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In late October I travelled to the US and Canada on a business trip that was exclusively dedicated to timberland investments. I had an opportunity to meet with a number of investment managers and some investors into the asset class, tour the timberland both in the South and in the Pacific Northwest, and collected a dearth of data, both from conversations and in print. It would take a multi page report to describe everything I learned, but I just wanted to outline some topics that I felt were of particular interest, and draw some parallels with other alternative asset classes.

Last Thursday (December 3rd) investment managers, prime borkers, compliance specialists and other professionals involved into hedge funds this way or another, gathered in Roppongi Hills overlooking the busy Tokyo city for a few drinks and a lot of networking. Organized by Mr. Stefan Nilsson, the founder and president of the Hedge Fund Club , the party was much more lively and cheerful than the same event a year ago. This time it was even filmed by a local TV station, and feeled much more crowded. I enjoyed meeting new people, among them a manager of an art fund, and a Europe-based manager planning to launch a "forestry fund", which apparently is what timerland funds are called in Europe. All in all, things seem to be picking up little by little, so let's hope for a truly happy New Year.

Sounds painfully familiar...

Yesterday I had the pleasure of attending the CFA Japan Year End Party. It was nice to catch up with some people I know and meet some new faces. It was a pleasant surprise to learn that one of my friends earned his CFA designation this year (congratulations, Andres!). When you see an example of somebody actually getting through all the three levels, it gives you some hope and confidence in your own endeavor. What really made an impression on me, however, was the number of people who had no corporate logos on their business cards. Some of them started their own business, some are just hanging out waiting for a decent employment opportunity. There are really tough times...

I have reformatted my Valuation posts and uploaded as a PDF document on Docstoc.com. All formulae are now much easier to understand, and the overall visibility is much better compared to when posted on this blog. The file can be found here .

I have applied to the CFA Level 2 exam, and I am now also considering applying to the CAIA program. Below are some pros and cons and interesting facts that I discovered doing my little research on the subject: FACTS (1) Number of chartholders: Charted Financial Analyst (CFA): approximately 78,000 Chartered Alternative Investment Analyst (CAIA): over 3,000  ( Source: Wikipedia) (2) Preparation required   CFA Minimum 250 hours per level   Total: 750+ hours CAIA Level 1: 150-200 hours Level 2: 200 or more hours Total: 350-400+ hours (Source: schweser.com)   (3) Membership Annual Dues CFA US$225. In Japan, there are reportedly additional fees for the CFA Society of Japan membership, which bring the total amount to approximately $400. CAIA US$250. (Sources: CFA website , CAIA website ) (4) Exam and Enrollment Fees CFA Program Enrollment: US$400* Level 1 Exam Registration: $690* Level 2 & 3 Exam Registration: $710* * Fees vary depending on the date of application. Th

Investment Banking Series Post 6 Equity Story 1. What is it anyway? Equity Story is, in its essence, the reasoning why the particular stock should be bought by investors. It emphasizes the strong side of the company and places the stock in either the value or the growth category. In a nutshell, the value stock is expected to have little price appreciation, but pay out relatively high dividend, whereas the growth stock is expected to have a high appreciation potential, but not necessarily pay much dividend. How a stock is classified depends on several factors, such as where in the industry life cycle it is, what the macro conditions are, what industry it belongs to, or sometimes even if it has a hot buzzword in its description. For instance, a power generation company would usually be classified as a value stock: there is very little growth potential, but the cash flows are steady and not as much correlated with the economic conditions. An Internet portal or a biotech company ar

Today it was officially announced that an article on timberland investments, on which I have been working with two colleagues for about three months will be published in the September issue of the Japanese Securities Analysts Journal (in Japanese). You will easily find my name on the announcement page, because it is the only one in katakana (the only foreign name).

Investment Banking Series Post 5 Valuation, Part 2 DCF Valuation Discounted Cash Flows (DCF) analysis looks at the amount of cash the company generates and discounts it back from a fixed point in time (usually 5 or 10 years, depending on the sector) along with the terminal value. Specifically, company's Free Cash Flow is projected for every year of the valuation period, the terminal value is calculated for the last year of the valuation period and the sum of the two is discounted by the Weighted Average Cost of Capital (WACC) of the company. This process involves a lot of projections, and therefore requires very detailed understanding of company business, because in the end the valuation is determined by how accurate these estimates are. CFA prep guides (official guide, Schweser notes, etc.) provide in-detail explanation of how FCF is calculated and what can serve as a proxy for it, but in principle its formula is as follows: FCF = EBITDA - Tax Expenses - CAPEX - change i

Investment Banking Series Post 4 Valuation, Part 1 1. What is it anyway? Valuation is the process of calculating and otherwise assessing the Enterprise Value (in case of equity) or any other appropriate metric to be used as a base for setting the fair price range for the offering. Along with the distribution network, the ability to produce the appropriate valuation is supposed to be the core expertise of an investment bank. There are books out there that would give you much detail on the valuation techniques. The one I would personally recommend is Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions . It's a step-by-step easy to follow practical description. I do not intend to go anywhere that far, and will just introduce the important concepts here. 2. The great myth and the not-so-impressive reality Valuation is often rumored to be a highly numerical and sophisticated procedure, both science and art, requiring in-depth understanding of financia

Investment Banking Series Post 3 Pitch Books 1. What is it anyway? A pitch book is the paramount of days and nights of a banker's hard work. It is a marketing tool that tries to set apart basically very similar banks and to support the claim that THIS bank, and NO ANY OTHER should be selected to arrange the deal. They say pitch books used to be actual books, but in the present world they are Power Point presentations printed out and bound in a plastic cover. The main purpose of the pitch book is to deliver two messages to the prospective client: (1) "we understand your business very well", and (2) "when it comes to arranging your deal, we are the best fit". Both claims are usually weak at best, but they are made elaborately and extensively, and the resulting multi page document often looks impressive. 2. Typical structure A pitch book will have varying structure depending on what product is being proposed, but there is a lot of similarities. Below is o

A line in a news blog sent me laughing out loud today: Unicharm PetCare Corp. (2059), a pet food maker, saw its pretax profit zoom up 31% to 6 billion yen, buoyed by beefed up offerings for aging and obese pets . Jeez, what kind of world are we heading to? The original news post here .

Investment Banking Series Post 2: Deal from Sourcing to Completion 1. How hard can it be? Very How hard is it to close a deal in investment banking? Very hard. It is extremely time-consuming and effort-intensive process. However, I believe that at least a large portion of that effort comes from sheer inefficiency and stunning arrogance of the management, but later on that. Let's concentrate on the workflow for now. 2. Typical workflow The order below is not a fixed one, but rather a guidance to what it may look like. The tasks will change from product to product, and from deal to deal, but this should give you a good idea of the process (and help me remember in the future). Sourcing A deal may be sourced from a newspaper article or a bold idea, but most commonly it comes from the corporate clients themselves. This is where the coverage bankers' ability to consume alcohol and entertain clients pays off, because they are often able to identify a business opportunity m

Investment Banking Series Series Introduction I am starting a series of posts on investment banking. There is a dearth of books out there that tell about investment banking, some of them even actually written by i-bankers, and I am not in any way trying to compete with them, but merely want to reflect on what I was doing up until about a year ago, how it worked and what where the lessons I learnt while being there. This will be about the way it is done in Japan, and more specifically in Japanese companies, and this is very different from the way it is (or was until very recently) done on the Wall Street. This post will be an introductory one, outlining the investment bank's functions and typical departments. The following posts will go into more details on specific products and real-life situations. Post 1: Introduction to an Investment Bank 1. What does an investment bank do? This is a simple question the answer to which may prove rather elusive. Historically, inves

December 2008 Pass Rate for Level 1 is reported 35%, same as that for June 2008. http://www.cfainstitute.org/cfaprog/resources/examdetails/examresults.html Thankfully, I am among the lucky ones this time. I am curious why the pass rates for Level 2 and Level 3 are substantially higher than for Level 1. Does it mean that only smart guys are left, and they pass anyway, or that it is harder to get from zero to Level 1, than it is from Level 1 to Level 2? I kind of hope it's the latter.

Although it may be a week too late, Happy New Year, everyone! I unreasonably hope that the year of ox will bring us some bullish mood. But that being an earth ox, I will be down to earth, and simply wish you health and many happy moments with your families!