First steps in finance

July 20, 2019

Richard Dawson talks finance, education and the philosophy behind investment with two rising stars at Newcastle University’s student-managed investment fund, NCL Capital Partners

Financial services makes a huge contribution to the UK’s economy. The last time it was measured in 2017, its contribution accounted for 6.5 per cent of total economic output or £119 billion in cash terms.

In that financial year, the sector contributed £27.3 billion in tax and employed roughly 1.1 million people. Clearly, the importance of finance to UK economic activity cannot be overstated.

But the sector is also highly centralised. Of the £119 billion made in 2017, 50 per cent of it was made in London.

It is therefore encouraging to see that at Newcastle University, a student-led investment fund and training programme has been set up.

NCL Capital Partners is a student-managed virtual investment fund that allows students of all backgrounds to get practical experience and a deeper understanding of the financial industry.

It was set up in 2017, growing out of the university’s investment society, with the goal of showcasing the potential of the North East and giving students an advantage when trying to break into a highly competitive, and London dominated, labour market.

Two such students are George Bradley, fund sector leader at NCL Capital Partners, and Lewis Herring, fund manager. They are studying computer science and economics and finance, respectively.

Lewis says: “The fund was set up because London is the centre of finance. It’s where it’s all happening but we wanted to show that there is talent and enthusiasm for the industry in the North East.

George adds: “If you take the North East as a whole, historically we’re industrial, we’re shipbuilding and coal mining. But that’s changed now and as such there’s no reason we can’t be the next centre for something like fintech.

“In some ways, NCL Capital Partners is bringing the eyes of finance towards Newcastle.”

Other student-led funds are up and running in other universities in the UK, such as Queen’s Belfast, Edinburgh, York and the London School of Economics. But with 150 analysts signed up last year, none are as big or as accessible as the one flourishing at Newcastle.

Lewis says: “A lot of the other student funds are quite selective. They want students who already have quite a lot of prior knowledge. But we are more focused on anyone who wants to learn, even if they have no technical experience because we give them that. We’re all about education.”

Interested students are invited to fill out a form asking some basic questions about their current understanding of finance and what kind of sectors they might be interested in, before being selected by the senior team to join the programme as a fund analyst.

The fund is structured with a senior team, headed up by eight people leading four sectors – industrials, discretionary consumers, stable consumers and technology. These particular sectors are chosen because they are thought to be the most accessible to students who might not have studied finance before.

Lewis explains: “These sectors are simpler to model, so it’s easier to teach to our students. There’s also quite a lot of public data so you can really dig into a company’s finances.

“We only focus on equity”, he continues, “because it’s a good way to get a baseline understanding. It teaches students not just about the simpler aspects of finance but also the philosophy behind investment and how companies run.”

Successful students are assigned a sector and invited to educational seminars where the senior team go through basic principles, such as reading financial statements, interpreting a company’s financial data and then learning how to model, how to value certain stocks and how to write recommendations based on this analysis.

George describes financial modelling as asking the question “how do you value a company?” Lewis adds: “The simplest way to describe modelling would be taking the stock price of a company now and then assessing what its stock price should be based on how much that company is worth. You then work out whether the stock price is going to go up because it’s not as valuable as it should be or whether it’s going to go down because it’s more valuable than it should be.”

Over the academic year, student analysts develop their skills in the lead up to NCL Capital Partners’ stock pitch night where they give their pitch to sector leaders about where they think the fund should invest.

The scheme allows students to get immersed in financial services in a safe and supportive environment. It also gives them practical experience for their CVs that can prove very attractive to potential employers.

But the team are keen to stress that, even if students find that finance isn’t for them, there’s still plenty of networking opportunities over the year to benefit from. And the specialist knowledge they receive is also useful for a whole range of careers.

George says: “Even if you’re not interested in pursuing a career in finance at the end of the year, this is important information to know. To know how a company works, how much debt they have, how they make their money; these skills can be applied anywhere.”

Despite all of the in-depth financial modelling and analysis, investing in the global markets can be a risky business. We only have to look back 11 years to the 2008 crisis to see the consequences of financial misconduct.

That’s why it’s particularly encouraging to hear that students at NCL Capital Partners are learning about what things to watch out for when forming their recommendations.

Lewis says: “One of the big themes at our annual event was how current affairs could affect investing attitudes and the need to keep a close eye on what’s going on in the news. You’ve got things like Brexit and American foreign policy, but even little things like lithium stocks can have long-winded effects on different industries.

“We get our students to make qualitative assessments in their reports. The numbers are important, but you’ve also got to figure out what’s going on behind the scenes with a company or what’s going on in the market.”

Each year, NCL Capital Partners holds a conference where they invite student analysts and fund managers to network with those working in the industry.

Local firms, such as Rathbones, Brewin Dolphin, Vertem and Tier One Capital attended this year’s conference, as well as representatives from Barclays and PwC.

On the support the virtual fund has received from local businesses, Lewis says: “The response has been really positive. I’ve met with firms like Rathbones and NVM Private Equity and they’ve been really interested in what we are doing. They think it’s really valuable that we’re teaching students the kinds of skills they’re looking for.”

This relationship between the next generation of talent and local businesses is going to be crucial to retaining talent and making the North East a centre for financial innovation.

Both Lewis and George are planning to forge ahead with careers in the financial industry. In George’s case, this is as a direct result of his experiences with NCL Capital Partners.

But whatever their career aspirations, it’s clear that this scheme, made by students and for students, is a valuable resource that could make all the difference for landing that first job out of university.

With more engagement from the local financial services profession, it could also be the key to unlocking the future potential of finance in the North East.

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