Introduction to Capital Markets

Course Objectives

Introduction: Defining Capital Sell-Side: Origination and Sell-Side: Sales & Trading and
Markets Primary Markets Secondary Markets

Buy-Side: Traditional Buy-Side Buy-Side: Hedge Funds Understanding How the CMSA
Serves You

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Defining Capital Markets
 What Are Capital Markets (‘CM’)

Capital Markets

Trading Products
Primary Market Secondary Market
• Equity Securities
(e.g., Common Shares)

Corporation Fund Managers / • Debt Securities

Investors
(e.g., Bonds)

Existing • Foreign Exchange

New Issue
Securities Securities (e.g., Currencies)

• Derivatives
Fund Managers/ Fund Managers / (e.g., Swaps, Futures, Forwards)
Investors Investors

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 The Primary Market Map

Cash

Corporates Sell Side Buy Side

CFO / Treasurer Investment Bank Fund Managers /

Origination Institutional Investors

Cash
Bonds/Shares
Lenders /
Investors

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 The Primary Market - Example

Cash

Corporates Sell Side Buy Side

Investment Bank Fund Managers /

CFO / Treasurer
Origination Institutional Investors

Cash
Bonds/Shares
Lenders /
Investors

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 The Secondary Market Map

Buy Side Sell Side Over-the-Counter Buy Side

(OTC)

Investment Bank Stock

Fund Managers Sales, Trading & Fund Managers
Exchange /
want to sell Research want to buy
OTC

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 Primary vs. Secondary Markets

Capital Markets

Primary Markets Secondary Markets

New Existing
Securities Securities
Cash Cash

Corporation Investor A Investor B

Definition First time offering securities Existing securities are offered

Beneficiary Corporation Investors

1. Issuing Corporation Investors buy and sell amongst

Transaction
2. Investment Bank (Origination) each other via investment
Stakeholders
3. Institutional Investors banks that are broker/dealers

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 Primary vs. Secondary Markets

Capital Markets

Primary Markets Secondary Markets

New Existing
Securities Securities
Cash Cash

Corporation Investor A Investor B

Intermediary Investment Bank, Origination Investment Bank, Sales & Trading

Initial Public Offering (IPO) Existing securities are offered

Products Traded
Follow-on Public Offering (FPO)

Selling Frequency One-time event Ongoing trading among investors

Price Corporation sells shares to Supply and demand sets price

investors at fixed price

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 Who Are the Participants in Capital Markets

BUY SIDE SELL SIDE

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 Interactive Exercise

BUY SIDE SELL SIDE

Institutional Investors /
Primary Fund Managers
Origination
(New Issue) DCM ECM
Market Debt Equity
Capital Capital
Markets Markets

Secondary Sales, Trading

Market & Research

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 Learning Roadmap

Sell
Sell Side
Side Buy
Buy Side
Side
Function

Origination &
Structure Traditional
Primary Markets

Day in the Life

Sales, Trading &

Personality Fit
Non-Traditional
Research

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 Finding Your Fit in Capital Markets

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Sell Side
 Sell-Side Overview

Investment Banking Capital Markets

Industry Group Product Group Sales & Trading Research

Financial Mergers & Government Equity

Real Estate Origination Equities Debt
Institutions Acquisitions Bonds

Telecom, Debt Equity Money

Oil & Gas Commodities
Media & Tech Capital Capital Market
Markets Markets
Consumer & Foreign
Healthcare (DCM) (ECM) ABS/MBS
Retail Exchange

Corporates
Derivatives
Bonds

Investment Banking Division (IBD) CM – Primary Markets CM – Secondary Markets

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 Sell-Side Investment Banking
Origination & Primary Markets
 Sell-Side Investment Banking

Investment
Banking

Industry Product
Group Group

Financial Media & Mergers &

Origination
Institutions Telecom Acquisitions

Metals &
Oil & Gas DCM ECM
Mining

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 Sell-Side Investment Banking: Origination, Primary Markets

Sell
Origination
Side

Function Investment Banking Origination

Division (IBD) DCM and ECM
Structure
• Advisory – deal sourcing • Origination team acts as the
team – win mandates, and middleman
Day in the Life
are non-market-facing
• Origination team underwrites
Personality Fit • This is what people refer to debt and equity
when they say ‘investment
banking’ • Works closely with IBD peers

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 Sell-Side Investment Banking: Origination, Primary Markets

Sell
Origination
Side

Function

Structure WHERE WHAT FINANCIAL INTERMEDIARY

Day in the Life Primary Underwrite Bridge connection between:

Markets Debt & Equity

Personality Fit Corporate Global investors

clients looking to seeking investment
raise capital opportunities

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 Sell-Side Investment Banking: Origination, Primary Markets

Sell Origination
Origination
Side

DCM ECM
Function

Structure Debt Capital Equity Capital

Markets Markets
Day in the Life
Bond product experts Equity product experts
• Investment-grade bonds • Common shares
Personality Fit
• Short-term as well as • Preferred shares
long-term funding

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 A Day in the Life: Full Circle Transaction

External Corporation
Sell
Origination Looking for a Bank to lead deal
Side
Corporation: We need to raise $200M.
Let’s look at who has been reaching out
Media & Telecom
Function to us the most and contact the Bank we
Chief Financial Officer
think will do the best job.
(CFO) / Treasurer

Structure
Investment Bank

Day in the Life

Mandated by the Corporation

Personality Fit IBD Team

Industry Group (IBD) • Considers options, performs analysis
Managing Director, • Connects with product specialists
Media & Telecom

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 A Day in the Life: Full Circle Transaction

Investment Bank
Sell
Origination Primary Markets
Side
• DCM brings new bonds to market
• ECM brings new shares to market
Origination (CM)
Function
Managing Director,
DCM / ECM
ETHICS WALL
Structure

Day in the Life

Secondary Markets
• Support secondary trading
Personality Fit
Sales & Trading (CM)
Managing Director,
Trading Products

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 Sell-Side Investment Banking: Origination, Primary Markets

Origination Team Career Path

Sell
Origination
Side
• DCM and ECM will follow the same holistic career title progression
• A team will be composed generally of the following roles

Function

Structure Managing Relationship

Director Management
Director
Day in the Life
Vice
President
Personality Fit
Associate
Analyst Day-to-day operational
support, analytical

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 A Day in the Life: Full Circle Transaction

DCM / ECM | Daily Agenda

Sell
Origination 7-7:30 AM / 7PM Early morning start!
Side

Listen in on the Sales, Trading, and Research team’s morning call

Function
Catch up on the news and any overnight events

Structure Deals start launching when markets open, and typically

this is around 9:30AM regional time - so be prepared to
be busy if you are a lead or co-lead on deals
Day in the Life

Personality Fit

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 A Day in the Life

As an Analyst/Associate you will be expected to support by:

Sell
Origination
Side

Deal Non-
Function Day Deal Day
Structure
Preparing ad-hoc indicative Updating debt / equity market
pricing sheets slides
Day in the Life
Preparing term sheets for Responding to requests from
distribution industry groups
Personality Fit Preparing deal summary Creating case studies based
documents for the client on recent deals

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Sell-Side S&T, Research
Secondary Markets
 Sell-Side Investment Banking

Capital
Markets

Sales &
Research
Trading

Corporate
Equities Debt Equity
Bonds

Foreign Government
Exchange Bonds

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 Sell-Side: Sales, Trading, and Research

Sell Sales, Trading & Origination is to as Sales, Trading, and Research are to
Side Research Primary Markets and Corporates… Secondary Markets and the Buy-Side

Function

Structure

Day in the Life

PRIMARY SECONDARY
Personality Fit
MARKETS MARKETS

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 Sell-Side: Sales, Trading, and Research

Sell Sales, Trading & SALES TRADING RESEARCH

Side Research

Function

Structure SALES, TRADING, AND RESEARCH PROVIDE VALUE BY

• Providing market liquidity

Day in the Life
• Granting access to live market insights from real-
time trading data
Personality Fit
• Publishing deep data analysis and insights on a
regular basis

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 Sell-Side: Sales, Trading, and Research

SALES TRADING RESEARCH

Sell Sales, Trading &
Side Research

Function

• Client-facing • Market-facing • Support Sales and Trading

Structure
• ‘Cover’ clients, effectively • Market maker – will always • ‘Cover’ whole industries
owning the relationship have a bid/offer for all and companies, more so
Day in the Life
with buy-side investors securities than products

• Provide value to clients by • Provide value to the Bank • Provide value to clients by
Personality Fit
relaying live market by developing a deep and publishing deep analysis
information from Traders narrow expertise in one and commentary
(e.g., market color) market

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 Sell-Side: Sales, Trading, and Research

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 Sell-Side: Sales, Trading, and Research

Sell Sales, Trading & Sales, Trading, and Research Career Paths
Side Research
• Sales and Trading follow the same path
• Research is unique

Function
Sales & Trading Research
Structure
Managing Analyst
Director
Day in the Life Director
Vice
Personality Fit President
Associate
Analyst Associate

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 Sell-Side: Sales, Trading, and Research

01 02 03
Sell Sales, Trading &

SALES
Side Research

Call buy-side Communicate Relay quote(s)

client market color from Trader(s)
Function

Sales| AM Agenda
Structure
7-7:30 AM / 5PM… and beyond Early
morning
Day in the Life Morning call with Sales/Trading/Research
start!
Start calling clients
Personality Fit Respond to price quote requests from clients on Bloomberg
Connect clients to resources at the firm
Take clients out to dinner and drinks to build relationship

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 Sell-Side: Sales, Trading, and Research

01 02 03

TRADER
Sell Sales, Trading &
Side Research

Make Respond to Work with Sales

Markets clients via Sales to pitch trades
Function

Trading| AM Agenda
Structure

7-7:30 AM / 5PM Early morning start!

Day in the Life
Morning call with Sales/Trading/Research

Personality Fit See where markets open, while taking in overnight

information and analyzing the day’s news to develop views

Respond to price quote requests from Sales team

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 Sell-Side: Sales, Trading, and Research

01 02 03

RESEARCH
Sell Sales, Trading &
Side Research

Research Report Project

Function

Research| AM Agenda
Structure

7-7:30 AM / 5PM Early morning start!

Day in the Life
Get caught up on all overnight news and headlines

Personality Fit Listen in on the morning call with Sales/Trading/Research

Listen to earnings calls, ask questions, write call notes, update
financial models
Prepare marketing material for client presentations

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 Full Circle Transaction

01 02 03
TRADING
Trader,
HG Credit

• Analyzes markets movements

• Communicates with Sales team to
PENSION FUND SALES move positions and balance risk
• Sends RUNZ to clients and internally
Portfolio Manager, Salesperson,
Fixed Income Government Bonds
RESEARCH
• Calls/Receives call • Gets market insights from Corporate Debt
from Salesperson to traders and works together
get market color, as to make mutually beneficial
well as talk about any trades with buy-side • Researching, reporting, and projecting
transactions the Fund • Call client base to relay – on companies and industries
may want to execute market color and intel from • Sends RUNZ to clients and internally
traders

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Buy Side
 Learning Roadmap

Sell
Sell Side
Side Buy
Buy Side
Side
Function

Origination &
Structure Traditional
Primary Markets

Day in the Life

Sales, Trading &

Personality Fit
Non-Traditional
Research

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 Buy-Side Overview

Investor Money Manage Grow

Goal

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 Buy-Side Overview

Buy Side

Traditional Non-Traditional

Insurance Hedge Distressed

Pensions
Co. Funds Funds

Endowment Mutual Venture Private

Funds Funds Capital Equity

Family Offices

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Buy-Side Traditional
 Buy-Side: Traditional

Buy
Traditional
Side
Examples of Traditional Buy-Side firms

Function Asset Pension Insurance Endowment Family

Managers Funds Companies Funds Offices
Structure

Day in the Life

Personality Fit

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 Buy-Side: Traditional

Buy Public Retirees & Policy Current & Family

Traditional investors Pensioners Holders Prospective Members
Side
Students
Investors

Function
Asset Pension Insurance Endowment Family
Managers Funds Companies Funds Offices
Structure

Day in the Life

Personality Fit
Buy Side
Firms

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 Buy-Side: Traditional

Buy Asset Class Geographic Region

Traditional
Side
• Fixed Income • North America (NA) • Asia-Pacific (APAC)
• Equities • Europe Middle East • Emerging Markets (EM)
Function • Commodities and Africa (EMEA)

Structure US, State Pension Fund – Manages All Teachers (K-12) Retirement Income

Day in the Life

Core Fixed Income Team Global Equities Team
Personality Fit • NA Governments • Focus on NA and
EMEA

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 Buy-Side: Traditional

Buy
Traditional
Side
Buy-Side Trading Floor Portfolio
Manager (PM)
Function

Junior Portfolio
Structure Manager (PM)

Day in the Life Senior IA

Investment
Personality Fit
Core Fixed N. America, Analyst (IA)
Global Equities
Income Governments
Team

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 Buy-Side: Traditional

Conduct external Call broker and Rebalance

research booking trade portfolio positions
Buy
Traditional
Side

Function
Investment Trade Portfolio
Structure Analysis Execution Management

Day in the Life

Personality Fit

Portfolio Trader Back

Manager Office

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 Buy-Side: Traditional

Buy 8-8:30 AM / 5 PM Not as early as sell-side ☺

Traditional
Side
Get caught up on headline news that may impact your portfolio

Function

Structure

Day in the Life

Gather and analyze data Monitor current Execute trades and
to inform your views active positions rebalance positions
Personality Fit

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 Buy-Side: Traditional

Buy 8-8:30 AM / 5 PM Not as early as sell-side ☺

Traditional
Side

Separate the useful from the unimportant

Function

Structure

Filter Think Hypothesize Debate

Day in the Life
Information Critically Perspectives

Personality Fit

Ssshh! Indoor voices please!

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Buy-Side Non-Traditional
 Buy-Side: Non-Traditional

Buy Non-
Side Traditional
Examples of Non-Traditional Buy-Side firms

Function Hedge Distressed Venture Private Family

Funds Funds Capital Equity Offices
Structure

Day in the Life

Personality Fit

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 Buy-Side: Non-Traditional

Buy Non-
Side Traditional Accredited investors only
Investors

Function
Hedge Distressed Venture Private Family
Funds Funds Capital Equity Offices
Structure

Day in the Life

Personality Fit
Buy Side
Firms

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 Buy-Side: Non-Traditional

Buy Non -
Side Traditional
Leverage
Leverage is a good characteristic of a non-traditional
buy-side firm but not a necessary one

Function
Actively Managed
Structure
Unregulated
Day in the Life

Limited Investors
Personality Fit

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 Buy-Side: Non-Traditional

Buy Non - Traditional Non-Traditional

Side Traditional
Market Facing Market Facing Deal-Oriented / Non-Market Facing

PF
Pension HF
Hedge PE
Private VC
Venture
Function Fund Fund Equity Capital

Structure

Day in the Life

Personality Fit
Low risk, conservative Not seeking Take material interest in companies, and
investment strategy ownership focus on achieving returns through
influence management influence

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 Buy-Side: Non-Traditional

Buy Non- Hedge Distressed Venture Private Family

Side Traditional Funds Funds Capital Equity Offices

Function
Portfolio Managing
Partner
Manager (PM) Director
Structure

Jr. Portfolio Director Principal

Day in the Life Manager (PM)

Investment
Personality Fit Sr. Investment Investment
Associate
Analyst Associate

Investment Investment Investment

Analyst (IA) Analyst (IA) Analyst

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 Buy-Side: Non-Traditional

FEES
Buy Non-
Side Traditional
S&P
Benchmarks
500
Function
Non-Traditional Traditional
Structure Regulation Minimal Extensive
Assets Under
Fees Incentive
Day in the Life Management
Leverage High Low

Personality Fit Performance Measurement Absolute Returns Versus Benchmark

Market Exposure Long, short Long

Correlation with Traditional
Low High
Markets

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 Buy-Side: Non-Traditional

Buy Non- 7:15-8 AM / 6 PM… or later

Side Traditional
Get caught up on headline news that may impact your portfolio

Function

Structure

Day in the Life

Gather and analyze data Monitor current Execute trades and
to inform your views active positions rebalance positions
Personality Fit

Take calls from sell-side brokers to discuss markets

Discuss and debate investment ideas with colleagues

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 Conclusion

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