University of British Columbia: Sauder Business School - Finance Club

Written by Gabi Champagne | MBA Clubs | Monday 19th May 2014 10:25:00 GMT Finance Club President discusses the best place to invest your money

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Jay Rhind, President of the Finance Club at Sauder Business School

 

Jay Rhind, previously an Investment Banker and now President of the Finance Club at Sauder Business School, talks about Finance as it is coming out of a recession, and what as a result is the best thing to do with your money.

What are your club’s big initiatives?

The UBC MBA finance club has had five major initiatives this past year: (i) provide students with practical skills to compliment the mostly theoretical lecture-based material taught in class, (ii) introduce students to portfolio management via an investopedia portfolio competition, (iii) provide mentoring/interview preparation for students applying for jobs in the finance sector, (iv) provide information on professional designations that are considered an asset in the finance industry, and; (v) provide small-scale networking events with local finance professionals.

 

Who is the most exciting speaker you have had this year?

The Sauder School of business puts on regular speaker series referred to as the “Dean’s Speaker Series”, which all finance club members are encouraged to attend and discuss post lecture. One of the most thought-provoking speakers was Dominic Barton - the Global Managing Director of McKinsey. Dominic prefaced his conversation by requesting that none of what he said be re-printed, I will honour that request but provide you with my favourite quote (paraphrased) from his talk: “you should go through life with a microscope in one eye and a telescope in the other”. Dominic attributed this quote to the late Jim Flaherty. The quote has relevance for the finance sector; where public companies can become myopically focused on quarter/quarter expectation driven results while losing sight of long-term strategy.

 

What is the best asset class to invest, in the current global situation? (Equities, bonds, commodities, cash, antiques, wines and commercial property?)

The answer to this question undoubtedly is – it depends. It depends on personal situations and accessibility of investment options. The majority of retail investors have access to stocks, bonds, and commodities. Alternative investments such as: collectables, real estate, and accredited investor products (ie. Private equity, hedge funds, VC funds, etc) – are available to only a small proportion of the investing public. In the current global situation of an unknown fallout from “shadow banking” concerns in China, turmoil in Russia and Ukraine, fragile and demographically un-balanced recovery in Europe, and a US bull market passing its fifth year - its hard for an investor to sift through the information to make a prudent investment decision. Recall the Jim Flaherty quote “go through life with a microscope in one eye and a telescope in the other”. The near term headwinds are personally concerning to me, the long-term looks assuredly positive. The “pivot to Asia” and “shift to Africa” motions are well underway in the former and in the early stages for the latter. These transitions are believed to include 100x the people and occur 10x faster than the Industrial Revolution. To make “telescope” based investment decisions keep the following driving forces in mind: (i) the rise of emerging markets, (ii) resource scarcity, (iii) massive urbanization – the largest migration the world has ever seen, and; (iv) population growth.

 

Have the financiers learnt the lessons of the financial crisis of the last six years?

Yes and No. Once again it depends on location. If we are talking about North American based investment banks, new regulation and capital requirements under Basel III have limited certain “risky” operations while providing more protection to the downside. That is not to say all risk has been mitigated, as the JPM London Whale fiasco has proven, banks remain difficult to regulate. The oft touted “too big to fail” may be one issue, the other may well be “too big to regulate”. With respect to other jurisdictions, China appears to be entering a situation that may feel similar to some market-watchers from the 2007 era. The rise of shadow banking and a housing market many experts are anticipating will crash leaving many home-owners underwater on their mortgage. However, China is not the US and has many unique considerations. For example, China’s largest banks, by assets, are state owned enterprises – which brings a whole new twist to the “too big to fail” discussion, try “too connected to fail”.

 

Is the CAPM still the Holy Grail for understanding risk and return on investment assets?

The CAPM is still taught and used to estimate the equity cost of capital. The component parts of the CAPM model – risk free rate, Beta and equity risk premium – are areas that are misused and remain moderately subjective. Whether one uses a regression-based beta, a “raw beta” as posted by Bloomberg, or a bottom-up approach to calculating Beta can have a large impact on the calculated cost of equity. Likewise the method for calculating the equity risk premium remains varied in practice, do you use: an Ibottson or Duff & Phelps ERP report, a long term geometric average of the market return, or an average of the market return using a truncated historical period? All of these considerations leave the CAPM open to multiple interpretations. Furthermore, what you use the CAPM for is important. For the purpose of equity valuation the following models are important: (i) FCFE DCF, (ii) Adjusted present value (“APV”), and; (iii) Real options.

 

Would the financial markets need regulation if financial institutions were allowed to fail whenever they made catastrophic mistakes?

The short answer is yes. To me the argument falls on a misalignment of incentives between stockholders and management. The argument goes something like this: in an unregulated environment senior executives, with significant upside potential from options, would make risky business decisions because the upside potential is a large payoff while the downside is small in comparison. A good historical example of a large bank that aligned management with shareholder interests is the Medici Bank (a 14th century Italian bank). Each bank branch was its own entity with managers of that branch owning equity in it. This proved valuable for two reasons: (i) managers engagement and attention to risk/reward scenarios was prudently assessed as they were meaningfully impacted by each decision, and (ii) the parent company, the Medici Bank, had protection to the downside as each branch operated as its own entity and one fail did not have a material impact on the firm. In today’s banking world, my belief is that regulation is needed to protect all stakeholders.

 

References:

http://www.businessbecause.com/news/mba-clubs/2554/sauder-business-shcool-finance-club

 

MBA Clubs: Sauder School Of Business – Natural Resources Club

Written by Gabi Champagne | MBA Clubs | Thursday 31st July 2014 11:43:00 GMT Canada is a resource-based economy and Vancouver is a hub for mining and forestry – ideal ground for Sauder's Natural Resources Club.

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Water Scarcity: Natural resources in Vancouver Island in Canada, UBC's base

Brett Hannigan, president of the Sauder School of Business’ Natural Resources Club at the University of British Columbia, explains why he thinks water is the most important natural resource.

He also explains the benefits of being part of the MBA Society at Sauder’s Robert H. Lee Graduate School, for those with a strong interest in the natural resources sector.

What are the club’s main aims?

The club aims to educate its members, and provide opportunities to meet and interact with industry professionals. Many UBC MBAs aspire to work in the resource sector, as Canada is a resource-based economy and Vancouver is a hub for mining and forestry, and has a fast developing liquefied natural gas industry.

Club members also have the opportunity to participate in a natural resource mentorship program – the Natural Resources Group – where they are paired with Sauder alumni working in the industry. The program teaches students how best to prepare for a career in that sector, and provides an opportunity to connect with potential employers.

Who is the most exciting speaker you’ve had this year?

Tim Vipond, a former investment banker and currently an analyst at Goldcorp, a global gold mining company based out of Vancouver. He taught a one-day course on mining valuation that involved working through a mining acquisition opportunity.

In addition to teaching the fundamentals of financial modelling, the course revealed factors that have the most impact on a potential mining investment, such as commodity price, grade, recovery, taxes, royalties, mine life and rehabilitation costs.

This course was an excellent opportunity for students to look at how mining companies assess potential M&A opportunities, and put our coursework into practice.

What aspect of the natural resource sector should people be keeping an eye on?

Despite Canada’s abundance of water it is becoming increasingly scarce in many parts of the world, and upping its importance is key.

Not only necessary for human consumption, it is a key ingredient in both the mining and oil and gas sectors, as it is used in drilling, mineral processing, oil refining and the production of bitumen using steam-assisted gravity drainage.

Balancing the needs of people and industry is difficult, and the scarcity of water is a serious issue. The impact of how this natural resource sector is managed could be far-reaching given its widespread uses.

What do you think is the most efficient form of renewable energy, and why?

The most efficient form of renewable energy right now is geothermal. Initial costs associated with installation can be high, but the energy savings are enormous. Geothermal plants produce a fewer amount of greenhouse gases relative to fossil fuel plants, and the water used to extract heat from the Earth can be recycled.

Geothermal energy does have its limitations, namely cost and geographic barriers, but it is efficient and constant.

When will we have to decide which renewable resources to use before the non-renewable resources run out?

I believe that we still have a long time before non-renewable resources are depleted. Efficient technology is making it possible to access and extract non-renewable resources from unconventional settings that we wouldn’t have dreamt possible 50 or 100 years ago.

As non-renewable resources become increasingly scarce, we can expect the price of these resources to increase – if there is appropriate demand. Increasing prices will cause currently uneconomic renewable resources to become economic.

Further advancements in technology may also lead to new discoveries. Although I don’t think a decision is imminent in my lifetime, it is important that we continue to use and develop renewable resources, and reduce our dependence on non-renewable resources.

References:

http://www.businessbecause.com/news/mba-clubs/2644/mba-clubs-sauder-natural-resources-club

 

MBA Clubs: Sauder School Of Business - Women in Business Club

Written by Gabi Champagne | MBA Clubs | Wednesday 16th July 2014 11:37:00 GMT Swetha Kola, president of UBC Sauder's Women in Business Club, reveals that the school's most successful female alumnus is Belinda Wong, president of Starbucks China.

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Swetha Kola, president of Sauder's Women in Business Club

 

Swetha Kola, who worked for Google and was revolutionising the non-profit sector in India, is now president of the Women in Business Club at the Sauder School of Business, University of British Columbia.

In this interview she explains why women are not proportionately represented in leadership roles – and how she is helping to change this. Swetha also tells us about one of Sauder’s most inspirational female alumni members, Belinda Wong, president of Starbucks China, who brought the brand into the country.

What are your club’s main aims this year?

To inspire women to aspire for leadership positions. We would like to normalize women’s leadership in business and other spheres.

Based in Sauder’s Robert H. Lee Graduate School, the UBC MBA Women in Business Club is building a network that includes members of the club, our classmates and alums, to support one another and be a source of strength throughout our lives and careers.

We are also hoping to reach out to younger women aspiring to careers in business to make them more comfortable with the notion of leadership, and support them with mentoring.

What proportion of women at Sauder are members of your club?

Every female student of our UBC MBA class is a member of the club. At the same time, we are happy that the men in the class also play an active role, contributing their ideas and support. I like that about our class. Everyone is progressive in their thoughts and actions.

What were you doing pre-MBA?

I had a leadership role in the non-profit sector, working to transform the concept of volunteering to make it more a mainstream value in India. I graduated in arts and humanities, started my career at Google in Hyderabad and then moved into the non-profit sector, leveraging the potential of youth to empower children at orphanages.

Who is your most successful alumnus from Sauder?

Personally, I have huge respect for people who are able to leverage their knowledge and experience on a global scale. One such alumnus is Belinda Wong, who is now the president of Starbucks China. She grew up in Hong Kong, moved to Canada, studied business at Sauder and transferred that management learning to launch one of North America’s most successful brands in her home market.

Who is the most exciting speaker you’ve had this year?

More broadly at Sauder, we were excited by quite a few great speakers who visited Sauder, including: Thom Lachman, president of Procter & Gamble; Dominic Barton, global managing director of McKinsey & Co; Anna Hazare, world-renowned Indian social activist; and Sir Roger Penrose, mathematical physicist and philosopher.

Another who inspired our members of the Women in Business Club was Shauna J. Wilton. At the time she visited us, she was HR director of CHC Helicopters. She spoke brilliantly about her foray into the business world, the challenges she faced in her male-dominated workplace in the 1990s, and the rich variety of work she has encountered.

She shared her experiences of being the only woman in a number of situations during her illustrious career, and gave advice on how to become the best at your job by introspecting – identifying and honing those unique things that set you apart.

Why do you think women are not proportionately represented 50/50 on company boards and in senior management teams?

There are many factors that are at play. However, the good news is that most of those factors can be overcome with effort.

It needs attention from grassroots-level monitoring – every step from academic training to professional life, right from the shift in the mind-set to opening up opportunities and requisite training. A lot of work is to be done.

Companies who are creating policies to provide flexibility to women and men for their family responsibilities are doing it right. I think the ongoing research that is bringing to light the direct and tangible advantage of having women on company boards and senior management is definitely one way to motivate more and more people to pause and consciously give this issue the attention it deserves.

Having senior managers be more proactive in mentoring younger women to nurture their talent is another positive step in the right direction.

At Sauder a new professorship has been created, which will be taken on by Jennifer Berdahl, an international leader in the study of gender and ethnicity in organizations. She will lead research and develop programming specifically to address the need for equity in the senior ranks of business and beyond. I see this as a very positive step forward.

 

References:

http://www.businessbecause.com/news/mba-clubs/2604/mba-clubs-sauder-school-of-business-women-in-business-club