‘Professional curiosity is key to career growth’

HSE School of Finance graduate Nikita Zubkov is certain that there are limitless opportunities for increasing margins in the industry and that students should pay more attention to the real sector. In this interview with Success Builder, Zubkov explained the difference between an industrial trader and a bank trader, why you need research skills at work and how to work hand-in-hand with AI.

How did you choose which university to attend?

I attended Lyceum No. 1533 where, starting from the ninth grade, we had separate academic tracks for programming, design and management. I chose management and decided to continue with that at university. I first got into the HSE Business & Computer Science programme, but at the last minute I switched to the management programme at Plekhanov University. I wanted to get a broad education in order to decide during my studies what I would like to narrow my focus on and where I would want to work.

Why did you switch from management to finance?

In most university economics programmes, undergraduate students receive a basic applied education. The first two years they study mathematics, statistics, macro- and microeconomics but don’t really understand how it all fits together. But then, students are taught to look at familiar things from different angles.

For example, as upperclassmen, we took innovation management, psychology and sociology. We were given a more general view of phenomena. It becomes clear at this point that you can begin to define yourself professionally. I took an internship at an investment fund and watched how project selection is put together, how businesses are evaluated and how people communicate and learn unique information. I really liked it and wanted to develop in this area. I also just needed to get systematised knowledge of corporate finance, so I started selecting programmes and attended the HSE Open House where I found two programmes that suited me: Corporate Finance and Stock Markets.

On the one hand, I wanted to deal with securities, and on the other hand, I wanted to gain applied knowledge in business. Interestingly, I now work with securities, with everything that is sold on the financial markets, but my understanding of most of the tools is based on corporate finance that, in the end, I chose as the focus of my master’s education.

Do you need specialised education to move from management to finance, or is work experience enough?

This was what I originally planned to do, so I began studying the literature on finance at the end of my third year. But I still had many unresolved questions, particularly about how to apply knowledge correctly and whether this or that financial tool works in Russia. The Corporate Finance programme was just what I wanted. I realised that the programme’s academic director, Irina Ivashkovskaya, was an excellent specialist who had performed dozens of studies and trained numerous specialists. Her programme is a kind of knowledge hub in this field. I wanted to somehow become a part of it and find answers to my questions.

Did the programme give you the answers? What did you learn from your studies that was new?

My academic supervisor, who graduated from the Strategic Financial Management Programme, said that you can only learn the most important things in the industry, but that at HSE you are taught to think and to analyse, that you will acquire basic information processing skills and the ability to work independently.

Many students in various universities complain that their teachers failed to teach them certain things. At HSE, our teachers told us straight out: ‘no one is going to give you the answers to anything here. You’ll get a task to which there are many possible solutions, and the solution you choose will be evaluated when you make your presentations. Now get started! And for a year and a half, we worked really hard.

The reward was the assessment that took into account not only how well you had assimilated the material, but also your research skills, work with sources and the quality of your analytics.

My classes were in the evening. I remember that, because of macroeconomics, I went to bed every day at 6 am. I got up at 2 pm, did my homework in every subject but macroeconomics, then went to classes, returned home and sat down to study macro at 11 pm – which was when the real academic work began. I had to contact the developer of the statistics package from the International Monetary Fund to clarify questions such as why I obtained certain errors from the results of the code run. Over the course of the week we wrote our own research, collected materials, did the analytical part and got the highest score for it. It was an incredible thrill, but very extreme.

How did you combine such a workload with a job?

I got lucky in that my internship at the bank coincided with a relative lull in my studies. When I came to the bank from the management programme, I liked it at first, but it got boring once I saw that the tasks there were less interesting than what I had done at the university. So, I devoted myself entirely to my studies and didn’t hold a job from December 2013 until May 2014. Then I got a job at A-Ventures, just after finishing the most difficult phase of my studies.

Why does a corporate finance specialist need so many academic-related skills?

I’ve done a lot of work as a trader and this is not just an automatic ‘buy/sell’ option. You take the lead in making decisions in your specific area and you structure complex trades. When you have a multilevel and risky trade, you conduct complex analytics using different financial instruments. You need to delve into a huge amount of information and process a lot of data that greatly affect pricing – the specifications of financial instruments, the features of the underlying asset, etc.

It would seem that it’s a simple process: just conclude an agreement and buy currency. But in reality, if you do this using derivatives, the transaction carries risks for the company. You start digging into every crack trying to figure out which prerequisites and details lead to the right pricing because, in the financial sector, all parties to the transaction want to make money. The success of a transaction depends entirely on the quality of your research.

What do traders do?

These are people who know how to correctly determine the pricing of financial instruments, mathematically calculate the risks of a transaction and get the maximum possible result for their company.

First, you build cash flows. By the way, my Corporate Finance courses taught me this very well. Then you run it through various tools and break down the data into risks. This reveals minor problems that can affect pricing. For example, when taking a loan, interest is calculated starting from the next day and ends on the last day of the term. If you take out a one-year loan, this amounts to 365-366 days. But in interest rate derivatives, standard practice is to include the first day but not the last. Not a big deal, right? But if these are transactions involving millions, that extra day of the leap year could lead to the interest on a loan not aligning with the financial instrument, and this would be the fault of the trader. Therefore, all sorts of factors have to be taken into account.

Imagine a manufacturer, its buyers and its suppliers. The chain must be set up so that the manufacturer spends less and earns more. And this applies to all aspects, from logistics to risk insurance and the sale itself. Once you’ve conducted a stock trade, several other people join the process who do the documentation for various authorities and with derivatives for hedging risks. At each stage, there are details that make it possible to increase your earnings, such as by paying less interest or by speeding up the execution or release. Thus, you are constantly engaged in increasing the margins of a given product. As a result, you reduce the use of the company’s funds and the cost of attracting third-party funding.

Why did you choose the industrial sector instead of going into banking?

As a Corporate Finance student, I didn’t think about trading at all. I pictured my career in an investment fund. In general, I come from a family of industrialists, people who have always worked in the real sector of the economy, and I had a closer understanding of this particular sphere. That’s why I leaned toward the industrial sector and found myself a management company with several metallurgic plants for precious metals and uranium – A-Ventures. The company needed an analyst for M&A transactions. They hired me. I helped generate reports for shareholders and made presentations and financial models.

We did a lot of trading in metals, like any commodity trader, mainly with borrowed funds. Mining companies have margins of 20%-30% and can meet their credit needs, but a trader has a margin of 3%-5% and the prices for metals fluctuate and so you constantly bear risks and cannot fix the margin without hedging. Otherwise, you could go under with the first bad deal in which you bought raw materials at a high price and then the price dropped suddenly.

A-Ventures had a staff of only three or four people who were involved in asset management and were members of the boards of directors. The rest were lawyers and accountants. So, when the trader who was in charge of hedging precious metals decided to leave the team, I was asked to take over the trading duties. During my first six months in this new role, I achieved pretty decent results. Later, an HSE graduate joined us as the director of precious metals trading and helped complete my education in this field. Thanks to him, I finally learned how to use many different instruments and trading platforms.

What is the difference between your position at an industrial company and the same job at a bank?

At a bank, you are always working with 3-4 financial instruments or a certain number of clients. They have different duties. Traders deal constantly with transactions, putting liquidity and prices into numerous transactions every day. In a bank, you are focused on sales. You try to ascertain customers’ needs and involve them in the purchase or sale of various financial products.

In a bank, a trader doesn’t worry about what happens with each particular company and its projects. His job is to aggregate flows of multiple clients involved in transactions for certain financial products and redirect these flows to the market and earn money. Industrial traders have a broader responsibility and take an integrated approach. You answer to the shareholders, employees, suppliers and customers. Even if you are involved in a limited range of the company’s activities, you always come into contact with a large number of other departments and systems.

In industry, you have to take a broad look at all sides of the transaction and try as much as possible to get a handle on its components, while simultaneously building relationships among its participants. I would advise every student of economics universities who wants to start his career in the real sector to check out everything they can. Professional curiosity is the key to career growth and the opportunities for increasing margins in the industry are endless. For example, a member of the Corporate Finance graduating class of 2020 is working very successfully in my department. She deals with conversion and deposit operations and with reconciliations of settlements on financial instruments with banks.

Does that mean the HSE networking system still works?

Definitely, because department heads know what the university teaches, who is doing the teaching and how well they do it. I myself, as a graduate of this school, advocate hiring young HSE students and graduates.

Since 2019, I have been lecturing on derivatives as part of a treasury course in the same programme where I once studied. Unfortunately, I see that the programme is starting to focus on preparing future professionals in consulting and investment banking, despite the fact that the knowledge they are gaining could be applied much more broadly. Their understanding of the market is narrowing greatly, with the result that students don’t fully understand where they can go to work other than these two areas.

For example, one person who graduated from the same programme a couple of years before me built a successful career in marketing in a large FMCG company. In his work, he used the same logic and principles of the same tools for evaluating the effectiveness of marketing strategies that he was taught in the Corporate Finance programme. I am certain that students need to know about this and expand their understanding of how their knowledge can be applied in a range of economic areas.

Why did you switch from gold to coal and move to SUEK?

While working at A-Ventures, I interviewed for a job in the SUEK investment department, but an HSE classmate of mine was hired. A couple of months later, I was invited to SUEK again, to their strategy department. At the same time, I received an offer from the gold mining company GV Gold. Because the pay was the same at both, I decided to remain in the ‘gold’ industry. But less than two years later, I was invited to SUEK again: they needed someone to handle foreign exchange transactions. I initially took over the conversion and deposit operations, but a year later we had a major need to hedge foreign exchange and interest risks.

I started adding new instruments to my trades. I had to study a lot of new information, look at pricing, build a couple of simulations. My duties grew to include the company’s reporting on its transactions. I had to perform stochastic analysis of possible future profits and losses in order to formulate future budgets. All this time, I was still responsible for currency conversion and deposits.

In 2021, SUEK established a corporate centre that, among other things, combined the treasury functions of EuroChem, SGC and NTK. I headed currency operations in that treasury, which deals with conversion operations, deposits and derivative transactions related to currency and currency interest rate risks.

Do people often ask you which is better at trading – a person or a neural network?

I have already voiced my opinion on this many times in various public talks. Take, for example, the field of meteorology, where forecasting has reached near perfection. They make perfect use of models that show with incredible accuracy how weather events develop and where cyclones or anticyclones will move. However, humans still hold the jobs there, not AI, because mathematical logic alone cannot explain many phenomena. A person can reason more deeply and use that same mathematical logic to interpret certain events. In meteorology, the forecasts are 30% better when people work with machines.

Many have said or written that people will lose out to neural networks in finance, and in particular, in trading. But this is not true. When working with any instrument such as derivatives, you take the prices that are in the market at a certain time and, using interpolation or extrapolation, you declare that your specific instrument should be worth so much. That is, you change the liquid history into a non-liquid state.

Many phenomenal things occur in the market, such as fluctuations in the ruble, that cannot always be calculated or predicted reliably.

Unfolding events are always controlled by a person because only a person can offer reasonable solutions based on flexible interpretations.

I think some sort of specialist – in our case, a trader – will always be needed when working with artificial intelligence. Algorithms work well on their own when everything is standardised and verified, but this represents the smaller part of the market. In my opinion, the idea that financial experts will be replaced by AI is fairly outdated.