher debt package can lead to a higher ROE as debt is cheaper than equity.

INITIAL INVESTMENT: 100 EURO

A B C

EQUITY 80 50 20

DEBT 20 50 80VALUE AFTER 5 YEARS

200 200 200

INTEREST ON DEBT (6% X 5 YEAR) -6 -15 -24

REPAYMENT OF DEBT -20 -50 -80

INITIAL INVESTMENT (EQUITY) -80 -50 -20

PROFIT 94 85 76

ROE (PROFIT / EQUITY ) 118% 170% 380%


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RETAIL PRIVATE BANKING

Jonah Lemaire

General Management Trainee at ING Belgium

As an individual, we like to place our savings intoa savings account, especially in a large bank.Such large institutions have the ability to supplythe services we need, and we can assume that

our money is safe where it is. After all, the stateguarantees our money, doesnt it? AlthoughCyprus has brought recent instability to theEuropean financial warranty system, we can statethat European governments can guarantee oursavings up to 100.000 Euros. Relieved! But do wewant our hard- earned money in savings accountsthat provide barely 1% interest? Can I as anindividual not place my money more intelligently?Looking at inflation that subsequently is makingme lose purchasing power, we know in Belgium itfluctuated around 1,20 % this year. So compared

with the interest I earn on my savings, I am actuallylosing money. This is what we call a negative realreturn! It is logical we set ourselves looking forother ways to place our money. Invest then? Itsnot a big secret that all major banks like to pushtheir clients to the investment products they haveon offer.

Since the financial crisis, everyone looksproactively with suspicion to such proposals.The banker surely wants to fill his ownpockets? Let this be a misguided conception we

just formed here. Especially when consideringin todays context that investing can be suited tofit every single customers profile, of course withproducts adapted to his / her specific needs andrequirements. In the context of moving fromsavings to investments , the big Belgian banksoffer different formulas created to enable a simpleway to activate and invest a piece of your savingsevery month. Usually, this is already possiblefrom 25 allowing you to invest directly into afund chosen based on your risk profile. You couldalso opt to spread 100 over four different funds

each month: stocks, bonds, foreign exchange,emerging markets, industries, etc. All this to yet

make a higher return as possible on your savingsbecause remember that we are currently evenlosing money on our super-safe savings. Thehigher the return you strive, the more risk you

should take. That seems logical. How much riskyou want to take and how to best optimize yourinvestment to do so is a confidential discussionyou should have with your banker.

Managing savings belongs to the core businessof every major bank. In this context, one alsospeaks of the retail side of the bank, servingnon-professional customers. Even customerswho have a great ability to be operated here, theso-called private banking customers are servedwithin this side. Within the Private Banking

department services are created specifically tomeet the needs of wealthy clients, ranging fromportfolio management to wealth engineeringand inheritance. From when do you belong to thecategory of wealthy clients? There are differencesbetween all institutions, but usually the limit isset at 500,000 or 1,000,000 directly investableassets. Private Bankers support the customerswith personal contact and advice and put theappropriate services in operation. It is obviouslyparamount for wealthy clients to manage theircapital, according to the appropriate risk profile,

and therefore, specialized portfolio managersare made available. The customer may chooseto completely outsource the management of hiswealth and the portfolio manager will have thefreedom to invest the customers capital on a dailybasis as he wishes. Their investment strategyis to continuously purchase and sale financialproducts of the banks portfolio. Because hereas well, Private Banking will supply a team ofspecialists, which follow the financial marketsand analyse them to provide subsequent advice.Naturally there are also customized products

such as structured funds, engineered solely forprivate banking clients. If they wish to settle an


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inheritance or give away a part of their assets,then again there are specialists ready to settlethis transaction in the most tax-friendly way.Private customers get beside all these servicesalso the advantage of cheaper cost rates charged.Indeed, the more money you have, the cheaper

life is. But whether you are a retail or privateclient, investment is central to keep your assetshealthy. The random customer should only try tobe more proactive and initiate a form of wealthmanagement itself.


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29

ASSET MANAGEMENT

Stefan Van Bossuyt

Looking for a challenge

Investment manager, money manager, fundmanager, gestionnaire dactifs. Terminology thatbrings to mind images of cowboys and whiz kidswho manage hundreds of millions every day and

have the power to force governments to theirknees by one lucky guess in the forex market. Butthe Asset Management industry is much largerand more diverse than one would guess on firstsight. Thats why the estimation of size, utility andopportunities within a sector is very important. Imgoing to try to explain how to do this estimation in

just a two-pager, which is quite a challenge.

Asset Management in the broad sense makesup for roughly estimated 120 trillion dollar inmanagement worldwide. Services differ from

specialized investment advisers on pension andinvestment funds to alternative players like hedgefunds, Private Equity and Venture Capital. We willfocus on the mainstream segment, namely theMutual Funds, which create investment funds forthe ordinary people (you and me can follow thesefunds daily in the news) and manage mandatesfor big institutional players. Needless to say, themajority of money/assets in management lieswith the massive institutions such as pensionfunds and insurance companies, banks andgovernments. Where does this money come from

and what is happening with it?

The relation between fund managers and theordinary citizens is more complex than one wouldimagine. Of course you can buy shares of forexample an Indonesian High Yield bond fund atyour local bank or use fiscally interesting ETFs,but whats happening to the money that youtransfer to your life insurance company or thepension plan at your employer?

Contracts are established with these big players,

they determine their investment strategy anddecide what the manager can or cannot do with

the money and pay a nice commission. Indeed,banking is equal to fee-based revenue modelsand Asset Management is no exception to this.You might wonder where the added value of the

industry lies. Originally, due to diversificationbenefits by spreading risk, but even that is beingre-evaluated.

Once the amounts are available, they are assignedto the fund managers, following the agreedstrategy. The universe of investment is enormous.If you can imagine it, it probably exists. On oneside of the spectrum we find the Quants whodevelop volatility funds based on mathematicalmodels, one the other we find flamboyant Stockpickers who instinctively gamble on stocks.

Funds and mandates are being erected, moneyhas been allocated but then what? The managerwill try his absolute best month after month,within the boundaries of the contract, to attainthe return targets. It is clear that a Trackerhas the sole purpose to copy a reference indexand an absolute return fund one looks at theabsolute profits of the day before. But what aboutrelative funds? Revenue targets everywhere,but how does the client know he has made theright decision? Number tell the tale and the

client wants to have proof of the success of themanager. Aside from effective management,a parallel discipline was created, which workstogether with fund management. PerformanceMeasurement has the purpose to examine andanalyse the performance of funds. In order totake measurements we need a reference, betterknown as a reference index or benchmark.

Most common funds are relative funds. Theirperformance is being measured by a benchmarkthat is representative for that investment strategy.

The goal is to outperform the benchmark. Byfollowing methodological conventions and


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