Asset Management 101

Introduction to Investors and Asset Classes

October 17, 2023

Table of Contents
I. Institutional Investors
II. Public Equities
III. Hedge Funds
IV. Credit / Fixed Income
V. Private Equity
VI. Secondaries Private Equity
VII. Infrastructure
VIII. Real Estate
Institutional Investors
Institutions manage money for a wide range of clients and offer comprehensive services

Overview Selected Major Players

▪ Institutional investors consist of some of the world’s Canada U.S. and International
largest asset managers, investment/retail banks,
pension plans, and insurance companies
▪ Often publicly-traded and/or government regulated
▪ Firms can choose to invest actively/passively, using
their large voting power on behalf of their investors
▪ Typically pool and invest capital for large swathes of
investors (retail, corporates, mutual funds, etc.)

Institutional Investors Sub-Groups Day-to-Day

▪ Public Equities (Mutual Funds, ETFs, Active Mgmt.) ▪ Financial Modeling (macro/market trends, financial
▪ Fixed Income (Corporate Bonds, GICs, Treasuries) statements analysis, valuation, risk management)

▪ Derivatives, Commodities, and Forex ▪ Active Investment (due diligence, investor relations
calls, directional trades, hedging)
– Used for both trading and hedging
▪ Passive Investment (creating retail ETF products,
▪ Pension Plans and Retirement Funds mutual fund operations, quant strategies)
▪ Proprietary Trading & Quantitative Trading ▪ Portfolio Management (engaging with clients,
developing allocation strategy, wealth planning)
Institutional Investors
Institutions manage money for a wide range of clients and offer comprehensive services

Interview Prep

▪ Interview prep is highly dependent on the group of choice, and most vary drastically in their technical requirements
▪ Jobs at financial institutions include portfolio management, risk and compliance, trading, and wealth management
▪ Overall, a strong understanding of investment fundamentals, macroeconomics, and current events is essential

Typical Portfolio Structure

▪ Every investor will have a different risk

appetite, and thus a different portfolio
allocation strategy Bull Market Allocation
▪ The graph on the right represents a
standard portfolio allocation that was Equities 55%
common over the past 10-15 years
Fixed Income 25%
▪ Investors entering our current macro
environment may wish to hold more Cash 10%
cash and bonds, and reduce exposure to
certain equities to reduce volatility Commodities 10%
Public Equity Firms
Ownership shares in publicly traded companies that can be bought/sold on stock exchanges

Overview Relevant Firms

▪ Business model based on management fee and/or pay-

for-performance model (earns % of profit)
▪ More conservative strategy than most hedge funds (less
trading, more fundamental holds)
▪ Employs a mix of qualitative and quantitative
research methods to invest in or short publicly traded
companies in the hopes of generating alpha

Interviewing for Public Equities Great Resources

▪ Stay updated with current events and macro ▪ Podcasts: Founders, Business Wars, Business
▪ Read about investors who were able to generate alpha Breakdowns, Business Movers
over long periods of time
▪ Books: The Outsiders, Antifragile, Thinking Fast and
▪ Practice investing or use paper trading to put your Slow, Poor Charlie's Almanac, The Essays of Warren
theses to the test and demonstrate performance Buffett, The Intelligent Investor, Security Analysis
▪ Understand your investment by studying its business ▪ Gaining Investor Perspectives: Seeking Alpha, Value
model and history, competitive advantages,
Investors Club, YouTube, Wall Street Journal
management, relative valuation to peers, growth
projections, and sector head/tailwinds ▪ Paper Trading: Investopedia Trading Simulator
Hedge Funds
Hedge funds use pooled funds to employ aggressive investment strategies aimed at high returns

Overview Major Players

▪ Hedge fund managers pool together capital from high-

net-worth investors and deploy it through strategies to
achieve outsized returns
▪ The hedge fund industry is worth ~$4 trillion
▪ Hedge fund returns tend to be asymmetrical
– They, on average, are less volatile than the
market, but there is major downside risk in a
case of extreme loss

Common Strategies

Long/Short Equity Quantitative Arbitrage Event-Driven Global Macro

Using mathematical Exploiting price Investing based on

Taking long / short
and statistical inefficiencies and Exploiting temporary the macroeconomic
positions in
modeling, often mispricing by stock mispricing outlooks of different
underpriced /
through technology, simultaneously during corporate countries, involving
overpriced equity
to automatically make purchasing and events directional and
and equity derivatives
trading decisions selling investments relative analyses
Hedge Funds
Select Investment Considerations

Why Invest? The Hedge Fund Manager

▪ Outsized Returns: through active management and ▪ A hedge fund’s performance depends on its manager
riskier, flexible strategies, hedge funds target high ▪ Therefore, investors should be aware of a manager’s
returns with lower risk
background and track record
▪ Diversification: hedge funds can provide uncorrelated
▪ Fund managers follow mandates that dictate their
assets to a portfolio through non-equity investments,
actions (e.g., the benchmark, maximum exposures)
short sales, and derivatives
▪ Managers typically charge a “2 and 20” fee structure,
▪ Absolute Returns: absolute return strategies target composed of an annual management fee (2% of AUM)
positive returns in all market environments
and a performance fee (20% of profits)

Risks of Investing Important Performance Measures

▪ Liquidity Risk: hedge funds typically require investors The difference between an asset or portfolio’s
to keep their assets in the fund for 1+ years, with Alpha (α)
return relative to the market
periodic options to withdraw assets
▪ Concentration Risk: portfolios with limited investments
increase risk for investors, especially when there are few Measures the risk (volatility) of an asset or
Beta (β)
portfolio relative to the market
hedges
▪ Leverage Risk: some hedge funds use leverage to
magnify returns (i.e., buying on margin), leading to Sharpe Measures the performance of an asset or
greater downside risk Ratio portfolio relative to its risk
Credit / Fixed-Income
Credit investors provide debt financing or purchase debt and debt-like securities

Overview Leading Credit Firms

▪ Credit is a low-risk asset class that provides steady
returns investing across various debt instruments
▪ The credit market is significantly larger than equity
markets by dollar value and is an indicator of the
relative health of the markets and economy as a whole
▪ Credit investors look for returns through fixed income
payments from interest on debt or coupon payments
▪ Investments span across the capital structure, ranging
from government treasuries to complex illiquid structures

Credit Sub-Groups Preparing for Credit

▪ Requires a bearish investing mindset; credit investors
Corporate

Refers to investments into the debt of companies

are pessimists that focus on minimizing downside
▪ Leveraged finance across the capital stack
▪ Candidates need to understand the various debt
Private Credit High-Yield instruments across the capital structure
▪ Learn how different business models operate and break
down their key cost and revenue drivers
Structured

Refers to investments into credit-like assets

▪ Requires a strong technical background on cash flows,
▪ Specialty finance and flow agreements debt, financial covenants, and deal and loan structure

Asset-Backed Royalties ▪ Model out debt waterfalls and capitalization tables

Credit / Fixed-Income
Walkthrough of a credit investment process

Corporate Credit Breakdown Private Debt Investment Criteria

Private Debt Quality business model with strong fundamentals

Provides debt financing to non-publicly traded companies Conviction in EBITDA and cash flow generation
with the goal of generating income through interest
payments. Debt investments can vary in risk Loan structured with collateral for downside protection

Creditworthiness and clear exit strategy

Investment Thesis: Investors look for opportunities to invest
in a debt investment with spread (returns) relative to the risk Poor relative value compared to risk benchmark
index for the debt. Broadly speaking,
. illiquid investments that
are buy-and-hold focus on loss mitigation and ensuring debt Misalignment with lender and management team
payments are continually met
Select Transaction Timeline
High-Yield
Borrower
Invests in bonds and assets in the OTC and Exchange Borrower requires Identifies the type
markets where investors seek above-average yields Closes deal
a loan of loan needed
relative to the level of risk associated with the bond rating

Investment Thesis: More like an equity investment, high-

yield debt focuses on traders that find misalignments when
trading “junk” bonds with poor .credit ratings. Alpha is Lender signs NDA Evaluates return & Gets interest &
for data room underwrites loan principal payments
generated when individual bonds have price misalignments
from the inherent market value of the bond
Lender
Private Equity
Investing with the aim of improving a company's performance and selling them for a profit

Overview Leading Private Equity Funds

▪ Private equity firms (General Partners; “GPs”) raise

US / Global
pooled capital from outside investors (Limited Partners;
“LPs”), then invest in companies, operate them, and
eventually sell them to earn a return
▪ Profits are waterfall 80/20 distributed between LPs and
GPs after initial investment is fully returned to LPs

Canada
▪ GPs charge a 2% management fee on committed capital
▪ Professionals spend their time on origination, deal
execution, managing existing assets, and fundraising

Interviewing for Private Equity PE Transaction Structure 80/20 Waterfall

▪ Strong understanding of the mechanics of good

LPs
businesses and finance technical skills LP
Returns 80%
Committed
▪ Stay updated with current events and macro trends and
Capital
their implications on deal environment and companies
GP
▪ Mastery of LBO mechanics, returns drivers, and solving GP Private Equity Fund 20%
Catch-Up
advanced paper LBO questions during interviews
▪ Ability to generate investment decisions through stock Initial
pitches, investment cases, and modeling tests Investment
PortCo PortCo
Secondaries Private Equity
Buying and selling of existing private equity stakes from one investor to another

Overview Leading Secondaries Firms

▪ Secondaries is buying or selling specific assets that

are already part of a private equity fund
▪ GP-led: Re-upping into an existing, flourishing
Portfolio Company that is reaching the terminus of
the fund’s contractual life
▪ LP-led: Minimizing risk, boosting available funds,
and allocating resources to established investments

Merits of Working in Secondaries Secondaries Prep

▪ A swiftly expanding asset category; each transaction ▪ Consists of standard BIWS technicals with a focus on
possesses distinct characteristics, allowing for private equity readiness
creative opportunities
▪ Essential to gain a comprehensive grasp of the
▪ Involves technical responsibilities, including modeling asset's advantages, key performance indicators (KPIs),
and due diligence drivers, and the seven deal structures
▪ Requires a specialized and distinctive skill set ▪ Evaluate the pros and cons of these deal structures for
▪ Typically offers more favorable working hours limited partners (LPs) and general partners (GPs)
compared to traditional private equity ▪ Examine the challenges and risks associated with
▪ Common exits include LMM and MM, bridging the gap secondary market transactions
between sell-side and buy-side operations ▪ Analyze industry drivers and potential pitfalls
Secondaries Private Equity
Select investment walkthrough

Why Invest? GP vs. LP Led Transactions

Smoother CF Lower Loss Rates Higher IRR ▪ LP-Secondary: LP sells interest to an

interested buyer
Incorporating Secondary funds – 65% of secondaries in 2020
Secondary funds
secondaries into a typically achieve an ▪ Direct GP-Secondary: a secondary buyer
exhibit reduced loss
portfolio enhances average IRR of purchases a stake from the GP and hires a
rates compared to
cash flow stability, 16.7%, surpassing new GP to run the portfolio
primary funds, and
as secondaries often global PE/VC funds, ▪ GP Restructuring: PortCos are transferred
they typically have
involve mature funds which stand at 12.6% to a new fund run by the same GP
less return
with shorter holding - a notable 4.1%
periods
variability
difference – Existing LPs can rollover

Shallower J-Curve
Secondary Investment
70% Primary Investment
50%

30%

10%

-10%

-30%
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Cash O utl ays Cash Inflo ws

Infrastructure
Investments in assets and services that are essential to societal function

Overview
Energy & Utilities Social Infrastructure
Power Plants, Pipelines, Renewables Hospital, Public/Private Schools,
Gas, Electricity, Water Distribution Affordable Housing, Amusement Park

Transportation Digital Infrastructure

Airports, Toll Roads, Toll Bridges, Rail, Data Centers, Wireless Towers, Fiber
Highway Service Area, Ferries, Buses, Optics, EV Charging
Shipping Container Leasing
InfraTech

Attractiveness of Infrastructure Assets Working in Infrastructure

▪ High, stable, recurring cash flow generation ▪ PE-like: deal sourcing, execution, PortCo management
▪ Strong cash yield due to low marginal cost per use ▪ Long, detailed valuation models assessing cash flows
▪ Essential services that are often irreplaceable decades out and many downside scenarios

▪ Minimal maintenance capex requirements ▪ Researching macroeconomic drivers: population age

and growth, GDP growth, political, etc.
▪ Recession and inflation-hedged
▪ Exposure to international markets (both developed and
▪ Returns that are uncorrelated with the markets emerging)
(diversification benefits to investors’ portfolios)
Infrastructure
Investments in assets and services that are essential to societal function

Infrastructure Investment Vehicles Leading Infra Funds

▪ Infrastructure Private Equity Capital raised1

Manager HQ ($m)
– Ownership/Control investments in infra assets
Macquarie Asset Management Sydney 86,153
▪ Infrastructure Investing Brookfield Asset Management Toronto 77,178
▪ Project Finance / Infrastructure Debt Global Infrastructure Partners New York 71,712
KKR New York 61,962
– Investing in the debt of infrastructure assets
▪ Public Finance
– Investing in municipal bonds used to fund infra

Traditional PE vs. Infra PE Preparing for Infrastructure

Trad. PE Infra PE ▪ Chatting with upper-year students and professionals
Target IRR 20% - 30% 10% - 18% ▪ Requires a pragmatic investor mindset
Typical Hold 5 – 10 years 20 – 60 years ▪ Follow macroeconomic news and understand
implications on deal environment and specific assets
Return Source Exit Multiple Cash Yield
▪ Asset merits, KPIs, drivers, deal evaluation methods
Cash Yield Very Low or 0% 10%
▪ Investing case studies and modelling tests
Leverage Level ~50% 80% - 100%+
▪ Strong knowledge of private equity and valuation models
Vehicle Closed-Ended Open-Ended

1. Infrastructure capital raised between January 1, 2017. and August 31, 2022.
Real Estate
Real estate investments include various types of land, developments, and buildings

Overview Real Estate Firms

▪ Real estate assets can be divided into individual

properties and professionally managed funds
▪ Four main types of real estate asset classes:
– Residential: single-family, multi-family, co-ops
– Office: Class A,B, and C buildings
– Retail: shopping centers, community retail
– Industrial: manufacturing, assembly, warehouses

Merits of Working in Real Estate Interview Preparation

▪ Specialized knowledge to inform personal real estate ▪ Knowledge of different verticals and unit economics
investment decisions ▪ Follow macroeconomic news and understand
▪ Massive component of Canadian GDP implications to mortgage rates
▪ Diverse company types, roles, and opportunities ▪ Understand industry-specific accounting and valuation
metrics
▪ Industry-specific modelling responsibilities and technical
skillset ▪ Assess the pros and cons of various investment vehicles
▪ Typically offers more favorable working hours relative to ▪ Familiarity with Net Asset Value (NAV) models
other verticals
Real Estate
Select investment considerations

Why Invest? Real Estate Investment Vehicles

▪ Stable Cash Flows: long-term leases, diversification, ▪ Property Acquisitions & Development
and steady housing demand generate consistent rental ▪ Real Estate Private Equity (REPE)
income
– Firms raise capital from LPs to acquire, develop,
▪ Capital Appreciation: real estate assets generally
hold, and sell properties
appreciate over time with lower volatility, building
investor equity ▪ Real Estate Investment Trusts (REIT)

▪ Higher Leverage: hard assets allow for higher leverage – Raise equity and debt in the public markets with
multiples relative to other assets, amplifying returns longer holding periods relative to REPE
– Equity, Mortgage, and Hybrid REITs

Select Financial Metrics

Net Operating Income
The difference between rental income and OpEx, excluding interest, corporate taxes, and D&A
(NOI)

Cap Rate NOI as a % of Property Cost, used to measure yield on investment

Loan-to-Value (LTV) Expressed as the loan amount over property value, measuring the amount of financing used

Funds From
Sum of net income and Real Estate D&A, adjusted for gains/losses on sale, used for REIT valuation
Operations (FFO)
Questions?