Even if you're a student who wants to work in investment banking, you probably have a fair idea what M&A bankers or sales and trading professionals do on a day-to-day basis. However, the life of a structuring professional is bit more arcane. What, for example, is being structured? What is it being built from? What's it for? And what makes structuring an interesting career?
We put these questions, and more, to Hamzah Kahloon, head of structuring for MENA and Turkey at Deutsche Bank. This is what he told us.
Structuring teams at investments banks exist to provide bespoke solutions for clients’ needs.
If you look at global financial markets today, you have equity and bond markets where companies and governments can issue debt or shares. You also have conventional borrowing markets where companies and governments can borrow from banks or from syndicates of lenders.
Structurers work outside these areas. We work with clients whose needs are more complex – for whom there’s no readily available product on the market.
The transactions we work on and the solutions they provide typically fall into one of two categories: they’re either focused on risk management, or they are designed to provide financing.
For example, in terms of risk management we might try to find a solution that will help an exporter to manage its currency risk (the risk that currencies will change in price), or we might help a company that has borrowed significant sums to manage its interest rate risk (the risk that interest rates will rise). In terms of financing, we might help the founders of a public company finance a deal to buy back some shares.
The job of a structurer is to design a transaction that satisfies a client’s needs, puts that transaction into effect, and also ensures that the concerns of all our stakeholders are met.
For me, it’s the breadth of the clients we work with and the range of the products we can offer them. I work in the emerging markets division and my team’s remit is the whole of the Central and Eastern Europe, the Middle East and Africa (CEEMEA). Our clients can be anything from a publicly-listed company to a government, or from a financial sponsor (private equity funds) to an an asset management firm. Equally, the transactions that we work on are very wide-ranging. To do the job well, you need to understand how bond and credit markets work, what the outlook for currencies and interest rates is, and the geopolitical and economic drivers in the region. Before you can build the ideal solution you need to understand the assets you’re working with and the needs of the client you’re building the solution for.
Structuring is a healthy balance between theory and practice. You spend a lot of time thinking critically about the problem and your team’s ideas for the transaction, and then you implement it.
At any given point in time we can be working on up to a dozen structured transactions, all at different stages of the execution process. One might be at the idea stage, where we’re sitting down with the client and devising a solution. Another might be the execution stage, where we’re engaging with external lawyers and market counterparties to put the transaction into effect. Another might have closed – in which case we could be reviewing its performance and working on adapting any product if our clients’ financial needs have changed.
If I look back to the colleagues I’ve worked with over the years, there have been lawyers, journalists, engineers, and people who’ve worked for development organisations. People with very diverse backgrounds come into structuring. I don’t think you need a mathematical education at all. What you do need, is an ability to be comfortable with numbers - you need quantitative skills so that you can price the transaction you’re putting together.
More importantly, you need to be a logical problem solver who can justify the rationale for the solution you’re presenting and who can articulate and market that solution to clients. You need to be able to understand what the client wants, to structure the transaction, and to communicate effectively the merits and risks of the solution you’ve designed."
No, I wasn’t aware that structuring existed when I was an undergraduate. It was something I discovered while I was completing a corporate finance internship at an investment bank in London – I visited the trading floor and realized there were there were whole areas of the business that I knew nothing about. Later, I interviewed for a markets role at Deutsche Bank and my interviewer worked in structuring. He provided me with an insight into the role and also invited me to visit his team on the trading floor.
When I joined the Deutsche graduate programme I had three rotations with different teams (in my case, with two sales teams one structuring team). My first rotation was on the Emerging Markets Structuring desk and I thoroughly enjoyed it, and have been with the team for over ten years.
The themes that clients are presenting at the moment are often associated with falling interest rates. With so many central banks engaged in quantitative easing, there’s a very active ‘search for yield’. We’re finding that cash-rich investors are looking for structured products that will allow them to generate returns above those offered by developed market government bonds, which are mostly hovering in the zero to two percent rage.
Because there’s so much liquidity in the market, we’re also finding that a lot of private equity funds are looking to make acquisitions. Structured finance solutions are required to support the resulting M&A deals – many of these acquisitions are cross border, for example, and have inherent foreign exchange risk. We’ve been designing tailored FX hedging solutions as a result.
There are different themes from region to region. Looking at the Middle East market in particular, one of the big themes is generational shift. A lot of business founding families are passing on their inheritance to their children. As a result you see companies splitting up and an increase in M&A. The oil price is also certain to drive demand for financing solutions – some oil and gas companies may encounter financial distress and find themselves unable to access capital markets. They will need private finance solutions in order to borrow, and hence structurer’s financing solutions would be more relevant to them.
This comes back to the notion that structurers need to be logical and comfortable with mathematical solutions. I usually ask a simple question which encapsulates these requirements: “How many tennis balls do you think there are there in the United Kingdom, and how do you arrive at that number?”
The question is designed to make candidates come up with a number, but what I’m really interested in are the thought processes they go through to arrive at that number. Do they have a logical train of thought? Are there approximations and estimates justifiable? This offers a good insight into the way someone thinks and articulates themselves.