It can be easy to feel that I need to get the most out of my venture capital due to the lack of relevant experience and qualifications; yes, that was a bitch slap from someone (that thinks he is my friend) about me. However, I'm here to share a bit about this industry is different from other sectors and that success requires more than just a certain amount of book smarts. It requires a lot of courage, creativity, integrity, and sane! By the way, this article's objective is only a sharing personal thoughts with limited knowledge and understanding of how to be a Chartered Financial Analyst (CFA); after seeing my friends and partners with that title, will it intimidate me? Well, of course not; I already had Permanent Head Damage in my life, so let's enjoy the story!
It can feel like I am missing something when everyone around me seems to have the same experience and qualifications. However, venture capital constantly evolves and requires more than certain skills and knowledge. It requires a lot of imagination and boldness to succeed. I must say that the certification for financial analysts is no joke. It takes a long time to get certified, and it tests our knowledge of various aspects of finance. With all that hard work, does it improve our skills as venture capitalists? Well, one of the most critical factors that we need to consider when it comes to the design and structure of the program is its relevance to the startup industry. And on this article, I'll talk about the pros and cons of becoming a certified financial analyst (from my personal view).
But wait....
If we're looking to make a name for ourselves in the financial industry and invest in startups that can grow, then a career in venture capital might be the right choice. These entrepreneurs are known for their ability to raise funds for their startups and manage their operations. Getting the necessary skills and qualifications can help us make a successful start.
Somehow, getting into the financial industry is a huge waiting list. The requirement for a CFA is necessary for anyone working in the sector, but it's rarely seen in investment banking. So, I tried my best to study for the designation of analyst, which allowed me to quickly move into this financial industry. It says that the CFA is a well-rounded individual who can handle various aspects of finance. Unlike other professionals, they have a broad understanding of private equity. This knowledge is essential for investors as it allows them to make informed decisions and manage their investments. It would be helpful if we were seasoned sector experts to understand various forms of debt financing. We also need to be able to excel in modeling and forecasting. A good professional will typically pack all of these into one portfolio.
The CFA (may) aims to show investors they can trust us to manage their money. Finding the right company to buy and the best exit strategy in private equity can be challenging. The other important aspect of the process is convincing our limited partners, such as investors, to participate in the fund. Even if an investor is unfamiliar with the finance sector, most still respect the CFA. Having those three letters on our business cards makes a big difference. Look sexy for some reason, right?
Once, some people told me that I'd be able to outdo my colleagues in the investment banking industry if I had a strong background in accounting and finance; really? Well, somehow, in this competitive environment, having the necessary skills and knowledge will allow us to stand out. And, as a professional, we are viewed as ethical. In today's environment, where there is a lot of scrutiny about market ethics, the focus is on the conduct of investment managers and private equity firms. So having a well-defined and legally binding ethical code of conduct is crucial to ensure we can do the right thing.
As mentioned above, the requirements for becoming a Charterholder of the CFA are demanding. To be eligible to become a charter holder, we must have at least a bachelor's degree and four years of experience. We also need to pass the three levels of the program to maintain our status. Since the program is self-paced, individuals who complete all of the requirements and become charterholders are likelier to tell potential employers that they can handle the demands of their careers. After a few years of working in the financial sector, most private equity firms must teach us how to negotiate buy-side deals.
Really?
From my observation, contrary to popular belief, the CFA is not a golden ticket to the capital market industry. I have no background in investment banking, and I'm not good at networking. So even though I have passed the first level of the CFA program, I believe I can't enter the capital market industry easily. Well, it is a common plea from people outside the finance industry who are still trying to break into it. It's widely believed that passing the CFA exam guarantees to land a job in finance, as Warren Buffett would be more than happy to give me a job in the industry (yeah, right). Unfortunately, this is not the case.
Ok, let me summarize what I know after browsing the internet (ref. Reddit, Quora, etc.); well, the goal of the CFA program is to provide individuals with the necessary skills and knowledge to manage their financial positions effectively. The program consists of three main exams. We need more than the CFA to get us into finance because it requires us to be in the business first. This is because we can't become charter holders without the necessary work experience. One of the unique features of the exam is that it requires a bachelor's degree to take it. However, in senior year, students can get around this requirement by registering for the Level 2 exam while they're still in their final year of their bachelor's program. This means those planning to take the Level 2 exam can only do so once they have completed their degree. Somehow, preparing for the exams takes work, as we must spend about (avg) 900 hours studying each level, just like we are playing MMORPG games (we need hours to gain higher levels). This is especially true for those still working or studying in business school. I heard stories about people who claimed to have studied for two weeks and then passed their CFA exam. However, these are not true! If someone can do this, please teach me how to pass it. The probability of failing to pass each CFA program level is mathematical. For each exam, the pass rate is less than 50%. It usually takes around four years to get all three levels of certification. Then, the best part about the program is that once we finish it, we can feel like we have a passion for investing.
Then, from what I have noticed, one of the most important advantages of the program is joining a thriving club for finance professionals. Like golf clubs are social places where people meet, members of these clubs tend to socialize with individuals who enjoy playing golf. And the program's main advantage is that it allows people to network with like-minded individuals. This allows them to maintain their education and improve their skills. But unfortunately, many candidates fail to grasp the program's benefits when they enter the job search. As a result, they might not be able to find a suitable position even after they've completed the program.
Then.... I ask myself, is the CFA program right for me?
Over the years, I have been asked about the CFA qualifications. As a former participant in the program andfailed... LOL! I do not think the certification is a good use of time (again, at least for me!).
Well, from my view, using time efficiently is not the case with CFA. The main difference between a CFA and a general practitioner (GP) is that the former focuses on theory and the latter on practical skills. For instance, while the exam teaches me how to analyze financial data, it doesn't provide the necessary knowledge to identify issues related to changing reporting segments. And the requirements for becoming a CFA are very demanding: as I mentioned above, we need to spend at least (avg) 900 hours studying to pass all three exam levels. In addition to this, we also need to pay a one-time enrollment fee of $450. Then, logically, the increasing number of candidates taking the exams could cause the supply of CFA to increase. However, it's impossible to tell if most want to become financial analysts.
But is it a good idea to join the CFA? My counterpoint answer is YES -- doing so would not make us cooler than we already are; although I failed once, I still believe in positive learning. Well, many thoughtful discussions about getting into a hedge fund through a broker with CFA knowledge is not the only thing that matters. We only have to be able to make money to be successful.
On the contrary, joining the CFA might be a good idea if we are not financial professionals and are an outsider. After passing the first two levels, it shows that we have the necessary technical skills to succeed in the industry. However, after we get an interview, we still need to demonstrate that we have the essential job skills to get hired. Our knowledge of a wide range of financial products is often valued in a multi-asset role. However, becoming a true expert in this field requires more on-site training. Then, suppose we are a portfolio manager or senior analyst at a mutual fund company. In that case, we must have a strong professional accomplishments and a good reputation to be promoted. There are rumors that allocators favor those with a strong professional designation. However, I don't believe these letters are linked to better ethics or performance!
To close this article, this case is relevant since the rise of online platforms where investors can share their process has made it easier for people to only invest with proper knowledge of how to do so. So, for instance, if we're considering getting the CFA designation, it's important to consider why we want to pursue this profession and how it will benefit us. Again, as I said earlier,time is my most precious asset, not only money. With money, I can borrow things but not with time! Thus, investing in startups can take a lot of time. Therefore, before investing, I need to be fairly confident that I can get a good return. A cost-benefit analysis is a good way to determine if the CFA program is worthwhile. And, yes, a cost-benefit analysis of the various aspects of a professional financial advisor's services revealed that the practice fails miserably on both sides. Since I can focus on the various aspects of my job instead of the main topics covered by the certification, (I think) my time has been used better. It's also important to consider the psychological effects of a bad decision, such as the unwillingness of people to admit their mistakes (I am talking to myself in the mirror LOL).
Please enjoy the journey and be positive in action. I remember a good quote from Aldous Huxley; experience is not what happens to us; it's what we do with what happens to us. Thus, stay happy, healthy, and sane!
