CFA Level 1

Equity Valuation: The Perspective

While other modules of the CFA curriculum enables a professional with various tools and ways to reach a conclusion, Equity valuation part of the course helps them develop a perspective as an Analyst. As subjective and as differentiated we are as humans, so are our expectations, this module assists us in analyzing different expectations on the same podium.

The topic area is only worth about 10% of CFA Level 1 exam but is extremely important in the other two levels and through your career as an analyst. Much like the introductory material on Financial Statements, this material will act as base knowledge you absolutely must know. Most of the material is conceptual and will be a repeat for students of finance. If you are new to the industry, spend a little time to get the vocabulary and concepts.

Equity represents a residual ownership on the company’s assets. This implies higher risk but also potentially higher return, hence equity analysts have a reputed position in the industry. Not just when you interview for hard core equity research, but most finance job interviews make you witness questions from this module, cost of equity and return on equity being the most frequent and favorite starters of interviewers.

A specific part of this course raises discussion on private company analysis, which is not only blur but uncertain due to lack of transparency, what makes it opaque is your analysis. This module helps you discover as an analyst, you not only look at the company from top and down angles but with experience discover loopholes which help you forecast in a much better way. When the time comes, for the real race of life, when we sit in the midst of 100’s of our fellow analysts, this base of our perspective built over the years helps us win the battle.

Emerging Manager Program –A Hedge Fund Strategy

Hedge funds are alternative investment classes which use strategies like event driven; long/short equity, long/short technology, global macro, volatility and interest rate parity and these funds are less correlated with the traditional investment classes like equities and fixed income. Emerging manager program a strategy which is employed by the hedge funds over the last decade, is becoming more popular now with the rising number of emerging managers. By definition emerging managers are managers whose asset under management is less than or equal to one billion dollar or the managers who belong to any ethnic minorities or women or disabled veterans.

The main objective of the emerging manager program is to identify and help the young developing fund managers who is generating good risk adjusted alpha, and to unlock the opportunities which would otherwise be hidden, and to diversify the investment and to protect the capital when the markets are in a downturn.

California State Teachers’ Retirement Trust (CalSTRS) a California based retirement pension fund, which is the thirteenth largest public pension fund in the world with total assets under management of $189.70 billion and the California Public Employees Retirement System (CalPERS)which manages pension and health benefit of more than 1.6 million California public employees which is the largest public pension fund in the US with total assets under management of $300.30 billion. CalSTRS and CalPERS announced a joint control on April 2006 to create a database of emerging managers and financial service providers. The main objective of this joint control is to capture the untapped talent in the investment industry to diversify their investments. According to their database there are 130 real estate emerging manager and diversity manager with total asset of $10.4 billion in the real estate space, of which 32 (24%) are Women/Minority owned funds.

There has been a lot of studies which show that the small managers can generate better risk adjusted returns for institutional investors. Franklin Templeton and Morgan Creek, which are also in the business of raising money for investing in emerging managers, conducted a survey which revealed that more than 50% of the small managers with total assets under management of $1 billion or less are able to generate better result than a similar larger fund which is investing in the same sector.

In addition to generating a higher risk adjusted alpha there are lot of additional advantages of investing in emerging managers, which includes identification of “Fresh Talent” with new strategy, new ideas, new energy and new structures which has the potential to deliver better results and additional diversification in the particular sector, and smaller managers are more projected towards their strategy and they are better aligned with their investors and are more adaptable to the dynamic market conditions than their larger rivals and thus preserving the capital during the market downturn. Another advantage of investing in emerging manager is to getting into a good relationship with the emerging manager from the beginning and so a getting chance to stay with them as they emerge.

Presently lot of other funds like endowment fund, a fund used by nonprofits, colleges and churches which are funded by donations, funds of hedge funds which mainly invests on another hedge fund and foundation funds, a fund managed by nonprofit public or private foundations started using the emerging manager program as one of their investment strategies to generate excess risk adjusted alpha.

This blog is written by Ebenezer R Benjamin, CFA Level 1 Candidate, Semester III, MBA-FA (2014-16), Delhi Campus.

Net Neutrality

“This content has been blocked by your service provider” Have you come across such a line while opening up websites? This means that access to this content is not available to everyone. You may have to pay for getting access to this content.

Net neutrality is the principle that all internet users must have equal access to all content and applications. Net Neutrality means an Internet that enables and protects free speech. It means that Internet service providers should provide us with open networks — and should not block or discriminate against any applications or content that ride over those networks. Just as our phone company shouldn’t decide who we can call and what we say on that call, our Internet Service Provider (ISP) shouldn’t be concerned with the content we view or post online.

The citizens should have the right to net neutrality which will support a competitive market place and will provide a place for all firms in their growth.The main disadvantages of the net neutrality that telecom companies argue is that companies like Google and Facebook have created the services that allow the people to make calls for free on networks that telecom companies have spent billions to build due to which net neutrality is an injustice to these companies.

The Internet users in India has grown at an exceptional pace since 1991 sand this has been largely because of the freedoms, protections and various other benefits that net neutrality has offered. Ideas and products like YouTube, Google, Twitter, Flipkart, Snapdeal, eBay have been growing and the funding that these companies receive is largely owed to the fact that these companies are having the groundbreaking ideas of the 21^st century.

internet users in india

There are no laws which enforce net neutrality in India. The Information Technology Act, 2000 does not prohibit companies from throttling their service in accordance with their business interests. Some companies in India have violated the net neutrality. Violations in India are Facebook’s Internet.org, Aircel’s Wikipedia Zero,Aircel’s free access to Facebook and WhatsApp, Airtel’s free access to Google, and Reliance’s free access to Twitter.

This blog is written by Samsan Simon, CFA Level 1 Candidate Semester III, MBA (FA), ICoFP Delhi campus.