Commercial Awareness Discussion Thread

[123Law1234]

@Daniel Boden Thank you! Do you have any suggestions on preparing for a case study involving capital markets?

 

[Daniel Boden]

@Daniel Boden Thank you! Do you have any suggestions on preparing for a case study involving capital markets?

When you say capital markets, which firm is that with out of interest? Have they given you any more specific information? Can't say I've heard of a capital markets case study, but I'll have a look through some notes and drop some points down a bit later this evening if that's okay

 

[ebitda]

Hi, I just wanted to check whether equity capital markets included private equity as well?

I think some care needs to be taken when defining private equity. These days the phrase has been used so broadly that it can come to mean a lot of different things nowadays!

At its core, private equity (if you're thinking of your classic LBO vehicles) belongs to the alternative investment family and by virtue of that, does not fall within the conventional capital markets. Much like stocks, bonds or other securities, private equity is an asset class on its own. They are illiquid, relatively unregulated and have much different risk/return/time horizon profiles than your typical primary market securities (stocks, bonds). It's precisely because private equity doesn't raise capital from the public markets which gave rise to its name in the first place!

Where the equity capital markets come into play is how the fund itself operates and executes its transactions. Of course private equity funds can acquire publicly-traded shares (PIPEs) or exit their investments via an IPO. These processes involve participating in the equity markets, but I think to classify PE as belonging to ECM might be a slight misnomer (in the same way how you wouldn't classify a hedge fund as part of ECM or DCM even though they trade in equities/bonds!).

If you're talking about private equity in the sense of shares in private companies, then that would perhaps fall under ECM. In practice however, these private shares wouldn't be termed as private equity because nowadays PE denotes a completely different mammoth asset class as mentioned!

 

[Daniel Boden]

I think some care needs to be taken when defining private equity. These days the phrase has been used so broadly that it can come to mean a lot of different things nowadays!

At its core, private equity (if you're thinking of your classic LBO vehicles) belongs to the alternative investment family and by virtue of that, does not fall within the conventional capital markets. Much like stocks, bonds or other securities, private equity is an asset class on its own. They are illiquid, relatively unregulated and have much different risk/return/time horizon profiles than your typical primary market securities (stocks, bonds). It's precisely because private equity doesn't raise capital from the public markets which gave rise to its name in the first place!

Where the equity capital markets come into play is how the fund itself operates and executes its transactions. Of course private equity funds can acquire publicly-traded shares (PIPEs) or exit their investments via an IPO. These processes involve participating in the equity markets, but I think to classify PE as belonging to ECM might be a slight misnomer (in the same way how you wouldn't classify a hedge fund as part of ECM or DCM even though they trade in equities/bonds!).

If you're talking about private equity in the sense of shares in private companies, then that would perhaps fall under ECM. In practice however, these private shares wouldn't be termed as private equity because nowadays PE denotes a completely different mammoth asset class as mentioned!

You're right in the sense that PE firms are very much now considered as their own asset class however my understanding was that private equity is a specific (and now very significant) part of the private placement market which is a sub-division of the primary equity market of the ECM.

To clarify, the primary equity market is made up of the private placement market (the more general term for where companies raise money from private investors) and the primary public market which is the IPO/share issuance to the public market you mentioned.

So, therefore, PE, Hedge funds and VC firms would be big players in the private placement market as I understand it and the private placement market would be the umbrella term for the markets where these asset classes operate.

Very happy to be corrected if I'm wrong or missing something if either yourself, @Raam, @Neville Birdi, @Jaysen and anyone else disagrees!

This link explains it quite well I think:

https://www.sapling.com/8236761/private-placement-vs-private-equity

 

[ebitda]

You're right in the sense that PE firms are very much now considered as their own asset class however my understanding was that private equity is a specific (and now very significant) part of the private placement market which is a sub-division of the primary equity market of the ECM.

To clarify, the primary equity market is made up of the private placement market (the more general term for where companies raise money from private investors) and the primary public market which is the IPO/share issuance to the public market you mentioned.

So, therefore, PE, Hedge funds and VC firms would be big players in the private placement market as I understand it and the private placement market would be the umbrella term for the markets where these asset classes operate.

Very happy to be corrected if I'm wrong or missing something if either yourself, @Raam, @Neville Birdi, @Jaysen and anyone else disagrees!

This link explains it quite well I think:

https://www.sapling.com/8236761/private-placement-vs-private-equity

Agreed - private equity is of course a huge player in the cap markets space (whether private placement or PIPEs).

I understood the initial question as PE being a capital markets product rather than a participant and wanted to clarify that PE wasn’t a cap markets product. Otherwise all agreed!

 

[Daniel Boden]

Agreed - private equity is of course a huge player in the cap markets space (whether private placement or PIPEs).

I understood the initial question as PE being a capital markets product rather than a participant and wanted to clarify that PE wasn’t a cap markets product. Otherwise all agreed!

Ahhh I see! That makes complete sense - glad to know we're on the same page haha

 

[123Law1234]

When you say capital markets, which firm is that with out of interest? Have they given you any more specific information? Can't say I've heard of a capital markets case study, but I'll have a look through some notes and drop some points down a bit later this evening if that's okay

They haven't told me what the case study will be on. However, it is one of their main practice areas alongside restructuring.

 

[Daniel Boden]

They haven't told me what the case study will be on. However, it is one of their main practice areas alongside restructuring.

Which firm if you don't mind me asking? There might be a past interview experience on TCLA that could help you but I'd recommend the case study advice that @Jacob Miller ever-so-helpfully prepared if you haven't seen that already?

Definitive Guide to Law Firm Case Studies! *Monday Article Series*

Hi all, please see below the third of my Monday Article Series! This week is my definitive guide to case studies. It's a long one - you might want to go get a coffee and settle in! Introduction This week’s Monday Article will cover how to approach law firm case studies, one of the most...

www.thecorporatelawacademy.com

 

[Sam55]

Has anyone been following the situation with Archegos? I was wondering if anyone had any thoughts on whether there are any specific legal issues involved or if there are any broader implications to this?

 

[Daniel Boden]

Has anyone been following the situation with Archegos? I was wondering if anyone had any thoughts on whether there are any specific legal issues involved or if there are any broader implications to this?

Not sure about legal issues but I think there could be some real commercial implications with the amount of leverage that banks are willing to lend hedge funds in future! If banks decide to reduce their exposure and reduce the amount of leverage they give to HFs (as they wouldn't want to take the losses that Nomura and Credit Suisse have done - estimated to be around $2bn and $3-4bn respectively!) then that could have a real impact on the level of deals and investments that HFs can do in the future and indeed the companies that will need this level of financing from a HF!

 

[Sam55]

Not sure about legal issues but I think there could be some real commercial implications with the amount of leverage that banks are willing to lend hedge funds in future! If banks decide to reduce their exposure and reduce the amount of leverage they give to HFs (as they wouldn't want to take the losses that Nomura and Credit Suisse have done - estimated to be around $2bn and $3-4bn respectively!) then that could have a real impact on the level of deals and investments that HFs can do in the future

Yeah I definitely agree here- seems like nomura and credit suisse got really screwed over when MS and GS started dumping all their shares

 

[Daniel Boden]

Yeah I definitely agree here- seems like nomura and credit suisse got really screwed over when MS and GS started dumping all their shares

Massively, that's probably not far away from their year's profits already gone in March!

 

[Deleted member 2707]

Does anyone have any recommended books on corporate financing or ECMs in particular? Looking to beef up my finance knowledge as this is probably the aspect of corporate law which most intrigues me.

 

[Matt_96]

Not sure about legal issues but I think there could be some real commercial implications with the amount of leverage that banks are willing to lend hedge funds in future! If banks decide to reduce their exposure and reduce the amount of leverage they give to HFs (as they wouldn't want to take the losses that Nomura and Credit Suisse have done - estimated to be around $2bn and $3-4bn respectively!) then that could have a real impact on the level of deals and investments that HFs can do in the future and indeed the companies that will need this level of financing from a HF!

Wasn't the whole reason Archegos ended up being so overleveraged something to do with the fact that it was structured as a family office rather than a traditional hedge fund and therefore didn't have as much scrutiny? That was my takeaway anyway.

 

[Daniel Boden]

Wasn't the whole reason Archegos ended up being so overleveraged something to do with the fact that it was structured as a family office rather than a traditional hedge fund and therefore didn't have as much scrutiny? That was my takeaway anyway.

Yeah it was a family office and so has far fewer regulatory requirements e.g. a much-reduced amount of financial reporting but hedge funds generally do have a lot of leverage hence why I think it could have industry-wide implications going forwards

 

[lawstudent12345]

Hi, does anyone know if there is a guide to analysing commercial news articles? Such as by using SWOT and PESTLE! Thank you!

 

[Alison C]

Hi, does anyone know if there is a guide to analysing commercial news articles? Such as by using SWOT and PESTLE! Thank you!

Hi - I don't use this very much but the Strive ladies did a podcast on Commercial Awareness a while back and discussed just this. From memory, they suggested a framework from an article, focusing on

• What?
• So What?
• What Next?

which might at least kick start you. It's good and simple but encompasses the 'why does this matter/what might the impact be?' elements really neatly.

For the TCLA newsletter, the framework used is The Story (plus any relevant Background) and What it Means for Law Firms and Businesses. If you use the SWOT/PESTLE factors to help you consider the key aspects of the story using those factors in that order, then the relevance will probably be easier to see.

Another approach to consider might be the factors used for teaching GCSE History Medicine Through Time (yes, a bit random I know but bear with me). What you are trying to do is look for explanations, patterns and factors. RAWGTICCS:

• Religion (in Ireland and Israel, for example, you can't ignore this for most stories; also some individuals' actions are tied to their beliefs)
• Attitudes (eg are people ready? if so/not, why? Are there activist tendencies? Cultural blocks such as racism?)
• War (always expensive - and you could just consider work conflict if actual wars are irrelevant)
• Governments (what is top of their agenda and how are they managing it?)
• Technology (has something changed? Is new tech enabling or disabling something that has just happened/might happen?)
• Individuals (eg Bill Gates, Zuckerberg etc etc)
• Communications (this can mean everything from emails and Whatsapp to roads - think Suez Canal)
• Chance (eg what if it had happened on a different day of the week or not in that order)
• Science (this plays a big role in so much)

I don't usually use those but going through them now, they are pretty helpful. They might give you a broad canvas to decide what you think should make the cut.

So maybe collate your own list of key factors?? With a jazzy way to remember them? And put them on the forum?

EDIT: links to Strive resources

https://static1.squarespace.com/static/5b2192044611a0e22afb1706/t/5c17b1a0b8a0454b6ae74f1b/1545056675016/StriveSpeaks+S01E03+Accompanying+Guide.pdf

#StriveSpeaks — STRIVE

#StriveSpeaks: The first podcast that informs and inspires future trainee solicitors #StriveSpeaks

www.striveconsultants.co.uk

 

[Lastseasonwonder]

Hey everyone,

Can someone please direct me to a resource (podcast episode, article, blog - whatever really) that provides a useful overview of the energy sector/industry for 2020 or 2021 with the challenges and issues (and possibly the impact on law firms).

Thanks

 

[Hatikulli]

Hi everyone,
I have an assessment centre coming up (YAY!) and I am dreading the commercial awareness question. If I am asked to talk about a recent commercial development and how it can affect the firm, do you think it is a good idea to talk about climate change and its effect on practice areas?

Thank you in advance
@Jessica Booker

 

[Jessica Booker]

Hi everyone,
I have an assessment centre coming up (YAY!) and I am dreading the commercial awareness question. If I am asked to talk about a recent commercial development and how it can affect the firm, do you think it is a good idea to talk about climate change and its effect on practice areas?

Thank you in advance
@Jessica Booker

I’d stress it’s unusual for there to be one question that would cover commercial awareness.

I would probably try to find something more specific within climate change. Climate change is a big topic on its own - there will be lots of different stories within it, so try to focus on one of those specific stories, especially if it is more aligned to the firm’s work.