Tuesday, January 12, 2010

On the Job: Mastering "Technical Skills"

MBA students and young professionals in finance often agonize over whether they will have sufficient technical skills (a) to get the finance job or (b) to keep the job. They prepare anxiously to prove they have technical competence in job interviews. Then they make sure to show competence in internships and first-year positions.

But what are these special, mysterious skills all MBA's, even the best, fret about? What do they mean? What do "technical skills" encompass, and how important are they in interviews and entry positions?

"Technical skills" in finance can be interpreted broadly. They mean different things to different employers, recruiters, banking heads, department leaders, or trading-desk managers. They all say they seek to hire the best among those who are technically proficient. In the first years on the job, they seek to weed out those who are technically weak or deficient.

However, whether the position is in private banking, corporate finance, investment research, brokerage, equity trading, some financial institutions don't define carefully such skills, nor do they always assess competence consistently or fairly. They just expect you to have them. Some firms will delineate and define them specifically and will measure progress against year-to-year expectations.

In general, technical skills refer to a mastery of basic skills and in-depth knowledge in finance, accounting, economics, capital markets, financial modelling and quantitative analysis--subject matter covered in all top business schools. When an MBA interviews for an internship or full-time role, financial institutions want to know if you (a) can demonstrate near-expert knowledge in all such subjects, (b) are sufficiently trained in the area you are interested in, and (c) are versatile enough to master new topics.

Financial institutions don't want to provide tutorials on what they perceive as the nuts and bolts of analysis, deals, trading, investing or research. During interviews or in the midst of summer internships, with a detective's eye, they seek to detect technical weaknesses and reject it. Almost all MBA finance students from top schools are adequately trained for the positions they covet. Therefore, banks, investment firms, brokerage, hedge funds and asset managers will try to select "the best" among an already strong pool.

Indeed technical skills are important in corporate finance, equity research, investment analysis, and trading. They help firms win the deal, value a firm, price a security, solve financial problems, gain a new client, book profitable trades, hedge risk, or make proper investments. In such a madhouse, banks, funds and companies won't take time to teach MBA's the complexities of the task at hand. They want them to hit the ground running.

During the course of a long career, a mastery of such skills will always be important. For many, it will set them apart from the pack. They become "go to" people--experts in a particular aspect of analysis, trading, or deal-doing. However, over time, other skills and areas of competence will become just as important--if not more important: client and sales skills, leadership and management abilities, and business generation.

But technical skills in those first few years must be mastered. Investment bankers, for example, should know coldly the concepts of firm valuation, financial statement and cash-flow analysis, and accounting. Budding traders should have both a textbook and intuitive understanding of markets, market behavior, risks, and market movement. Investment managers should know portfolio theories, optimal asset allocation, and asset classes.

The textbook knowledge from business school will be an invaluable foundation. You will use the principles and basics over and over--especially as a language or a stepping stone to learn new financial products, to manage more complex transactions, or to craft new ideas to help a client.

But textbook knowledge alone won't be sufficient. You have to keep up--keep up with what's new in the field, in the industry, and in economics, markets, accounting and finance. That might entail new theories, new practical applications, new financial methods or instruments, new rules and regulations, new and evolving capital markets, new geographies, or new ways clients use old financial methods.

For example, in accounting today, those technically strong should understand new concepts of classifying trading assets and earnings (Levels 1, 2, and 3) or know the impact of new rules that permit firms to "mark to market" debt obligations. Moreover, the technically strong might have an informed view about new rules (and may not always agree with them).

Beyond what was learned in the classroom, for example, the technically strong will have an in-depth understanding of why there is much ado today about the Chinese currency and the implications of its pegged rates on the U.S. economy.

The technically strong will know inside and out options-pricing theory, bond pricing, and derivatives markets. They will also understand how and why actual market behavior might deviate from finance theory and Nobel-winning equations. And they may have ideas about how the system can avert a collapse in financial markets in the future.

Technical competence also extends to a thorough understanding of client industries. Those who stand out will understand the markets, trends, and outlook of the industries of the clients they advise, the companies they analyze, or the investments they pursue. In turn, they'll understand how clients in specialized industries will have specialized financial needs. (The ongoing financing requirements of an electronic start-up will differ from an established insurance company.)

Business schools don't always tell you, but banks and investment firms often put adeptness at the computer under the broad "technical skills" umbrella. They expect bankers, traders, and researchers to be magicians with spreadsheets, financial modeling, case scenarios, and model sensitization. An MBA may have an expert's understanding of efficient-markets theories, may know all the accounting rules for biotech companies or may have developed a stunning model to compute the precise market value of Facebook, but if he can't work swiftly and confidently in dozens of Excel spreadsheets (all at once), he might be assessed as technically inadequate.

Under the same "technical skills" umbrella, some firms will include written and oral expression. They want to see if you can transfer the information, models, theory, case scenarios and ideas into detailed, practical presentations--something senior managers will comprehend and clients will use. Banks and companies presume if the pitchbook, presentation or summary is incomprehensible, illogical, and shallow, then its author must not have understood "the technicals."

Financial institutions prize creative thought. Those who show it and have an ability to come up with new models, new ideas, new approaches, and new methodology--consistently--will be deemed to be technically strong.

What can the b-school student, the corporate-finance or private-banking associate or trading apprentice do to prepare for this environment--beyond what she has already done the past few years?

In business school, learn the basics well and understand the vast amounts of material. It's not enough to memorize terms and principles and speak in jargon. Master the concepts.

While on the job, polish those skills by embracing and immersing yourself in all technical situations (deals, trading, modeling, research, presenations, investing, analysis, etc.) and by taking the time to do homework to keep up with innovation and new concepts.

Develop useful, ongoing habits to learn new material. Make it a point (by taking extra time) to understand all that happens around you in a deal, with a client, in a trade, in an investment, with a product, or in a transaction.

Network and ask other experts who will take the time to explain, show and demonstrate. That could be a b-school classmate in currency trading, a mentor in bond research, or a colleague in technology banking, etc. Consortium MBA's should reach out to other Consortium alumni or other alumni from the same school. Because of the connection, they will likely take the time to teach and show.

Watch for jargon. In financial institutions, jargon is contagious. Whatever sounds sophisticated and current flies around fast. Some use it because it can be simple expressions of complex material. Some use jargon, acronyms or slang to give the impression they understand something others don't. Some will use jargon to explain jargon. Some use it to hide deficiencies. The finance industry is known for substituting new jargon for old jargon to connote something more favorable than before. (Remember how "junk bonds" became "high-yield securities" in the 1990's?) Learn to sift through jargon and understand the concepts behind the term. Dare to ask questions of those who use it.

In the fast-moving, deal-making, trade-booking, money-moving world of finance, senior managers don't often take the time to evaluate carefully younger professionals. When asked to appraise associates, some rely on rash, subjective judgments of technical ability. Such appraisals might be based on one moment in time, one event, or one impression.

Or they may be based on something having little to do with technical ability (a confusing e-mail discussion, a tepid response to a question in a client meeting, or an imbalance in a financial model). Watch for subjective assessments of technical ability, and when you perceive them to be unfair or balanced, ask for examples while politely asking for constructive feedback to improve.

Most of all, keep up.

Know the latest financial innovations, finance topics, the important issues and priorities throughout the industry, and outlook in capital markets and certain industries. Know about and have a view about impending financial regulation and possible changes in financial markets.

You want to make sure you're in the dialogue or right in the middle of the discussion of deals, transactions, clients, trends, and forecasts. If you're consistently keeping up and are admitted to the dialogue, senior managers will give you the "technically competent" nod.

Tracy Williams

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