Contents Page
3
Quick Take on Iberian Markets
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4
The European Energy Crisis
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Interview with: João Raimundo
8 Page
12 Page
16
Interview with: Afonso Januário
NIC-UD Fund: Monthly Performance
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Quick Take on Iberian Markets Spain passes landmark a labour reform with a margin of one vote after a vote casted in error. Spain ratified a landmark labour reform leading to an increase in power of labor unions and lowering the number of Spanish workers on temporary contracts. This happened after a member of the conservative “People’s Party (PP)” erroneously voted in favor. The vote was so close that the House Speaker initially said that the bill had been rejected. This vote enables Spain to access billions of euros in the form of EU pandemic recovery funds after meeting a condition for aid from the fund. Spain lifted its requirement to wear face masks outdoors. As COVID – 19 infections continue to lower the Spanish government has decided to lift the requirement of masks usage outdoors. Masks are still required in enclosed spaces, like public transports, but the country keeps lifting restrictions, after nearly all Spanish regions not demanding a COVID passport to enter nightclubs or bars. The tourism industry, a big cornerstone of Spanish economy, applauds this decision as a step to return pre- COVID levels of profits and revenues. Iberia hit by drought, impacting the hydropower and agricultural sectors. COAG, the leading association of Spanish farmers and livestock breeder warned that half of Spain’s farm are threatened by the drought with a possible loss of 60 to 80% of different crops production. The Portuguese government ordered some of the hydroelectric dams to prioritize human consumption and cutback on the water consumption for energy generation and agricultural needs. Portugal officially ended the trade of Escudo for Euro in the past month. After more than 20 years of using the euro, Portugal officially stopped trading Escudos for Euros. In an historical, but expected and scheduled moment the last 5 banknotes types which were allowed to be traded for euros can no longer be traded. It is estimated that there are still around 187 million euros worth of escudo’s note that haven’t been traded in the Bank of Portugal.
José Vieira Portugal’s government approves lithium mining. Portugal’s environment ministry has approved the extraction of the “white gold” across six different locations, protests, and concerns of residents. According to Savannah Resources, a Londonbased mining company Portugal could be home to as much as 60 000 tons of these rare natural resource. The company is expecting to generate as much as €1.3bn in revenue per year for 15 years just from its proposed mine on “Covas do Barroso”. Spanish new laws target €29bn investment Industry. Sicavs, société d'investissement à capital variable, have been hit by the shutdown of a tax loophole. Up to now Sicavs paid only a 1% levy on profit but under the new rules will have to pay 25%, the same as the corporate tax in Spain. After this announcement, 800 out of the 2276 registered Sicavs have announced their intention to close, according to CNMV, their regulator. Both the IBEX 35 and the PSI 20 showed light decreases when compared to the other major indexes. The PSI 20 maintained its level in the month of February, with a slight decrease of 5564.35 in the beginning of February to 5563.14 in the end of the month. The IBEX 35 reported a decrease of around 1.5% from 8612.80 to 8479.2. The month was marked by the Russian Ukraine tensions and easing of Covid restrictions. Both indexes outperformed the STOXX Europe 50 due to a less exposure and impact of the Russian Ukraine tensions in Iberia compared to the rest of Europe. Vodafone Portugal hit by hackers. Vodafone Portugal said it was attacked by hackers in the 7th of February. The company reported a network disruption, through a cyberattack with the intent to causa damage and disruption. The company’s 4G and 5G services, fixed line, SMS services, digital and voice customer services were affected, leading to the unavailability of use of these systems. 3
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The European Energy Crisis A Perfect storm that is complicating the postpandemic economic recovery Introduction As of today, European countries are facing one of the worst energy crises ever recorded in modern history. Energy costs are now four times higher than they were a year ago, with the average European household facing an electricity bill of €1,850 in 2022, up from €1,200 in 2020, an increase of 54% in just 2 years. The current situation is worrisome, with Governments scrambling to find a solution. The energy crisis has been named the “perfect storm”, in fact, it resulted from the combination of several geopolitical, social, and economic events which have been occurring for the last years. In this article I will be analysing the main catalysts of this crisis, its main agents, possible solutions and its current impact on European Economies.
Energy in the EU In 2019 (last year of available data), energy consumed in the EU was produced mainly through 5 different sources: petroleum products (36%), natural gas (22%), renewable energy (15%), nuclear energy and solid fuels (both 13%). Furthermore, out of the whole amount of energy consumed within the EU only 39% was produced within European countries, the remaining was imported from third parties. Nuclear and Solid Fuels 15% Petroleum 42%
Renewable Energy 17%
Natural Gas 26%
Guilherme Santos
The production of energy in the EU is based on the following listed energy sources: solid fossil fuels (19%), natural gas (8%), crude oil (4%), nuclear energy (32%) and renewable energy (37%). The dependency rate shows the extent to which the EU is dependent on third parties, more than half of its energy needs were met by net imports. In 2019, the main imported energy related product was petroleum, additionally, Russia was the main source of EU’s imports of crude oil, natural gas, and solid fossil fuels, representing 27%, 41% and 47% of the total, respectively. On a side note, among all EU member countries, Denmark was the only one with a negative energy dependence rate (-40% approximately), meaning it produces more than enough energy to satisfy its domestic demand, furthermore, 67% of the electricity produced there was renewable. Looking at how energy is used within EU, around two thirds are consumed by end users (EU citizens, industry and transport), while the remaining one third are lost during the processes of energy generation and distribution, which demonstrates a high ratio of inefficiency. In 2019 the “Clean Energy for all European Package” was adopted envisioning the decarbonization of EU’s energy system and increasing its efficiency. The package includes 8 new laws which will bring benefits for consumers, the environment, and for the economy. EU countries have 1-2 years to convert the new directives into national law. Following this transition towards clean energy, natural gas has been selected by the European Commission as one of the main alternative fuels within the current strategy of phasing out coal of the electricity production system and scaling up the production of hydrogen until the installed capacity of renewables is enough to produce “green hydrogen”. Already being the second biggest source of energy in the EU, this new set of policies has put an increasing pressure on natural gas demand. The selection of natural gas as an alternative base source of energy results from this fuel main characteristics. 4
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Natural gas is easy to store, it has a lower-carbon impact when compared with peer fuels and it is easy to convert into electricity to the grid. The bloc’s electricity market works based on marginal pricing, where all electricity producers bid into the market and offer energy according to respective production costs. The bidding ranges from the cheapest sources, usually renewables, to the most expensive ones, such as oil. Consequently, the market price is often set by the price of coal or natural gas, and thus, gas price heavily weights in electricity bills.
produce electricity. Through its Green Transition initiative, European Union member countries have exposed themselves to a greater risk of energy deficit, hence becoming more reliable on imports, and more specifically, on natural gas, exercising a greater pressure on demand on this market. Some critics argue that the EU took a leap forward without having the necessary means, that is, renewable energy installed capacity.
Green Energy Transition
In the beginning of last year, Europe faced a harsh winter with extremely low temperatures, extended snowstorms, and long periods of bad weather, this coincided with the 2nd Covid-19 lockdown. Households’ heating necessities skyrocketed when compared with 2020 values, as a combination of lower temperatures along with lockdowns created a higher necessity for temperature maintenance at home, as well as other energy related necessities, such as cooking, entertainment, and remote working. Household energy demand usually increases during winter season, that is why the European Union keeps storages of natural gas which are usually accumulated during the summer, when prices decline due to lower demand, in order to be able to meet demand during winter months. This unexpected harsh winter caught European countries by surprise, with natural gas storages only prepared to deal with regular seasonable demand. Consequently, after the 2020/2021 winter season, European Union’s natural gas storage was at 30%, which is considered critical. In April-May most European economies reopened, as Covid-19 infections decreased, and population started to be vaccinated. This led to a spike in economic activity, with most sectors increasing their operational activity volume to compensate previous months, extending throughout summer. As a consequence, energy demand increased and kept steadily high through the following months, creating a positive demand pressure in energy related markets. East Asian countries then joined Europe in the quest for energy to kick start their COVID-ravaged economies, however, the growing demand was not met with an increase of supply.
The current ongoing transition towards a greener economy implies that renewable energy will and is increasingly playing a bigger role in energy production, which includes solar, hydro and wind generated power. Although renewable energy allows for the production of zero-carbon unlimited energy, it is highly dependent on weather conditions, for example, solar panels only produce 10-25% of their normal power output on cloudy days. Thus, in order to ensure a constant sustained supply of green energy, renewable energy power plants must be diverse both in geographical and base-source terms, furthermore, the installed capacity must be superior to the average demand so that an uninterrupted supply of green energy becomes possible. Currently, the European portfolio of renewable energy power plants does not meet the abovementioned conditions, consequently there are green energy supply deficits. In fact, 2021 was a bad year for renewables, with wind production falling short of expected production due to weather conditions. As a result, to fill the energy deficit, demand for fossil fuels increased, nevertheless, in line with the European green transition plan, only natural gas is labelled as low-carbon environmentally friendly, and according to regulations, it shall be used as second option (being the first one renewables). Europe is decreasing its domestic production of natural gas, Europe’s top domestic producer, the Netherlands, began phasing out their main gas fields in 2018. Coal power plants are all set to be closed by 2030, with Portugal recently becoming the 4th European country to stop burning coal to
The Perfect Storm
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Supply did not adjust itself, due to a higher profitability resulting from the price squeeze and due to the fact, that increasing production capacity in these markets is not possible in the short-run. With high prices, the European Union was not able to fully replenish its natural gas reserves, like it did in previous years, in fact, in November 2020 EU’s gas storage was at 95%, while in November 2021 it was at 77%, leading to a supply shortage in the European Union, creating a higher exposition of the economies to market forces, more specifically to the natural gas price increase.
This has arisen suspicions that Moscow may be trying to capitalize on the crisis, and further justify the construction of the Nord Stream 2 pipeline, which recently has been halted due to the invasion of Ukraine. The project has been criticized mainly by EU members and the US for perpetuating the bloc’s dependence on Russia and enabling Moscow to leverage its position in conflicts. I must emphasize that this are only suspicions, which are speculated from hypothesis, with only light evidence of such involvement being shown. Nevertheless, a group of 40 Members of the European Parliament have sent a letter to the European Commission asking for an urgent investigation into possible deliberate market manipulation by Gazprom.
Current Situation
The Possible role of Russia in the Crisis There has been a verified lack of supply of natural gas from Russia, which is the EU’s leading gas exporter.
The combination of all the previously exposed factors resulted in a demand side pressure in the natural gas market. Natural gas is traded in MMBtu, that is, 1,000,000 British thermal units, where a British thermal unit is approximately equal to 1055 Joules, equivalent to the energy released by burning a match. For the reader to be able to grasp the bigger picture, in 2020 the United States used 92.94 quadrillion Btu of energy, in a year marked by economic lockdowns. In 2019, the price reached a maximum of $3.5, while in 2021 it crossed the $5 line. The Dutch Title Transfer Facility, Europe’s leading benchmark for natural gas, rose from €16 megawatt per hour in January 2021 to €88 by late October, representing an increase of more than 450% in less than a year, in countries where the average household consumes 3.7 MWh.
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In turn, electricity prices skyrocketed over 230% across the EU. Citizens in Spain, Italy and Poland are facing record high energy bills, which only aggravate the already decaying economic situation caused by the pandemic. The popular discontent has put governments on high alert, struggling to implement emergency measures. The energy crisis has had an impact in the ongoing economic recovery, with big factories in Europe having to cut production, as the financial stress of higher energy prices pressures industries and erodes profitability. Consequently, manufactured goods are also witnessing higher prices, since supply is decreasing, and prices are being adjusted to reflect the increase in COGS. For instance, aluminium price surged 40% in 2021. For European households this means that not only will there be a higher energy bill in the end of the month, but also day to day consumptions are becoming more expensive, further decreasing general welfare.
renewable energy investment in Europe was at its highest in 2011 at €94.6 thousand millions, since then this value has fluctuated a lot, and in 2019 it was of €52.16 thousand millions. Governments of EU members call for a pre-designed policy for immediate reaction in cases of dramatic price surges, like the one we are currently living.
Looking Forward & Solutions The EU’s exposure to energy markets, and its dependence on energy imports are set to keep volatile energy prices as a risk in coming years, until the green shift brings stability and energetic sustainability and independence to the EU market. Meanwhile, government must implement measures in order to reduce the exposure of households to market fluctuations, such as lowering the tax rates and extra levies applied to energy bills. France has decided to send one-off €100 payments to over 5.8 million low-income households, and in Spain the government has cut the special electricity tax from 5.1% to 0.5% (minimum under EU law). Renegotiating the contract with electricity providers can give consumers space for maneuver, fixed contracts help ensure a consistent and predictable price, allowing a lower exposure and a decline in risk. The Russian invasion of Ukraine has only worsened the current scenario, as natural gas prices spiked and the EU in its sanction packages is targeting natural gas supplied by Russia, and the Nord Steam 2 pipeline project. EU has stated that the long-term response must be to accelerate the development and implementation of renewable energy sources but also of energy efficiency solutions. The value of 7 NIC Undergrad Review
Interview with… Background João Raimundo joined IE Business School in 2011, pursuing a 4-year degree in Business Administration, followed by the Master’s in Finance in Nova SBE in 2015, where he joined Nova Investment Club as an Investment Banking analyst.
João Raimundo NIC Alumni (Class of 2017) /in/joao-lopes-raimundo22b95148j/ joao.slraimundo@gmail.com
During these academic years, João has had plenty of opportunities in several industries, interning, for example, in M&A at BESI (currently, Haitong) and in Wealth Management in London. After the MiF, he joined Explorer Investment as an analyst in the private equity team, where he stayed for 4 years and participated in several deals with the firm. More recently, the decision for a career shift was made and, right now, João is starting his new position as an Investment Banking Associate at Nomura in the Energy, Infrastructure and Industrials team in the London office.
Education in IE Business School
Q: Before joining Nova SBE for your MSc in Finance, you had your bachelors in IE Business School. Why did you particularly choose IE B.S. in comparison to national universities? A: I studied in the Deutsche Schule Lissabon and always had the idea of studying abroad. For that reason, early on my 10th and 11th grade, I started to prepare for it and applied to several universities in the UK, Netherlands and Spain. At the same time, I got accepted at Católica and Nova SBE, but at the eleventh hour, I decided to stay with IE since it was what I was looking for, an international environment, a more entrepreneurial approach, lots of presentations and case studies, etc. It was definitely important to build my soft skills set that helped me to develop. It was not such an intensive study environment like in Nova SBE, but it did prepare me for the real work life.
Q: Did you feel that you were given more internship opportunities or better learning? A: I cannot make that comparison as I did not undertake the bachelors at Nova, but there was a forcing by the IE
University for us to do summer internships every year. It was not mandatory, but the university incentivized and that’s exactly what I did, I undertook internships in all summers of my undergraduate degree, and I believe that all students should focus their effort on having the maximum of experience. Just as I like to say, having good grades is really important, but we are studying so that we can have a job, that’s our final objective. M&A at BESI
Q: During that period, you had the opportunity to intern at Haitong (at that time, named BESI), in the department of M&A. How did you obtain the internship opportunity? A: Essentially, one of the good things from IE is that they “forced” you to network and reach out with the alumni community, and this was basically that, through my networking I obtained a contact from HR, I sent an email and then they invited me for an interview, it came about naturally, it was not an organized or structured internship. Most of the students should not feel scared to send emails to people they do not know because people truly do want to help others be successful.
Q: What were your main tasks during that time? A: At that time, I was doing Mergers & Acquisitions and I had to value a holding company with 7 enterprises and use all the different methods: DCF, Public Comps and Precedent Transactions.
Q: Did the economic and political difficulties that the bank passed during your time affect your work? A: I was interning there when I received an email from the board of directors explaining what was happening, so it all exploded when I was there, it was a tabu topic at the time. I was there for 2 weeks, so I believe I did not feel the full effect of the repercussions, only in the months after.
MSc in Finance at Nova
Q: After your graduation in IE B.S., you came back to Portugal and, more specifically, to Nova SBE. What was your main drivers for the decision of coming back and choosing Nova? A: So, when I finished the bachelor’s, I had 2 options: start working or go for a master’s and deepen my knowledge in finance and the latter was the thing that I really wanted to do. The decision 8
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was made by the good ranking of Nova SBE. I feel that IE has given me the necessary soft skills for my career, while Nova SBE gave me the other skills essentially, be it financial, technical, theoretical, … it prepared me very well and gave me all the tools for my PE career.
Q: What were your goals, at that time, after graduation? A: I always wanted to do M&A or Private Equity and, for that reason, I went for the MSc in Finance with that objective in mind, chose my courses that I really wanted to do and I really liked it, an excellent experience. I felt prepared when I started working.
Nova Investment Club
Q: You also decided to join Nova Investment Club, our sister organization. What can you tell us about your experience at NIC during that time? A: I think NIC, for whoever joins it, is a great, great tool. As soon as I got in, we had the opportunity to do the “London Field Trip”, where we went to the major Investment Banks of London, you are able to meet people and there it is essential for someone to feel present in these types of meetings, the HR department is there, important people are there so that you can develop your network and, when the time comes to apply, they already know who you are.
I think that as the number of internships you do increases, you will get more attention and be more prepared. I notice that foreign candidates to NIC have much more internships than Portuguese candidates, so I believe the faculty and the students should push to pursue more internships. You are able to learn a lot in an internship, be it structured or not, you learn a lot on the job, with meetings with senior people, so the capacity to receive rejections is part of
the process, and I myself have received many rejections and acceptances. You apply and apply to many, many places, because even only the experience of looking for internships, interviewing, being under pressure, to see what is good or not on a CV, the criticism you receive, … it will prepare you for everything. What I can personally recommend is that if you can enter in direct contact with companies, do it through with someone you know (or don’t know), in other words, networking is crucial. If you wanted an internship at Explorer, don’t send a CV to the “geral” mail or the HR department, you would talk to me so that I can refer you to someone. You have to be flexible when it comes to attaining internships.
Q: Is there anything that you find about NIC that is special or unique? A: I think that what NIC brings is a set of individuals that are all looking for the same end, be it investment banking, private equity, sales and trading, etc. This way, we help each other in terms of networking, applications, sharing knowledge about different banks and that all helps in order to achieve your
goal.
If you wanted an internship at Explorer, don’t send a CV to the “geral” email or the HR department, you would talk to me so that I can refer you to someone. You have to be flexible when it comes to attaining internships. Explorer Investments
Q: You were able to land an incredible position at one of the most prominent Private Equity firms in Portugal. Tell us how did you obtained it and how did you prepare for it? A: Essentially, when I finished my master’s, I had a few offers on the table to start working, in Portugal and abroad and the opportunity to work for Explorer appeared after they announced they were looking for a gggg 9
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junior analyst for the private equity team. I was already prepared since I had interviewed for many companies before, had some offers and, hence, had lots of preparation. In the end I got accepted and it was an excellent decision.
Q: What would your main advices and tips for an undergraduate student looking to break into the PE industry in Portugal? A: One of the biggest problems in the PE industry is that they normally only recruit people with experience in consulting or M&A, although, sometimes, they open opportunities for students straight out of grad school. The number of job vacancies in the industry is very low. The best advice I could give is to enter through an internship and obtain a full-time position after that.
Q: When looking at target companies, what are the main characteristics that you feel that separate a good business from a bad business? A: In Explorer, my main tasks are divided in 4 sections: first, the sourcing, the analysis of investments, identifying opportunities and industries that are growing, then, the investment in those opportunities, which entails the process of creating a business plan for these companies, discuss with the management the conditions and the underlying negotiation process. Thirdly, the management of the companies we acquire, identifying growth strategies. Finally, the exit of these companies through an organized process where we hire an investment bank that helps us maximize the value for our Limited Partners. Addressing now the main question, we try to find healthy companies that have had success in the past e that will also have success in the future, and, for that, we look for quantitative and qualitative metrics. Regarding the quantitative metrics, we look for the historical financial results
to see the evolution of the business (if the topline has been growing or not, if EBITDA margins have been improving or not, if they generate positive free cash flow or not). We also look for the net financial debt and net working capital. In qualitative terms, we look for companies that have a big exporting base, big potential for internationalization, a diversified base of clients, productive capacity to grow even more, so we look also for these kind of metrics to decide if we should invest or not.
Q: What was the deal that you feel prouder of and why? A: The deal I enjoyed the most at Explorer was the deal we concluded in June of last year, which was the acquisition of Micronipol, a leader firm in the industry of plastic recycling in Portugal, with an excellent management team and were able to develop a very interesting project with all the requirements I previously mentioned. So, if we think about the recycling of plastic, it seems to really make sense, there’s a bigger abundance of this kind of material and an increasing need to be more aware of ESG factors, both for us at Explorer and for our investors. The company exports 40% of its sales to Europe and we want to maximize their international exposure and increase the productive capacity of the firm.
Q: High paying finance jobs are known for their high average work hours. Would it be a misconception for people to expect a bad work/life balance working in PE in your experience? A: AI think that, in private equity, there are highs and lows when it comes to working hours, it is a work with a high amount of responsibility and people should be prepared to work plenty of hours, and the peaks come when you are in a live deal. During that time, you will work a lot of hours, although, when you are not, you will still work a lot, but
not as much. People who want to get in M&A or private equity must be conscious and prepared for the working hours, still I believe there is a good work/life balance e that there is an increasing concern by PE firms for the wellbeing of their employees..
Q: Looking at Portugal and future landscape of its business environment, where do you see emerging growth opportunities to pursue acquisitions? A: Private equity in Portugal, in terms of percentage of GDP relative to Europe, has a very low penetration rate. I believe that there has been some development in the last years and that there is still potential in the coming years, with Portuguese firms with an increasingly higher valueadded to the economy, so we can see two trends in the PE industry in Portugal. First, we may see the big PE funds investing more and more in Portugal, like with we have seen with Logoplaste (acquired by The Carlyle Group) and Rovensa (acquired by Partners Group). In what concerns PE funds of around €50Mn, €100Mn or €150Mn, there are not many players and competition is positive and there may be great developments in the PE industry in Portugal. The Portuguese market is in the corner of Europe and investors look at Spanish funds as Iberian funds, so the amount allocated to Spain is disproportionally higher than in Portugal. With new funds and increasingly attractive returns, we may many more €50Mn-€150Mn funds and that is positive.
M&A at Nomura
Q: You have recently received an IBD offer from Nomura to work in their London office. How was the recruitment process? A: Yes, the opportunity emerged, and I will be working at Nomura in the Energy, Infrastructure, and Industrials team as an associate. 10
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The process was complex, and I think that whoever wishes to enter investment banking must be well prepared technically and knowing the bank, as well as in the fit and soft skills part and industry knowledge. I had more than 8 interviews with case studies, assessment centres in the middle too and it was really technical, but we have to also show the passion we feel for what we do. It is very intensive, and you will work a lot of hours, so there’s a concern by the bank to understand if this is really what we want to do and, for me, it was. I really like industrials and believe there is a sea of M&A opportunities in this industry in the coming years.
Q: How was preparation?
the
interview
A: The theoretical and technical part has a lot in common with what I do at Explorer, be in financial modelling, business plan, company valuation, etc. Despite that, I believe that one should be very prepared because it is very complex and difficult process.
Q: What made you leave Portugal and come back to London? A: It was a mix of various reasons. If I were to stay in Portugal, I would not leave Explorer, I love to work here, it is an amazing fund. The decision was made essentially due to status that London has as the financial centre of Europe, where there are the best banks, best PE firms and, finance wise, it is the best place to be as my ambition is participating in bigger deals, with more European exposure. I have plenty of friends working in London and I feel that, right now, the time is right to do this career shift. I will be also carrying a lot of knowledge in this niche Portuguese market, so now I will be expanding it with a foreign experience which I believe it will have a big effect in my career.
Final Tips
Q:
Which
books
would
you
Finance-Related Book Picks
Barbarians at the gate
Billion Dollar Whale
Red Notice
(Bryan Burrough and John Helyar)
(Tom Wright and Bradley Hope)
(Bill Browder)
recommend to our readers? A: I have three very different books that I would like to recommend. The first is Barbarians at the Gate which exposes all the angles of a very big transaction at the time, be it in PE’s view, the advisors’ view, the management team’s view, etc. Another one that I enjoyed a lot is “Billion Dollar Whale” which is a book about Jho Low, a young man of 26 or 27 years, that convinced the prime minister of Malaysia to create a sovereign wealth fund, where he stole $5Bn in 5- or 6years’ time and shows the events that led to this. Finally, “Red Notice” tells the story of a MBA student that goes to work for BCG and, when he realizes that the company has no presence in Russia, he decides to move there and becomes the biggest asset manager in the country against the Russian oligarchs. These are all true stories; it is very interesting to read.
needed to start preparing and making your studies, internships, and networking in line with your objective. Starting early by knowing what tools are necessary to entry, like with networking (talking with people in your target industry and companies, sending them a message through LinkedIn and ask them if they have 5 minutes to speak about what do they do) and then, being very well prepared. I believe that Portuguese students have a very high level of technical skills, but they should also focus on the soft skills part, which is important today. By: Bermardo Patrício and Rodrigo Mota
Q: Any final message or tip for the people reading this interview that want to break in the Finance industry? A: I have the conviction that it is important to make that decision early and start working towards that goal early, so you need understand what is 11 NIC Undergrad Review
Interview with… Background Afonso Januário started his academic career with a BSc in Economics on Nova SBE on 2004, choosing to continue with Nova SBE for his MSc in Finance, where he had the opportunity to be a teaching assistant and researcher with professor Pedro Santa Clara as his advisor and mentor. Afonso also holds PhD in Finance in London Business School.
Afonso Januário NIC Co-Founder (Class of 2010) /in/afonsovj/ afonsovj@gmail.com
It was during this time that, while discussing with professor Pedro, that the university was missing a community of like-minded and driven people who can help each other attain their objectives in the field of finance, being one of the founders of NIC. Professionally, Afonso has passed through various industries, from research (at Harvard and LBS), to consultancy (at Capgemini), but, ultimately, finding his passion in the Asset Management industry, more specifically, in quantitative strategies (at Schroders and Santander).
Education in Nova SBE
Q: Having begun your university education at Nova SBE, why did you come upon to particularly choose it? A: My family is a family of engineers, but my grandfather worked in banking later in his life. I think visiting him in his office as a child made an impression on me. Moreover, I always had a fascination with money and how the economy works. I knew NOVA SBE was the best Economics school in Portugal, and I had good grades, so I didn’t give it much thought. The bachelor’s degrees at NOVA were and I think still are quite intense. It was quite a shock but a good education.
Q: Pushing for your memory, is there any specific course or professor that stayed on your mind so many years after? A: The course I think of the most is Linear Algebra with Prof. Paulo Bárcia. At the time, I did not grasp what could I possible use algebra for, I barely passed but now I use it every day.
Q: Ending your bachelor’s in Economics, you decided to pursue a master’s in Finance at NOVA SBE once again. On what grounds did you take the
decision to stay in Portugal rather than pursue a foreign university degree? A: During my degree in economics, I spent one year at Bocconi in Milan. At the time, there was a larger catalogue of finance courses at Bocconi than at NOVA, so I ended up taking many courses in finance on top of my core courses in economics. I sort of then decided to switch to finance. I thought of applying somewhere else for my master but after one year abroad, NOVA wasn’t such a bad compromise.
Q: What were your goals, at that time, after graduation? A: After graduation, my goals were to work in quant finance in a big financial centre. I applied to quant jobs in London, but this was during the 200809 financial crisis, so not the best timing to join an investment bank, and I started working towards applying to a PhD program.
Q: Once again delving into your memories here, we ask the same question: is, or are, there any specific courses or teachers that brought you some good memories? A: I was very lucky that I started my master’s in finance right about the time Prof. Pedro Santa-Clara returned from UCLA to join NOVA SBE. I did well in
his class of empirical asset pricing and got a taste for financial markets and systematic strategies. Nova Investment Club
In 2010, you were one of the cofounders of Nova Investment Club (NIC), our sister organization, for which many values we share and take inspiration from every day. What led you to such a decision? A: My motivation at the time was, in a large part, to connect with people working in finance in financial centres such as London and New York. I didn’t know many people in the industry and the school was not in touch with the alumni I wanted to reach.
I pitched the idea of an investment club to Pedro Santa-Clara and he supported me and gave some initial names for me to reach out too. The network grew quickly form there. I invited people from investment banks for talks at NOVA, and I organized the first field trip to London where together with the first cohort of NIC students we visited many investment banks and asset managers. I am still in touch with many of the people I met then.
What can you tell us about your experience at NIC during that time? 12
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A: It was a lot of work but fun. We were still trying to figure out how far the school would let us go, but they were always very supportive. If anything, it made me realise the importance of studying (or later working) in a place where people let you do your thing.
Q: How did it improve your chances of achieving your goals? A: What I gained the most was access to information and people who were kind enough to help me, essential in starting my career, and soft skills. So much of a successful job market experience is knowing what companies are out there, which teams are hiring, and meeting the right people that can help you prepare and navigate the process. And I learned to network and cold call people. It was a good skill to pick up.
Q: How did it improve your chances of achieving your goals? A: NIC and other student clubs are platforms. It is easier to approach a CEO for an event if you say the event is organized by NIC than by some individual student, and that, by the way, the club’s faculty sponsor is Prof. X who is well respected in the industry. NIC helped me in that way, it gave me a platform, a good story to tell.
Q: Is there anything that you find about NIC that is special or unique? A: I like to think that the success of NIC, the first NOVA SBE student club, helped germinate the vibrant student club community NOVA SBE has today. In that sense it is something I am proud of. However, NIC is very similar to other student organizations in business schools. Like any other club, students will take from it as much as they put in. Clubs are a nice laboratory to network, start working in teams, and even incubate companies. However, it is for students of each cohort to make them unique and their own.
Some of our junior members, like Miguel Amaral and Hugo Weber, to join in the conversation and ask personal questions in the subject of investments, personal career and markets outlook. The overall feedback of the conversation was extremely positive, give us more determination on pursuing these interviews and connecting experts with some of our junior members with similar tastes.
PhD in LBS
Q: Upon ending your master’s in Finance, you promptly decided to pursue a PhD in Finance at the London Business School. What led you to such a decision? A: As I was saying, 2008-09 was a bad year to graduate and the opportunity cost of doing a PhD was low. I thought I would enjoy it intellectually and it kept my options open to later choosing between academia or returning to quant investing.
Q: Do you believe that pursuing a PhD is essential to succeed in the finance industry? A: A PhD gives you an edge in certain parts of the finance industry, where research is fundamental, but I see people with very different backgounrds doing well across the industry.
Q: You also had the opportunity to be a Researcher in Harvard. How did it compare and how was the experience?
A: Harvard was a great opportunity to experience a different city and university. I thoroughly enjoyed the experience of being in a place where everyone is doing something interesting scientifically, but it also helped me realise I did not want to pursue a career in academia - I am not cut out for the stress of publishing in top journals.
“What I gained the most [from NIC] was access to information and people who were kind enough to help me, in starting my career, and soft skills. So much of a successful job market experience is knowing what companies are out there, which teams are hiring, and meeting the right people […]” 13
NIC Undergrad Review
Working at Schroders
Q: After your PhD, you entered your longest position ever since: quantitative research at the prominent asset management company Schroders, from 2016 up until September 2021. What would your main advice and tips be for an undergraduate student looking to break into the AM industry? A: To prepare I solved some of the brainteasers and math problems of some of the quant interview books out there. I was lucky that I hit it off with my future boss, who also had an academic background as well. The only advice I can give is to prepare, prepare, prepare and to learn from interviews that don’t go well, so that you don’t make the same mistakes again.
Q: What were your roles at the firm? A: At Schroders, I was a researcher in their multi-asset investments business and later in their systematic investments business. For those less familiar with the terms, multi-asset investments are associated with investing at a macro level deciding, for example, how much to invest in equities, bonds, and other asset classes. Systematic (or quant) investing is investing based on automated strategies that follow economic principles, usually tested with historical data in simulations. In multi-asset, I built models for both discretionary and systematic macro investing, while in systematic investments I was focused on quant equity strategies.
Q: Having faced the insurgence of the COVID pandemic, how did the fund react to such unprecedented times? What was your role in the adaptation process? degree? A: The most challenging period I had at Schroders was the terrible performance of value strategies in 2019-20 before
COVID started. This was due to the hype in growth stocks such as Tesla which our models saw as overvalued. Systematic investing is all about keeping to a set of rules based on simulations of the past (backtesting), so we did spend a lot of time on understanding our performance but ended up not changing our philosophy. It paid off and value has been performing very well since.
Q: High paying finance jobs are known for their high average work hours. Would it be a misconception for people to expect a bad work/life balance working in Quant Research in your experience? A: Work-life balance is relative. There are some benefits of working in quant finance though. First, markets close (at least some) so you trade in specific windows of time. Second, in systematic investing you spend most of your time doing research and not responding to day-to-day market fluctuations (and you automate all the repetitive tasks). Third, hours are ok comparing with investment banking as you don’t have the rush to close M&A or IPO deals. The sell side can be a bit more stressful but obviously that depends a lot on company/team culture.
Q: What do you believe is the main lesson you will carry with you from your 5 years at Schroders? A: I learned so much at Schroders that it is hard to say. I was mostly surprised with how nice people were and how open they were to me, my ideas, and ways of working. Schroders has built an impressive investment platform and I really appreciated that exposure to how a large multi-cultural corporation works.
Working at Santander
Q: You decided to continue working in London. What is something that you wish you could change regarding the Portuguese Asset Management industry? A: I believe Portugal should move from
a pay-as-you-go to a private pension system. According to the world bank, over the last 10 years Portugal grew 1.5%, OECD members 13% and the world 24%. The easiest way to participate in that growth is for people to invest their savings in global assets, which in Portugal tend to be tied to real-estate, bank deposits, cash, or worse, local stocks.
Q: What are your main tasks in this new position that you have embarked on? A: In my new role at Santander Asset Management, I do research on systematic macro investment strategies. That includes relative value (e.g., which country indices are more appealing) and directional strategies (e.g., whether one should invest in equities, bonds, cash, or other asset classes). Q: In financial markets, algorithmic trading and complex models to predict stock prices has been rising for a while, compared to the simple old method of Value Investing. Do you think that investing will become more and more automatized, or will individual investors always have a hedge against automated strategies? A: I believe both approaches are important but deliver different things. Systematic strategies are the best way to get exposure to risk factors (market, value, quality, etc.) cheaply. Discretionary investors should focus on things quant models can’t do easily, such as thinking how unseen circumstances such as COVID might impact markets.
Markets Outlook
Q: How do you believe that the NIC-UD fund (the only real student-run portfolio in Nova SBE) should navigate the economic uncertainty ahead of us in 2022? 14
NIC Undergrad Review
A: I am not a great stock picker. I don’t like the odds. And my investment philosophy is systematic. Still, I would say the theme of the day is inflationprotection. You might find that in commodities and defensive equities (quality and value).
Finance-Related Book Picks
Q: Do you feel that Central Banks are “behind the curve” to counter inflation? A: I can’t predict the future, but the stock market went up more than 20% on average in the past three years, when historically it has returned 6-8%. A crash is possible. Inflation is at 5-6% globally and western central banks have a target of 2% - by definition, central banks are late to the party, and some have not yet arrived.
Q: Is the “60/40” portfolio dead? And how should we allocate our capital (be it in equities, fixed income, commodities, and real estate) in 2022, in your opinion? A: Every asset class is relevant. As rates go up, fixed income will have a larger role to play. I am not a fan of the 60/40 benchmark as I tend to think more in terms of risk rather than dollar allocation. Since bonds are less risky than equities, a 60/40 portfolio is mostly equity risk. I believe one should start with client objectives (capital preservation, growth, risk or return targets, etc.). And the goal of the asset manager is to invest conditional on those constraints. For example, to deliver 8% average real return through an equity/bond asset allocation you need to be on average long equities. The role of the asset manager is then to add value on top of that.
Q: One of the newest sections in our Quarterly Shareholders Report, where we report the performance for the fund, but also give forwardlooking guidance for investing, is Tactical Asset Allocation, one of
The House of Rothschild
Liar’s Poker
Market Wizards
(Niall Ferguson)
(Michael Lewis)
(Jack Schwager)
your areas of expertise. Looking at a random portfolio, what would be the key points to analyse in TAA and how to act on them? A: There is so much to discuss here that we could spend a few more hours on it. It would be great to learn more about your fund though, and I would be happy to walk you through some of the economic and operational components of running an investment fund.
Final Tips
Q: What is your top 3 favorite finance-related book and why? A: I’ll suggest three sets of books. Niall Ferguson’s biography of the Rothschild’s family (two volumes), Liar’s Poker from Michael Lewis, Jack D. Schwager’s Market Wizards (two volumes) and Lasse Heje Pedersen’s Efficiently Inefficient. House of Rothschild is a history lesson on financial markets and what it takes to build a successful business. Liar’s Poker is just a great and entertaining introduction to the cut-throat culture of investment banking from the perspective of the young and impressionable Michael Lewis drawing
from his experience at Solomon Brothers. Market Wizard and more recently Lasse Pedersen’s book have great interviews from famous traders.
Q: How do you keep updated with current national and international events? A: Being more of a macro person, I like to listen to the audio version of the economist, and I read the FT.
Q: Any final message or tip for the people reading this interview that want to break in the Finance industry? A: I would suggest working on your relationships. Reach out to alumni, faculty, etc. If you are a NOVA SBE student, you must be already brilliant, but you will still need to work on broadening your network and getting familiar with the world out there. It’s a personal but exciting journey. Also, the world is competitive so do internships early on. Learn to code. By: Bermardo Patrício, Miguel Amaral and Hugo Weber
15 NIC Undergrad Review
NIC-UD Fund: Monthly Performance Increasing Russian attacks cause decreasing returns Global Markets The markets have been following the negative trend of the previous month as we can assist to a significant drop of most stocks and major indexes. This comes as no surprise due to the Russian invasion of Ukraine later in the month, which led to a retreat of many firms from the Russian market as well as a hike in oil prices. Looking at inflation, it is still forecasted to be going up with the euro area being expected to go from 5,8% to 5,9% and the US to increase 0,4 p.p. from 7,5% to 7,9%. Jerome Powell, Chair of the Federal Reserve of the United States, has restated that he is going ahead with a rate hike this month (march), which is expected to be a quarter-point. On the other hand, Christine Lagarde has already
Diogo Zuzarte
stated in early February that a rate hike in the euro area is unlikely and with the ongoing war it seems even more improbable now. As a result, traders have been pushing back bets for the first ECB rate hike to March 2023 and Euro-bonds rallied with the bets for 2022 “on ice”. The ongoing war could lead to a worsening of economic indicators such as inflation, mainly because of energy prices with the possibility of brent oil heating an all time high (around $130 as of the beginning of march). Bitcoin has fallen more than 40% after its all time high In November 2021, undermining its status as “Digital Gold” as it would be expected to increase in value under bad economic conditions.
Current Positions Regarding capital allocation, no new positions have been opened in our portfolio during February. The Aerospace & Defense Industry has soared this month, which is mainly explained by the invasion of Ukraine that sparked fears of a possible war in a large scale among investors. As a result, the top performer of our portfolio was BAE Systems (BA), with an increase of 23,98%. On the other hand, Meta Platforms (FB) had a major drop of 33,85%, being the Portfolio’s worst performer. Positions Weight on Total Equity
Nº
Industry
Type
1
Accounting Software
US Equity
Current Price $75,31
2
Aero & Defense
UK Equity
£7,20
£4,93
Gaming ETF
3
Biotechnology
ETF
$41,01
$58,87
Electric Batteries ETF
4
Consumer Products
EU Equity
€54,31
€47,80
Renewables US
5
EV Battery
ETF
€15,46
€9,98
Consumer Products EU
6
Food & Beverages
ETF
€80,59
€72,91
7
Gaming/eSports
ETF
$38,29
$25,21
8
Gold Miner
CND Equity
$50,49
$44,74
Tobacco UK
9
Holding Company
US Equity
$321,45
$286,23
Aerospace & Defense UK
10
Oil & Gas
US Equity
$24,42
$23,00
Oil & Gas US
11
Pharma Retailer
US Equity
$46,09
$47,14
Accounting Sof tware
12
Renewables
US Equity
$78,27
$75,49
Food & Beverages ETF
13
Social Media/Internet
US Equity
$211,03
$175,75
Bond ETF
$5,69
$5,34
US Equity
$148,46
$141,70
UK Equity
£32,62
£27,98
Entertainment US Internet US 6,34% 15,80% 9,01%
0,00% 0,00%
Gold Miner
3,50% 8,18%
Pharma Retailer Chinese Govt Bonds
6,86% 5,28% 6,88%
3,34% 4,64%
3,22% 5,21% 4,30%
2,79%
3,94% 7,29%
Holding Company US 3,42%
Biotechnolog y ETF EU Carbon Emission ETC Broad Commodities ETC Cash
14 15 16
Sovereign China Bonds Streaming/Entertain ment Tobacco
Open Price $103,60
16 NIC Undergrad Review
NIC-UD Share Price (Inception Cumulative Returns)
3,0% 2,0% 1,0% 0,0% -1,0% -2,0% -3,0% -4,0% -5,0% -6,0%
13/02
16/02
19/02
Benchmark Analysis
22/02
25/02
28/02
Monthly Performance 30 % 20 % 10 % 0% -10 % -20 % -30 %
St oc k St #1 oc k # ET 2 F #1 ET F St #2 oc k St #3 oc k St #4 oc k St #5 oc k St #6 oc k St #7 oc k St #8 oc St k # oc 9 k St #1 oc 0 k #1 ET 1 F St oc #3 k #1 ET 2 F #4
-40 %
Portfolio return vs Benchmarks 2%
0,95%
0% -2%
-1,03% -2,04%
-4% -4,50%
-6%
-3,80%
-8%
-7,11% -8,01%
+ FA NG
FT SE Sh an 10 gh 0 ai Co m po si te
ke i2 25
-8,69% 50
In de x ld
50 0
SC IW or
M
S& P
oli o
(S ha re
Pr ic
e)
-10%
Po rt f
As already mentioned, there was a big hit across all most markets later in the month due to the invasion of Ukraine, being Shanghai Composite the only benchmark index with positive returns (0,95%), which can be explained by the fact that the Chinese economy is less dependent on Russia than others. On the other hand, the side effect of the economic sanctions imposed by the NATO countries and others, besides the fact that the war is taking place in Europe led to a major drop in Eurostoxx 50 (7,11%). Going along with this trend, the S&P 500 fell again this month by 3,8% and FTSE 100 was down by 1,03%, registering a smaller impact. Looking at the big tech, FANG+ was the benchmark suffering the biggest hit (8,69%), being followed by the MSCI World Index that dropped 8,01% as fears of a global war and an upcoming recession increase. Finally, we have assisted to another drop of our fund of 4,5%. It would be difficult to be otherwise with this major market falls, but, on a positive note, it was able to resist the major plunges of 3 of its benchmarks.
Ni k
10/02
xx
07/02
sto
04/02
Eu ro
01/02
Corporate News February wasn’t the best month for Agnico Eagle Mines that assisted to the exit of Tony Makuch, the company’s CEO in the last 16 years, and an underwhelming 3-year guidance presented on the earnings release. However, its stock price growth of 5,43% can be justified by its chairman’s goal of positioning the firm for growth, as well as the rising gold prices. BAE systems shares surged as Russia’s invasion of Ukraine continues. The UK’s biggest defense giant reported its full-year results in February, with an increase of £0,3bn in revenues and of £0,4bn in operating profit in the same period. The group expects to grow between 2% and 4% this year. The shares of Blackline were on correction for a long period of the month, being 30% down year-to-date on the 22nd of February, already twelve days after posting their Q4 results, despite beating Wall Street’s top-line expectations. It seems like there is a widespread “risk-off” attitude across investors that don’t think this long-term investment, until the company starts collecting big subscription-based revenues, is worth it. 17 NIC Undergrad Review