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 Job, Project Finance Jobs. 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.

Structured finance is a segment in finance which has been created in order to transfer risk 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 instruments 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 assets – 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 flows from underlying mortgage loans.

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 (SPV). 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 markets 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.

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.

In order to get into this field as a professional, it is necessary to have some knowledge about the various career options that come under this kind of work. Let us study the same in detail.

• Positions in structured finance jobs include creating financing vehicles to redirect free cash flows 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 ABS 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 notes 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.

At this stage, you must understand the meaning of the term credit enhancement. There are two approaches for credit enhancement -

• Over-Collateralizations
• Subordination

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.

Even though it is a lucrative career option, one should try to analyse whether choosing this will be suitable for them as per their own interest, skill or knowledge. The points given below will specify in details what candidates should look for in their skillset, personality and job option to decide if they should opt for this kind of opportunity.

• Structured finance jobs differ from traditional Investment banking, 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 finance.
• Be someone self-motivated to perform and willing to learn.

It is always a great idea to have a basic idea about the culture of any industry where a candidate is interested in making a career for long term. This will give them the confidence and help in growing their interest in the field.

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. Compare this with Investment Banking Lifestyle
• The average number of hours you would usually work is between 12 and 14 hours.

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

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 that 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.

This is a very important part of any career opportunity because it is the incentive to contribute one’s time, energy, knowledge and skill in what they are doing or planning to do. Therefore getting an idea about the compensation will definitely play an essential role.

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.

The above graph is a good indicator of how the salary structure may vary depending on the work levels. This should provide a boost to candidates to perform their best in this career option.

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.

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.

This has been a guide to what are Structured Finance Jobs (Career). We explain what is included, what are credit enhancements & who is a good fit. Also, we discuss structured finance job salaries and tips and tricks to get hired. may also learn more from the following articles -

• Why is Junior Tranche Used?
• Project Finance Jobs
• Corporate Finance Career Path | Top 9 Jobs You Must Explore!
• Hedge Fund Jobs