London Business Challenge Week: How a hedge fund internship can turn you into a better consultant

By Fred Li (MFA 2023)

London Business Challenge Week background

The London Business Challenge Week is a unique one-week experience that allows MFA students to work with real-world clients in solving business challenges. Our team of seven was assigned to an innovative company that was disrupting food and beverage retail. I was particularly excited about this project, as I had zero consulting experience.

Talent and teamwork

On a bright Monday morning, we met our client on campus and the project was officially kicked off. The client introduced their business model and explained that they are currently considering a few growth opportunities across different verticals. Our task was to analyse two different verticals- gas stations and hotels and then gather data and generate insights that was useful to our clients.

At first, our team was quite worried about the challenge. The verticals were extremely niche and we were afraid that data made might be hard to come by. Second, we were not sure if we could find available research reports that would satisfy the scope of our clients.

One of the benefits of attending MFA is that most of your classmates have had internships experiences across various fields of finance. As we spent lunchtime getting to know each other, we discovered that within our team of seven, we had multiple experiences in real estate private equity (REPE), consulting, banking, equity research and hedge fund. Our REPE teammate quickly rose to the occasion, shared her experience analysing the hotel industry and pointed us towards potentially useful reports.

Since she had experience in real estate, we quickly split the team into two, with her leading the hotel team with two other teammates and the rest of us covering the gas station segment. We also elected our leader who demonstrated strong interest in this project and had excellent communication skills to coordinate the team.

Transferrable skills

I joined the gas station team with teammates from equity research and banking backgrounds. One of the first things we did was leveraging databases to find existing industry research reports. As we exhausted these reports, we were only able to find some aggregate number and big industry trends. However, we decided that we needed to dive into the unit economics level to generate extra insight. The research reports had mentioned a few listed companies and they became our natural next step.

On day two, we started our research into companies. Since I have done a hedge fund internship, analyzing annual reports (10-k) and reading IPO prospectus were right up my alley. I quickly delved into the footnotes and began painting a picture that would best reflect the operational reality of these stores. The process was arduous and a few key data points were unavailable from our research. After a day of scouring through 10-ks, I decided that some of the data points were impossible to find and we needed to resort to extrapolation.

By day three and thanks to the help of our teammate with a consulting background, we were extremely clear on what our final deliverables would look like. We would provide a total addressable market (TAM) analysis that would paint a macro picture for our client, accompanied by a per-store analysis that would explain the unit economics of this industry. Although we had not found all the numbers yet, we had developed a clear logic on how we would size the market. A few key drivers such as penetration rate, daily traffic, and $ per order were identified and we began to create sensitivity analysis on these key assumptions.

By the end of day four, we had mostly finished our data gathering, turned our model into a reusable template and shifted to generating insights. It was remarkable how people from different backgrounds could complement each other. While I provided the data gathered from 10-ks and came up with a few quantitative insights, our banking teammate was exceptional at generating clean and precise graphics that perfectly matched the talking points of our presentations. Our consulting teammate was able to convert quantitative insights into easy to understand one line summaries, such as Urban > suburban, and Company owned > franchised. Our equity research teammates were able to find other reports that supported our viewpoint and helped made our final pitch much more convincing.

Result and takeaways

On the afternoon of day five, we presented our findings to the clients. While preparing for our final presentation, we could not help but feel quite proud with how much we had achieved within a span of five days. While we were still clueless on Monday morning, we had become quite knowledgeable in the gas station economics across UK and Europe by Friday morning. We were familiar with top names, their strategies and had generated a strong view on where our client should target their next growth opportunity.

After our delivery, the clients were very pleased and positively surprised with the amount of insights that we had generated. They quite enjoyed our emphasis on sensitivity analysis, providing them with a range of results instead of one “correct answer.” They also provided us with feedback such as having less text on our slides and putting more information to appendix. I was extremely happy when the clients confirmed that their views had actually aligned with ours and they were already collaborating with one of the names that we had recommended in our report.

I had three takeaways from this experience:

1. Embrace teamwork and analyse what each person brings to the table. When you are working with capable and talented individuals, there is so much that you can learn from one another.
2. Understand each person’s strength and structure the project so that everyone could play to his or her strengths. For example, the REPE teammate would maximize her value add by leading the hotel team and I would maximize my value add by sticking to analysing 10-k reports.
3. Last but not least, it is important to stay committed to your team members and clients. Everyone from our team took ownership of the project, held each other accountable and that was what made the experience so enjoyable.