Structured Finance Jobs Career Salaries Tips For Getting Hired

Structured Finance Jobs (Career)

One contemplates dozens of career choices before finally deciding what it should be. We like to test our choices and preferences before taking that big plunge in applying for a job. It is indeed the right thing to do, when today, we have varied options and correct sources to find out whether it suits our personality. Previously on this blog, we have looked at some of the most famous job options Hedge Fund JobsHedge Fund JobsHedge fund jobs are very popular among people in the finance industry because they can earn lucrative salaries. Some of the jobs available in hedge funds include fund manager, analyst, sales manager, marketing manager, and accountant.read more, Project Finance JobsProject Finance JobsProject finance jobs are those involved in the long-term control and management of infrastructure and industrial projects from a financial standpoint, which includes making financial investment decisions. Directors, managers, and analysts are the various job roles in project finance.read more. Here, we will explore one of the niche segments in the finance job industry, such as structured finance jobs. If you search the web, you will find a lot of descriptions of what structured finance is and what people usually do there. I thought of learning all about it myself and sharing it with you guys here.

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Through this securitization job guide, we will look at the following points to give you a head start on the structured finance career:

You may think I mistakenly used the word Securitization instead of Structured Finance in the earlier paragraph? Just so you know, in practice, these two words are synonymous; in most cases, references to structured finance mean securitization. However, structured finance transactions have a much broader scope, and securitization is considered a dominant form.

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What is Structured Finance?

Structured finance is a segment in finance which has been created in order to transfer riskTransfer RiskRisk transfer is a risk-management mechanism that involves the transfer of future risks from one person to another. One of the most common examples of risk management is the purchase of insurance, which transfers an individual’s or a company’s risk to a third party (insurance company).read more using complex financial arrangements. It is called structured because the securities under these financial transactions are secured, i.e., backed by collateral. These financial services are provided by large financial institutions that cater to the unique financing needs of a company that conventional loans cannot meet. The most commonly used structured financial instrumentsFinancial InstrumentsFinancial instruments are certain contracts or documents that act as financial assets such as debentures and bonds, receivables, cash deposits, bank balances, swaps, cap, futures, shares, bills of exchange, forwards, FRA or forward rate agreement, etc. to one organization and as a liability to another organization and are solely taken into use for trading purposes.read more include Asset-backed securities (ABS) and Mortgage-backed securities (MBS).

As the name goes, asset-backed security is a security whose value and payments are backed by a pool of underlying assetsUnderlying AssetsUnderlying assets are the actual financial assets on which the financial derivatives rely. Thus, any change in the value of a derivative reflects the price fluctuation of its underlying asset. Such assets comprise stocks, commodities, market indices, bonds, currencies and interest rates.read more – for example- auto loans, home equity loans, student loans.

A mortgage-backed security is a subcategory of ABS where the security signifies a claim on the cash flowsCash FlowsCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more from underlying mortgage loans.

How does Structured Finance Work?

This might get a bit technical for you, but it is important to understand what happens in structured finance.

In these financing transactions, companies sell their rights to payments they get under mortgage loans, accounts receivable, or any assets with constant cash flows to trust or the special purpose vehicle (SPVSPVA Special Purpose Vehicle (SPV) is a separate legal entity created by a company for a single, well-defined, and specific lawful purpose. It also serves as the main parent company’s bankruptcy-remote and has its own assets and liabilities.read more). The aim of doing so is to separate those financial assets from the risks a company is generally associated with. The company will then use those assets to raise funds from the capital marketsCapital MarketsA capital market is a place where buyers and sellers interact and trade financial securities such as debentures, stocks, debt instruments, bonds, and derivative instruments such as futures, options, swaps, and exchange-traded funds (ETFs). There are two kinds of markets: primary markets and secondary markets.read more at a lower cost than if the company, with its associated risks, had borrowed the funds.

On the other hand, the SPV is responsible for “bundling” the assets into a pool. This pool of assets is then sold as securities to investors that will meet their needs and risk preferences.

What is Included in Structured Finance Jobs (Career)?

Positions in structured finance jobs include creating financing vehicles to redirect free cash flowsCash FlowsThe cash flow to the firm or equity after paying off all debts and commitments is referred to as free cash flow (FCF). It measures how much cash a firm makes after deducting its needed working capital and capital expenditures (CAPEX).read more to investors through ABS and MBS.Under structured finance jobs, you would be helping companies raise capital by creating “secured” securities and then selling them to investors.The work generally revolves around companies with stable cash flows in their business models, such as credit cards, student loans, and credit card companies. It all boils down to the frequency of cash flows of securities and how appealing they can be made by packaging them differently.The structured finance (SF) group could typically include investment bankers, traders, and sales teams. As a Structured Finance Banker,you would be responsible for kicking start the entire process wherein you pitch clients to issue MBS and ABSABSAsset-backed Securities (ABS) is an umbrella term used to refer to a kind of security that derives its value from a pool of assets, such as bonds, home loans, car loans, or even credit card payments.read more notes. Once the deal is done, deal structuring is completed with the help of the rating agencies and legal team. Meanwhile, continuous updates are taken from the sales team regarding certain types of ABS from investors. As a Structured Finance banker, you would also coordinate with the traders regarding the information on the issuer’s outstanding notes that might be trading to get a hint on the new issue pricing.Creating a pitch is similar to investment banking, only that there could be more information in terms of the spread, tenor, and ratings of the bond, rates that the competitors are pitching, and showing how the collateral underlying structured notesStructured NotesStructured Notes are a type of debt investment in which the amount of return is determined by the performance of one or more underlying assets (interest rates, commodity rates, etc.) or indexes (equity index, for example).read more are performing in terms of credit quality.Real work needs to be done, usually involving all administrative work, such as creating a deal timetable and coordinating with the legal and rating agency teams.Then comes the part wherein you need to structure the deal, i.e., come about with the credit enhancements and create necessary marketing support to present the same in roadshows to explain to the potential investors.

What are Credit Enhancements in Structured Finance?

At this stage, you must understand the meaning of the term credit enhancementCredit EnhancementCredit enhancement is a strategy used by businesses to increase their creditworthiness through a variety of internal and external measures. The fundamental goal is to obtain better debt repaying terms, hence lowering investors’ risk of specific structured products in the financial market.read more. There are two approaches for credit enhancement –

Over-CollateralizationsSubordination

Let’s take this hypothetical example- if you have a pool of student loans worth $150, and you are offering it to the investors at $100. This is known as over-collateralizations. It creates a cushion against any reduction of value in the underlying assets.

Another approach for credit enhancement is subordination, which means that there are bonds with multiple classes from the most senior to the most junior tranche. For example, if a bond has three tranches X (senior). Y and Z (junior or subordinated). Subordinate bond Z would be allocated losses in case they occur before allocating the senior bond (X). Thus, this, too, provides credit enhancement.

Once the roadshow is done as Structured Finance bankers, you would spend some days marketing the deal from the launch through pricing with the clients.You will have to monitor the markets continuously; it is very important to know what would be the correct time to launch a deal so that you get the maximum attention.As a structurer, you will have to work on advanced modeling to calculate the cash flows, use your quantitative skills, and calculate the probability of defaulting borrowers on mortgages and loans.Thoroughly examine the issues and nuances of a transaction to know its outcome, carry out economic modeling, and also how various factors could affect the cost and prices of the deal.There is a lot of diversity in the deals. Several transactions are managed at a point in time, and none of the deals is alike.

Are You a Good Fit for Structured Finance Jobs?

Structured finance jobs differ from traditional Investment banking,Investment Banking,Investment banking is a specialized banking stream that facilitates the business entities, government and other organizations in generating capital through debts and equity, reorganization, mergers and acquisition, etc.read more, hedge funds, and private equity analysis. If those jobs allure you more, then I would suggest staying away from Structured Finance.If you are honestly curious about how companies raise funds using structured finance and are creative enough to work around those instruments and structure the securities well, you would surely fit in the structured finance jobs.You need to ensure that the deals are appealing to the investors and, at the same, ensure that the company’s concerns are met while doing so.You should be someone who follows the market well and is interested in applying the same to your work.MBA or CFA is not a necessity. People with even graduate degrees get into structured finance jobs, and at times, you get promoted much quicker than other finance professions.It’s better if you have a strong quantitative background and finance know-how.The skills that you would require for structured finance jobs would be innovation, analytical skills, verbal and communication skills, sector knowledge, and good networking skills, as you will have to pitch many unusual ideas to companies.Industry acquaintance is vital as structured finance analysts usually tend to specialize in areas such as oil and gas or power project financeProject FinanceProject Finance is long-term debt finance offered for large infrastructure projects depending upon their projected cash flows. Moreover, an investor has to form a Special Purpose Vehicle (SPV) to acquire the same. read more.Be someone self-motivated to perform and willing to learn.

What is the Culture Like at Structured Finance Jobs?

Structured Finance Career – Working Hours

You might have to get in early (around 7.00 am) at the office for market update calls.While working on the deals, you might have to work until midnight since you would have completed a set of work before the next day.Working on a weekend is not as often as in the case of investment banks and only when you need to get something done in the case of live deals or to prepare a pitch book A Pitch BookPitch Book is an information layout or presentation used by investment banks, business brokers, corporate firms, and others to provide potential investors with the firm’s main attributes and valuation analysis, which helps them decide whether or not to invest in the client’s business. A pitch book is also known as Confidential Information Memorandum, which is used by the firm’s sales department to help them sell products and services to a client.read more. Compare this with Investment Banking LifestyleThe average number of hours you would usually work is between 12 and 14 hours.

Structured Finance Career Hierarchy

Usually, the organization structure for the structured finance groups is flat.As a structured finance analyst, you would accompany your directors and managers for lunch and discuss work with them.However, this does not mean they would dither from giving you a pile of work on Friday evening, due on Monday! :D

Structured Finance Career Exit Opportunities

The exit opportunities from a structured finance job may not be as glamorous as in the case of investment banking at times. You could get to work in a company with a finance role to help them raise funds for their business using securitized products.Also, you can work for insurance companies and asset management firms Asset Management Firms An Asset Management Company (AMC) refers to a fund house, which pools money from various sources and invests the same in purchasing capital on behalf of their investors.read morethat invest in structured notes.For investment bankers, switching to private equity could be an option, but here the chances are low unless you have such expertise or prior experience of working in those sectors or deals.There are opportunities available on the hedge funds (HF)/investing side but not with the traditional Hedge Fund strategies.

Structured Finance Jobs Salary

Structured finance jobs are very niche, and their revenues are smaller than other finance biggies. Considering the junior analyst level positions, the pay is what you would expect at any other investment banking firm. For the senior levels, it does get better.

The fees differ depending on the type of the deal. This is very similar to hedge funds and M&A IB groups, wherein fees will reflect the size of the deal and how risky and difficult it is to get the deal done. The amount of fee that would come from the traditional auto/student loan deal, which is less risky, is small. The more customized deals would charge a higher fee from the clients.

Look at the graph below to know the average salary of a structured finance analyst job and the salary trend.

Few Guidelines for Getting Hired for a Structured Finance Job

I am sure you would want to see yourself viewing these words! Let me give you a few guidelines which could help you get your structured finance job.

Getting yourself recruited at a structured finance group is nothing different than any other job hunting. Also, since such firms are comparatively less, you will have to go through tons of cold calls, resume submissions, and use your networking schemes.The questions you find being asked at the interviews would be majorly based on accounting, financial modeling, and relative valuation like PE Ratio, Price to Book Value, etc.You need to be very well versed with what structured finance means and related catchwords like the one we saw earlier, “securitization.” You should know the kind of assets that get securitized, which ones should be selected, and which ones should not.The selection procedure for Structured Finance jobs is often concentrated on a few B-Schools. However, that does not mean you won’t be selected if you come from another institution. What counts is your interest, knowledge, and practical experience in that field.You should also be completely clear as to why you want to enter this field. So have good reasons for answering such questions well, wherein the recruiters want to test your intellect, interest, and curiosity.Very few people know about this area in finance, so you can give yourself an edge over them by reading and understanding this structure and starting networking.

Conclusion

Structured finance jobs benefit those with a solid blend of the spreadsheet, accounting, and legal skills. While considering them, you need to know how the economy has been performing and how the structured finance market is doing. Judging your success in this field is no rocket science and will largely depend on whether you enjoy doing the hard work, follow the market, and make deals happen. Plus, the pay you get for this structured finance job will have to be satisfied with the job you perform. If you wish to exit the Structured Finance industry and join either Private Equity/Hedge funds, ensure that you have the necessary credentials and experience of working on such deals, making an exit smooth.