Over the last two months, we had the opportunity to sit down with various QUAAF alumni from the graduating classes of 2012 to 2019 to learn about their experiences and hear about their journey to where they are today. This initiative has produced incredible insight into how various members of the team learned essential new skills, gained invaluable exposure, and personal advice on how to make the most of our short time at Smith. We are proud to be sharing the years of wisdom and experience of our alumni.
This week on #SpotlightSaturday, we focus on Julius Nyarko who found himself working in the midst of the financial crisis. His journey included pushing himself to more challenging and strategic roles, which eventually led him to completing his MFin and joining QUAAF. Learn more about his career through government and fixed income investments.
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Give us a quick summary of who you are, your background prior to your MFIN, and your current role at AGF.
I did my undergrad at UofT in Economics, and I graduated in the midst of the financial crisis. It was fairly difficult to find a role, so I ended up in a derivatives analyst role at RBC Dexia, an investment custodian. I later found a public policy analyst role at the Ontario Government. In the depths of the financial crisis, GM and Chrysler were bailed out by the Federal and Provincial governments here in Canada and by the US government. I joined the team that was working on those auto bailouts as a very junior analyst, doing mostly grunt work and number crunching on those transactions.
I actually ended up going to Detroit to the first big set of meetings between the various auto companies, the representatives from the US investment banks that were going to deal with the financing portion, as well as the Canadian / US government officials that were dealing with that matter – it was an interesting experience. Subsequent to that, the team returned to working primarily on economy development policy within Ontario; the group that I was on was the industry group, so we moved from primarily being auto-focused to more focused on other industries within Ontario i.e. chemicals, biotech, things of that nature. The primary objective of the division I was in within the Ministry was to spur economic development within Ontario, which was interesting.
I did that for about 2.5 years and the real motivation was to go from mundane data entry into computer systems, which is what I was doing at RBC Dexia, to a role where I had to think a lot more, and think strategically, provide advice to senior level individuals, and that Ontario Government Policy Analyst role helped me to do exactly that. Additionally, I have always been a bit of a politico - very interested in politics and economics, finance, things of that nature. This role with the Ontario Government really melded all those interests and helped me really understand government policy and decision making.
Having been there for a couple years, I could see Bay Street from my offices, and I knew I wanted to be on Bay Street. I started looking for roles that would combine my interest in government with my interest in finance and so I literally Google searched the term “government finance”. I came to realize that there was an industry, or more specifically a sub-sector, called Public Finance or Government Finance. These are the bankers who would help governments and government related entities raise capital. For example, if the Ontario Government needed to do a bond issue, the public finance bankers would connect the government with the institutional investors. I was interested and wanted to find out more, get on the ground, meet people in the industry, and so I did exactly that. What came of it was a role with a rating agency, DBRS, providing credit assessments for governments and government related entities.
I worked on the Public Finance team at DBRS for some time, and my clients effectively were the provinces, municipalities, universities, and large public pensions such as Ontario Teachers, CDPQ, CPPIB, OMERS, OPB as well as all other government related entities. I got to travel across Canada, to all 10 provinces – at that time, we only rated the provinces so unfortunately, I didn’t have a chance to go to the territories. I did however get to go from St. John’s Newfoundland all the way to Victoria, British Columbia. In that role, we’d meet senior bureaucrats, finance ministers and in some cases premiers of those provinces and get a sense of their financing plans, objectives as it related to fiscal policy, what they wanted to do with their budgets, how they intended to spend from a health care and social programming perspective, as well as what they wanted to do on the taxation front to address revenue concerns.
It was a pretty neat role, it really combined my interests in public policy, politics, and finance, and it was a research analyst role – I had the opportunity to really develop my analytical skills and my writing ability, since the way you would translate your thoughts were through written reports provided to the buy side i.e. the bond investors at the large, institutional shops. DBRS is primarily Canadian focused, it has about 90% market share in the Canadian bond market, so there are deep roots at institutional investment shops on the Bay Street.
After having done public finance for some time, I thought it would be interesting to move over to the corporate finance side i.e. rating companies as opposed to rating governments. I started trying to find a way to get on to the corporate side, and I ended up becoming Lead Analyst on the team that rated telecom, technology and media companies, this included, Bell, Rogers, Telus, DHX, companies like that. I did that for some time until the buy side bug bit me and I made the move over to AGF about 3 years ago now. Just as I was finishing at DBRS, I actually was in the Queen’s MFin program at the same time. It was a very interesting time because I was making the job transition, planning my wedding, as well as all the fun stuff that was going on with the MFin. I also represented Queen’s in the CFA Institute Research Challenge, and I was the CEO of QUAAF during that period too. All that with ramping up on a new role on the buy-side was a stressful time, but when I think back on it, it was invaluable in terms of learning to prioritize and meeting new people, and just understanding finance just a bit better.
Business school education / programs may have a biased focus on equity. Why do you think this is, and how do we learn the fixed income side of things?
That’s a very good question, and I would say the way that I got around it was by working at a credit agency. At a credit rating agency your job is to learn the fundamentals of a company and primarily focus on the balance sheet and cash flow statement – that’s really what fixed income corporate credit research is all about. I was able to learn and ramp up very quickly just by having spent 5.5 years at a rating agency, covering corporate credit and governments. The government side of it is also a very interesting area that not a lot of people are exposed to. You hear what’s going on from a geopolitical perspective, but the machinations as it relates to fiscal policy and monetary policy and how that affects the bond markets are often not well understood. As well, people don’t really understand how individual countries access capital markets to address their financing needs. From my perspective, it’s one of those things where fixed income is just not as “sexy”, right? Let’s just be very blunt about it. For example, a Tesla bondholder vs a Tesla equity holder would experience very different return profiles for owning these Tesla securities.
For Tesla, on the equity side, in the second half of 2019, the stock doubled. Since the beginning of 2020, the stock doubled again (before the recent coronavirus induced sell-off). However, as a bondholder, if I’m in the name, my upside is far more limited. Rather, I collect the coupon, and the bonds offer some risk mitigation as my downside is protected because of the priority claim over assets of the company that bondholders enjoy over equity owners. For a name like Tesla, when it was going through some challenges in the early part of 2019 in terms of meeting its production schedule, ramping up, achieving positive free cash flow, the bonds were trading in the mid 80s. If you bought at that point, your upside may have been 15 points. That risk / return profile is very different than what equity investors would have gained from having entered the Tesla stock at the exact same time. You’re return on the stock is up in the multiple times range. What happens when relating fixed income to equity is that, in terms of that “sexy” comment, you’re never going to see a credit analyst on BNN talking about Tesla unless the company is going through a distress situation. You’ll almost always see an equity analyst talking about companies like Tesla on BNN, CNBC, Bloomberg, etc. For retail investors or the general investing community, what’s readily accessible is the equity market or the stock of a company. To buy bonds is extremely difficult - you need to have a relationship with multiple brokers for best execution as bonds are generally traded over-the-counter. To buy the equity of a company, literally all you need is a discount brokerage account, which can be set up very quickly and the transaction costs of buying equity are very de minimis. For bonds, the dollar amount you need to transact to be able to acquire one contract or one bond is a much higher.
A lot of it really is just what’s readily accessible to the general public or investment community; its easier to gain access to stocks than it is to gain access to bond contracts. It just becomes one of those things where the education system tailors things to what they think most people eventually want to go into. When you’re going through business school, nobody says “I want to be a credit analyst”, they want to be an equity analyst - whether it’s on the sell side or buy-side shops, but the reality is that there are a lot more debt securities out there globally than there are stocks. The opportunity set within fixed income is comparable if not greater than the opportunities set within equity. In fixed income, you can be a credit analyst focusing on corporate credit like myself, you can be an portfolio manager that focused on rates products i.e. where you think the US 10-year is going to go, or you can be a trader that trades duration or foreign exchange, or other things of that nature.
One of the more interesting things that I did at QUAAF when I was CEO, was try to set up a defined investment framework, i.e how to go through an investment analysis. One of the things I incorporated was looking at bonds of the companies we were invested in. One of the companies we were looking at was Starbucks. Starbucks has a full capital structure that includes both bonds and equity. If you are a holder of Starbucks debt, you are going to be, in the event of a default receiving your money before equity holders. In fact, its safer to hold bonds than to hold equity of a company. If you’re looking at a stock, you should also consider what the bonds are doing. Say for example you have a company and the stock is going down, but the bonds are trading at par or close to par, then those two markets are saying two totally different things. As an equity holder or investor, it can be insightful to see what bondholders think about the company’s balance sheet, solvency, and liquidity situation. These signals can inform your investment thesis. Just looking at one side of a company’s financial statements i.e. just the income statement, you aren’t being as fulsome in your analysis as you could be. That’s something I really tried to bring to QUAAF, understanding and looking at the totality of a company’s financial statements, including the debt side, taking cues from where the bonds are trading, building that full mosaic in terms of analyzing a company.
As an analyst, how has your approach to analyzing companies changed as you transitioned from the sell-side at a credit rating agency to the buy-side at AGF?
One of the things that prompted me to try to get to the investment side was the fact that when you’re on the sell side, be it on equity or as a debt analyst, at a brokerage or credit rating agency or wherever you are, you just provide an opinion and can’t really do anything about it. Beyond that, once you’ve provided that opinion, your job is to convince other people to agree with you but you’re putting no capital at risk. I always found that if you have true conviction in an investment thesis, put money on the table. Let your returns while you’re in that position speak for themselves. That’s what I’m able to do here on the buy side as an investment analyst. I will pitch a name to my portfolio manager and be like “this name could do xyz because of abc” and I’m going to watch the catalyst I’ve placed on the table play out. Once those catalysts have played out, then I’ll start to recommend decreasing risk, take some chips off the table since the thesis has effectively played out, or maybe that credit is a core holding, in that case we should let it run. The broader point here is the notion of being an “opinion-maker” versus being a “decision-maker”. On the sell side, you provide an opinion to the market, if someone wants to heed it –awesome. Otherwise, you just keep providing that opinion because it’s what you’re paid to do. On the buy side, you’re more so forming a thesis, identifying catalysts, putting capital at risk, and hoping to capitalizing as the catalysts you’ve identified play out..
"I always found that if you have true conviction in an investment thesis, put money on the table. Let your returns while you’re in that position speak for themselves."
Why did you choose Queen’s for your MFIN, why did you join QUAAF and eventually lead it?
In terms of my decision to do the MFin at Queen’s University, around that time I was deciding between pursing an MBA and MFin, and whether I wanted to stay in Canada or go abroad, etc. I decided on the MFin specifically because I didn’t particularly care much for some of the other courses in the MBA curriculum such as Organizational Behaviour, things like that. I wanted a very focused finance education and wanted to enhance what I already had from an experience perspective and build on the fundamental learnings through a structured program. As it related to Queen’s, the decision became obvious given that I was going to remain in Canada. If you’re doing finance in Canada, you’re going to be in Toronto. Given all this, the number of post-secondary institutions I could get this education at became very limited. The decision came down to the Rotman MFin program or Queen’s. Rotman’s program was a 20-month program but the cost of it was double that of Queen’s. When I was really thinking about, given both were part-time programs where I could retain my job, the cost factor really made the decision for me.
I have always felt that my background and work experience could stand on its own, the post-secondary degree was really just an enhancer. I didn’t think it was worthwhile for me to be spending twice the cost for the Rotman MFin given my criteria. Queen’s also has a great reputation on Bay Street, I met great people and classmates during the program, and I made friends that I’m still in touch with today. The rationale I had relative to how it played out was perfect in that regard. The other side of it was having gone to Queen’s, I was able to participate in the CFA Institute Research Challenge which was a great experience and opportunity to connect with like-minded individuals outside the classroom while I still had my regular day job, schoolwork. It was this extra little thing to do that was definitely worthwhile.
Lastly, QUAAF was one of the key reasons I wanted to do the Queen’s MFin over Rotman as UofT didn’t have a similar organization for students. When I joined, I got to meet the prior executive team and talk to and engage with them. I initially wanted to be CIO. Long-term, if I look at my career, that’s a position I’d like to aspire to one day. The prior executive team had made a point of mentioning to me that I may be better off taking the CEO role instead. I thought long and hard about it and ultimately decided to try it out. The big thing for me was building a really strong team. I was CEO but I had really good folks on my team to help ease the burden, help to get folks to show up for meetings, driving activity and interest over time. That was the hardest challenge for QUAAF, keeping people engaged and driven. We have other priorities while we’re here doing our programs, so the key point for me after deciding to be CEO was to build strong teams. Getting folks that are already keeners and naturally extroverted and wanted to engage others to build a fun and educational environment.
One of the things that I wish I had done more when I was in QUAAF was to try to get industry professionals to come out once a month, or biweekly, to just have a quick chat with us at the end of our weekly meetings. Even if it’s just a phone call, like the one we’re having now, engaging past QUAAF members, execs, and just having a quick chat of what they’re seeing in the market. Regardless if they’re on the buy side, sell side, PE, IB, it doesn’t matter - that’s one of the ways to keep that network and engagement alive. What that would ensure is that every week or couple of weeks or so there would be a new voice at the table, and on top of that they’re professionals, so membership would benefit from that. That would be my recommendation – keep this element alive, have new voices speak to get the membership to learn more and engage more. The MFin program has past alumni come in to speak rather infrequently. If QUAAF is able to do that more often, that’s another reason for folks to be excited and want to join and remain engaged.
Tell us about the Civic Action Fellowship, it seems very different from the rest of your fixed-income experiences.
It was a pretty neat experience - the way the organization described it was like a “civic MBA”, or not-for-profit MBA, and that’s effectively what it was. It was a year-long training program where we would meet on a regular basis and receive professional leadership training, the same kinds that CEOs and other senior executives receive. We got personalized coaching, they introduced a mentorship component for every Fellow, connecting them to a mentor on Bay Street, the government, or just general industry, and so on. It was very much your classic business school education where you’re put in groups and you have a capstone that must be completed by the end of the year. The capstone was meant to find ways to engage the populous in Toronto in some kind of activity, or solve a big hairy challenge. My group ended up working on how to get new revenue sources to solve building maintenance issues plaguing Toronto social housing communities. We approached it by developing a P3 model (public-private partnership) similar to an “adopt a highway” scheme, so a benefactor could adopt a social housing community. At the end of the year, all the different solutions for all the different problems would be presented to the broader group in a pitch competition.
The folks in the program were diverse in every way that I could mean - professionally, gender, ethnicity, sexual orientation, and so on. The goal was to have a proper composite of Toronto represented in that group, and that’s exactly what that group was. I was in the 2010 cohort, and this program is still going as the newest intake just started. It was a very rigorous application and vetting process, where you’re selected as one of 25 or 30 Fellows for the year. It’s also fully-funded by other organizations and run by a group called the CivicAction Leadership Foundation. So you’re basically also getting an MBA for free too. Toronto Mayor, John Tory, was the chair of the board for the longest time, so they have a great network as well.
Do you have any advice for current Smith Masters’ students on how to make the most of their one year?
It is only one year. Really make use of the resources while you’re there. A really good example is that most people don’t have access to Bloomberg terminals, as they’re very expensive. At Smith, there’s 2-3 and you can get training on them through certificate programs available on them. You can learn how to use the terminal for equity functionality, fixed income functionality, or derivatives, options trading, all that stuff. It’s called Bloomberg University, and you can sign up and complete that certificate while you’re at Smith. It’s just one of those things where if you can stay back a few hours or come in on the weekend to use it, when no one really uses them, it makes a huge difference. Smith has these kinds of resources available to students.
The other resource is the alumni network – LinkedIn is a new innovation that helps people like no other. Now connecting with someone directly based on the fact you went to the same school has been made so much easier, and changed the way you can build your network. Usually, it shouldn’t be too difficult to get a phone call or quick chat with an alumni about their experiences, as we chatted about before. The career office is also great - I remember when I was in the program, I talked to Paulina a lot and she’ll tell you about that to this day if you go and ask about my time in the program, I used their resources extensively. She helped rework my resume, we did mock interviews (I was going through the interview process at AGF and other Toronto corporate finance roles at the time), and kept in touch with me throughout the interview process.
From a curriculum perspective, I said that I chose the Queen’s program because of the cost and the time to finish. Given that this MFin was 10 months opposed to Rotman’s 20 months, it was too short a time period to digest a lot of the complicated subject matter being put forward. I would recommend to early on to find out the courses you enjoy the most and engage those professors to do more outside of class. If you like Equity a lot, try to engage Professor Sean Cleary to see if there’s any way you could enhance your learning. If you liked Fixed Income, engage whoever your professor is to learn more. Most of the professors at Queen’s are professionals, so they have extensive networks themselves. If you were to go to them and say you were interested in something, they would be able to connect you to someone in their network with specific knowledge of that area. If I was a current student, that is a huge asset I’d leverage knowing what I know now.
Personally, if I was starting out all over again, I would’ve probably done investment banking in a High Yield/Leveraged Finance group. I wouldn’t have done equity research for example, as that business line shrinking. MiFID II Rules that have been introduced in Europe are being adopted here in North America are making it such that buy-side shops have to buy equity research separately from various brokerages. Previously, equity research was bundled into the suite of services provided by a brokerage, but now they need to be separated out, so now we have to pay for our trades and our equity research, separately. That becomes very costly in a world where there are ETFs that are being marketed or branded as providing similar return profiles with much lower MERs (management expense ratios) than a comparable mutual fund. So those ETFs eat into the revenue line of the average mutual fund company, and adjustments to the cost line must be made accordingly. I don’t think the classic stock picking world is as glamourous, or lucrative as it used to be. The other side is that as you’re getting more and more investment banks not investing in their research functions, the buy side shops are building up their research teams, especially in fixed income. Just hop onto LinkedIn and search for a fixed income analyst role vs an equity analyst role - you’ll see plenty of fixed income roles. If you’re out there trying to find roles, don’t get caught up in the glamour of the equity world. Bonds typically have long maturities and someone needs to analyse them while they are outstanding; so there’s a lot of longevity and safety in both fixed income investments and in a career in fixed income.