Special Situation Investment?? How special

Day 1 at CIMB Internship:

Uncle suggested that we leave early to avoid the congestion around Damansara, so I agreed to it.

We reached CIMB at 7.15am when Angeline actually asked me to report only at 8.30am. But good thing is we managed to find our way to the library of the CIMB knowledge and training centre. At least a place to sit down and read while waiting for the minutes to pass.

Skipping through the details of filling in forms, listenin to the welcome notes etc...

Apparently I am in for a special internship programme called "structural internship" where I am paired with a mentor for this two month programme. He's a nice person.

So I followed him to the department I am posted: SPECIAL SITUATIONS INVESTMENT at CIMB Investment Bank. What a name!

A natural question is : What on earth are SPECIAL SITUATIONS?

Apparently it works just like a unit-trust but at a much larger scale. Each investor contributes millions of money and the bank will do the investment part of it. Investments are usually on equities, where the largest returns usually come from. 20% p.a is the bare minumum that would attract the bank's interest. He said it is common in the industry to see returns on equity of at least (usually larger) 20% and I went like "WOW!". That just proves how unrealistic the numbers used in ACCG253.

This department deals with the cases where companies can't obtain funds elsewhere (from bank loans), mainly due to high leverage, lack of bank confidence on new products/ideas or industry etc. Essentially they have no access to debt-financing which is a much cheaper option with returns approx 6-8% pa. When that is the case these desperate companies will turn to equity-financing, more precisely equity financing from big institutions like CIMB to help raise investor's confidence.

There are much research work to be done due to the risky nature of these ventures. I have a stack of research work on my hand now that i believe is not the thickest my mentor has ever done. Page after page are descriptions of immense details on how the palm oil industry is performing worldwide and in Malaysia. The information is overwelming and it shows how careful the bank is at selecting the investment it is going to invest big bucks. Knowingly, it is a matter of millionssssss.

I guess the whole idea is to invest when the company's share is undervalued and sell it, say, 5 years later when the share price adjusts to where it should be (the bank obviously believe that it would be much higher), and expect to get at least 20% return.

Basically, I think I will get a glimse on a highly competitive investment market along the way of this programme. So far I like it.