So, you graduated a few years ago and bumped around within different positions in finance…
You aimed for investment banking and M&A roles, but kept coming up empty-handed due to the economy, the dismal state of hiring, and other applicants with more work experience.
You made it through a few rounds of interviews and came very close to winning a capital markets role, but lost out at the last minute to someone more experienced.
What’s your next move?
Business school? The back office? Tiny boutique? Becoming a ski bum?
Just move to Sweden and join an investment firm that focuses on renewable energy (you can still be a ski bum in your spare time).
You may think I’m joking, but I’m describing exactly what one reader did recently – here’s his full story, and a healthy dose of first-hand information on the renewable energy investment industry in the Nordic region of Europe:
The Path? What Path?
Q: You know the drill. Let’s hear your story and how you got started in the industry.
A: Sure. I was an Economics major at a “semi-target” school and graduated into a horrible economy, where jobs were almost impossible to come by.
At the time I was playing baseball on my school’s team and so I never had the chance to complete internships over my summers there. One year, I did manage to land a PWM internship at a bulge bracket bank after the season was over but that was my only work experience.
After graduation I decided to move to New York and I won an offer at a prop trading firm there – but it was mostly day trading, with very short time horizons, and it wasn’t really my thing.
Since I covered companies in the industrials and financials industries on that desk, I learned quite a bit about those industries and taught myself some valuation in the process.
I was interested in getting into banking, but had no relevant experience… but I did have a family friend who was MD of Operations at a bulge bracket bank, so I took the opportunity and went into Operations there.
Q: What?!! Didn’t you read all my warnings about this back office to front office plan?
A: Yeah, I figured I could defy the odds and make the move anyway, despite the economy.
I won an offer and worked as an Operations Analyst for institutional and retail desks there, which wasn’t quite as exciting or sexy as I wanted it to be.
But I did get some time to study for the CFA and gained somewhat more relevant-looking experience for moving into banking from there.
I started networking internally and emailing mostly mid-level people (Directors, VPs, etc.) since I got better responses than I did when I tried for more senior staff.
I reached out to them and said, “I’m interested in an internal move – could you sit down with me for a few minutes to give me a few ideas?”
That approach worked quite well and I got good responses as well as some interviews with investment banking groups like M&A, healthcare, and industrials…
But those interviews didn’t really go anywhere.
I also reached out to people in capital markets groups, and those interviews went much better – I made it to the final rounds there, but ultimately they decided to hire someone outside the firm who had had banking experience before.
I even volunteered to take a step back and start over as a 1st year analyst, but none of that helped.
Q: Right, I think that’s a pretty common scenario – you try to move around internally quite a bit, but if you don’t have the exact experience they’re looking for it can be a long-shot at best.
I’m confused about how you ended up in Sweden after this, though…
A: Yeah, that part requires some explanation… my girlfriend is Swedish and I had always been interested in living there for some period of time.
Since my prospects in the US weren’t great by this point I said, “What do I have to lose?” and started networking online with a few contacts I knew through her.
I got in touch with hedge funds, banks, and other buy-side firms like the renewable energy investment firm I ultimately ended up at.
Renewable energy is huge in the Scandinavia region and it’s one of the most interesting industries to be in there.
Q: Ok, so you networked your way into this new country… remotely… via some contacts you found through your SO. That’s already impressive, but how were you able to interview for anything? Didn’t you have to know the language?
A: No. Since Scandinavia is really small, most places here are more English-friendly… and at my current firm the official corporate language is English.
Sometimes during breaks you’ll feel left out if you don’t speak Swedish, but other than that it’s not that much of a stretch to work here without knowing the language.
The interview process was straightforward: I did 4 phone interviews and then one final in-person interview after I had flown there.
The questions were all pretty standard and similar to what you’d receive in private equity interviews or finance interviews in general: a good mix of “fit” questions, some technical ones, questions about investment ideas, and so on.
Q: So it sounds like recruiting wasn’t that much different, even though you were halfway around the world?
A: Correct. And just to give you some more background on that, there aren’t too many top-tier schools in Scandinavia as a whole.
So in a lot of cases they actually look for people who have worked in New York or London previously because they want you to have some kind of relevant experience and proper training first.
Sometimes they recruit citizens who worked abroad and are returning home, but there are quite a few foreigners as well.
The recruiting process here is very different, and it’s not as well-organized as what you see at big banks in New York: in many cases they’ll find you via LinkedIn, Monster, etc. and take it from there.
They don’t have a formal schedule for recruiting and interviews, so it can turn into an extended process over months and months.
You also have a big advantage if you interview here as a foreigner, because you’re not speaking to native English speakers and therefore can’t be grilled as hard.
People here are fluent in English, but they’re still not native speakers… so the questions tend to be “softer” and they give you more time and space to think out questions before answering.
Q: Wow, I think that’s the one case I’ve heard of the language barrier actually working in your favor in interviews. It certainly hasn’t helped me before!
Any other key differences to be aware of? It sounds like the language and culture aren’t as important in Scandinavia compared to emerging markets such as China and Brazil.
A: Yeah, that’s definitely true. The other thing to be aware of is that labor laws here are very different and the state actually taxes any employer that hires new employees… in a more severe way than what you see in other countries.
As a result, getting hired is an extremely time-consuming process with lots of red tape.
The average of length of time to go from interview to “hired” is 3 months and sometimes it can be much longer than that.
So be prepared for a very, very long process at almost any company here. The private equity recruiting process can be very lengthy at smaller firms in the US and UK, but you run into that same extended process at companies of any size here.
The Nordic Landscape
Q: Right… well, it seems like the recruiting process is not too different other than the points you mentioned above.
What about the finance industry overall? Do the bulge bracket banks still have a presence?
A: They do, but they don’t dominate in the same way that you see elsewhere. Morgan Stanley, Goldman Sachs, JP Morgan, and a few others are all here but they’re very vertically-focused and only operate in certain sectors.
One of the biggest industries here is oil & gas – much more so in Norway than the other countries – and then in Sweden, Denmark, and Finland, technology and renewable energy are big industries.
In terms of deal types, capital markets (companies are listed on NASDAQ OMX) and restructuring deals are common on the investment banking side – many banks here only focus on those.
There’s a lot of private capital coming into the country because there’s a 26% corporate tax rate here – the pitch goes something like, “Low taxes and NOT a crappy place to live! Except for the winter.”
Many firms have been relocating back here to take advantage of this low rate.
Q: If you could exclude the winters, I’d be there in a heartbeat.
What’s it like working at your renewable energy investment firm there? And what exactly do you do?
A: Sure. Originally my firm started out as a state-owned utility, but it spun off a branch dedicated to renewables and then renamed itself.
Basically, we operate as a private equity firm but invest exclusively in renewable projects such as biomass, wave power, and wind power.
Funding these projects is very similar to project finance and many of the same principles – very long time horizons, somewhat more predictable cash flows, funding projects with a combination of debt and equity, etc. – still apply.
We have around $4 billion of equity on hand, and sometimes we partner up with other renewable companies to get deals done.
Our Limited Partners are big institutions in the region as well as pension funds.
In terms of working here, Swedes pride themselves on efficiency. If a meeting is supposed to be an hour long, it will always be an hour long… never more or less than that.
Unlike banking in developed countries, MDs don’t keep throwing more and more work on you to make themselves feel better.
Even though there’s more bureaucracy in the hiring process, there’s actually far less bureaucracy and office politics on the job.
You’re still working far more than you would in a normal job, but the labor laws here prevent anything too extreme such as consistent 100-hour workweeks with no vacations.
Overall I think that’s good because being less stressed out actually makes for a more efficient company.
Got… Solar and Wind Models?
Q: I see… we’ll circle back to the hours in a bit, but I wanted to go back to the point you just mentioned about project finance.
I’m assuming that the deal and modeling work you do is similar to project / finance infrastructure anywhere else – are there any major differences?
A: It’s very similar.
In project finance, you estimate the cost of building a huge project like a highway, dam, or airport, figure out how much it costs to finance, and then determine what the revenue will be once it becomes a revenue-generating assets and what your cash flow looks like after taking into account construction costs and ongoing operating expenses.
Conceptually, it’s similar to real estate development: you have a long time horizon and high upfront expenses, with a payoff years into the future.
The difference is that, especially in Europe, subsidies and political support are huge.
Many renewable projects have government support schemes that help generate revenue, and you need to reflect that in your models and analyze it closely in deals. Lots of revenue also comes from “certificates” that are traded in the market.
Before we decide to invest in a project, of course we’ll take the time to model out everything and see whether the cash flows and potential returns make sense – but there’s also a lot of due diligence to make sure that all the individual elements of projects line up.
There’s a lot of complexity because some parts are on-shore, some are off-shore, and then there’s the government support I just mentioned.
The deal process itself is similar to private equity / infrastructure investment anywhere: once the junior-level people finish all this analysis, they present it to VPs and MDs, who discuss it further and ultimately vote on whether to proceed with the deal.
Q: Great, thanks for clarifying those points. You just touched on how valuation and modeling differ when working with renewables – anything else to point out there aside from the government subsidy issue?
A: I’d emphasize that projects here are very long-term – wind energy, for example, might take 20+ years from start to finish in a model.
Just like in project finance and real estate development, you care more about true cash flow rather than accounting metrics like net income.
Since these projects are subject to political uncertainty, you need some type of risk-adjusted metric to account for that in models, and we look at reports from firms like KPMG to assess what different governments may do.
In Europe, each of the countries we operate in (UK, Germany, Denmark, Belgium, Sweden, the Netherlands) has a completely different set of renewable certificates, and these certificates can be sold and re-sold in the market.
Valuation is tricky to figure out because many of the assets here aren’t owned by companies, but rather by families and other non-corporate entities.
There’s very little public information since renewable energy is still up and coming, and so verifying multiples when looking at comps is almost impossible.
It’s all about cash flow here, and we place a lot of emphasis on Free Cash Flow-like multiples.
Q: What about energy-based multiples, i.e. $ or Euro per Megawatt Hour?
A: We do use a few project finance-related metrics, such as Levelized Energy Costs (Costs per MWh) – the energy cost that causes an investment to break even – and Cash Value Added (CVA). We also focus heavily on CapEx figures.
Overall, though, we probably pay more attention to cash flow instead of energy-based multiples.
Sometimes we do due diligence on the calculations for potential energy from wind-related projects and see whether or not our assumptions make sense.
And we will use energy prices in the context of figuring out how many megawatts individual projects can generate and what operational cash flow they’ll have as a result.
Longer Hours in the Winter?
Q: Now we have to move on to the obligatory questions on hours, compensation, and exit opportunities… you knew this was coming.
You said above that the hours were “better,” but what does that really mean?
A: The average is still 70 – 90 hours per week, so it’s fairly close to banking hours and on the upper end of PE hours in other countries.
But the exact hours vary by season: the real crunch time here is in the summer because that’s when we go to committee to figure out how to raise money.
Asset allocation happens at the end of the year, and we work on 5-year plans for deploying funds here. But there’s always crunch time in the summer as we start thinking about allocation and the fundraising process.
People certainly do value vacation more highly in Europe; even front-office roles here get 5 weeks of vacation, which is fantastic compared to the US.
So it is much easier to plan things out and take a break at least a few times per year.
But on average, you’ll still be working a lot – maybe just with a bit more predictability than in other regions.
Q: Well, now you’ve disappointed me. 70-90 hours per week AND those long winters, plus the inability to enjoy the summer.
I hope the compensation at least makes up for it?
A: It’s about on-par with what you’d get at the entry-level in investment banking or private equity in New York.
There’s still a progression as you move up, but there’s less of a bump at the MD or Partner level, so on average MDs and Partners at investment firms in major financial centers will make more.
But you’ll still be among the top earners in the country, even if it’s not much better or worse compared to other financial centers.
Getting carry can be more difficult – only Managing Directors are eligible, and you have to be here for quite some time to even think about it.
That is pretty standard elsewhere, but some firms in the US and UK may be more lax on that and might actually let more junior people participate depending on the firm size and type.
Q: I see… so still very high-paying, but maybe less of a ceiling at the top.
I’m assuming some people get tired of the winter eventually, so where do they go afterward?
A: Actually, many people on our team arrived here from M&A teams at bulge bracket banks and have no desire to leave the country or move back to banking!
While the hours are long, there’s a lot more predictability and vacation time and the pay is still quite good.
If you did want to leave, the main options would be:
- Another renewables / clean-tech investment firm.
- A diversified private equity firm.
- A clean-tech group at a bank.
You could also work directly for a renewables company in their corporate finance or corporate development departments, but that’s rarer than the others above.
Q: So which one of those options will you pick?
A: Hah, you’re assuming I actually want to leave… remember that my girlfriend is here!
Anyway, I do want to move back to the US at some point – not because I don’t like it here, but mostly because I do want to be back with friends and family at home. SF or NYC are the most likely locations.
I’m aiming to get back into private equity state-side; I might also go to business school, but not if I can get on the Partner-track at a PE firm there first.
Q: Sounds like a plan.
Based on everything we’ve discussed who would be a good fit for the industry (renewables investments) and the region (Scandinavia)? And who would be a bad fit?
A: If you’re into technology and renewables, it’s a great region to be in. If you have an entrepreneurial spark it’s also great because those industries are growing and there are tons of new opportunities always springing up.
There isn’t much hands-on training here, so you need to be the type to get up to speed quickly. If you can do that, they will notice it and you’ll be given the opportunity to excel.
And finally, I’ll admit defeat on this whole issue of the long winter and state it upfront: If you’re not used to dark and cold weather for prolonged periods, working here will be a big issue.
I think that’s outweighed by everything else, but I’m going to finally give in and acknowledge that point.
Also, if you’re interested in working across many different industries this is not the place to be. It is more specialized and if you don’t want to do tech or renewables (or oil & gas if you’re in Norway), there are better places to work.
Q: I’m glad I finally got you to admit that point about the winter. Thanks for taking the time out to chat – really enjoyed it!
A: Any time.