Investment Banking is one of the fascinating fields in the world of finance. Interestingly, the first thing about investment banks is that they’re not banks – not even by the most creative reckoning! They neither collect money in their accounts nor loan money. They’re specially organized, equipped and licensed financial services, and advisory organizations mandated to primarily help institutional, organizational, corporate or government clients raise money (for projects, etc.,) through primary and secondary equity and debt, bond, and derivatives markets. Due to their fast-paced nature, investment banks offer a lot of opportunities for learning and skill-building, in the areas of business and finance. The trade-off, however, you will need to be able to cope with stress, long hours and thrive in a competitive work environment to become an investment banker.
Investment banks are usually categorized by the size of deals they negotiate, their geographical location, their areas of expertise, and the type of financial services/products they offer. The investment banking landscape is fairly complex by a range of different business models. Nevertheless, investment banks are generally identified in one of the following categories:
These are some of the major, international investment banking firms that provide full-service underwriting, mergers and acquisitions (M&A), sales and trading, asset management, equity research and issuance, advisory, and other related services to Fortune 500 corporations, if not Fortune 100, firms. These banks include companies such as Goldman Sachs, Barclays, JP Morgan, Morgan Stanley, and so forth. These banks operate internationally and have a significant domestic presence as well.
These investment banks target mid-market deals and clients that are too small for bulge brackets and too large for boutique companies. The range of services they offer is similar to what the bulge bracket investment firms have to offer. However, they tend to have a lesser geographical reach. Their deal sizes typically hover around USD 500 million to USD 1 billion. Significant banks such as Piper Sandler Companies, Houlihan Lokey, Cowen Group, KPMG Corporate Finance, Lincoln International, and William Blair & Co. fall within this category.
These investment banks look more like bulge bracket banks in terms of their deal size and international presence, and often like regional boutiques in regard to their range of investment banking services. Instead of providing a complete range of investment banking services they tend to solely focus on specific services or are limited to one particular industry, such as M&A advisory or restructuring. Some of the well-known elite boutique investment banks are Liontree Advisors, Lazard LLC, Evercore Group LLC, and Moelis & Company.
These are the smallest of investment banks, both in terms of firm size and typical deal size. As the name implies, these banks have offices or operations that are restricted to a specific region of the country, such as handling M&A or securities in a particular market sector. Their deal sizes generally range between USD 50 million to USD 100 million or less.
Typically, large investment banks work through voluminous groups, covering a range of client-facing or operational areas. However, most firms can be divided into three key divisions:
Investment banks employ some of the finest white-collar talents from business schools, and the bare minimum expectation – besides the pedigree – is a combination of strong analytical and interpersonal skills
Indeed, specific skill-set demands vary across jobs and roles – brokers need to have killer sales skills, whereas, equity analysts would demand both analytic and interpersonal skills. It is very important to have a deep understanding of the financial markets.
Though only the very best of the talents eventually make it into the best investment banks, to be fair, even rookie-undergrads are let in by them to join the Analyst roles. MBAs join a rung higher – as associates. Analysts and associates work within specialized groups (domains or horizontals) but they may not always have control over the group to which they get assigned (analysts especially).
Most large investment banks have a business division or domain with practice areas dedicated to industry-specific and product-specific investment banking. Hence, an Analyst or an Associate can get to be assigned either into one of these product groups (e.g., private placements) or in one of the many industry coverage groups (e.g., aerospace) that the investment bank may be playing in.
In the corporate finance domain, analysts and associates usually work with client companies to help them raise the capital needed for their new projects and ongoing operations. Work involves end-to-end solutions – right from determining the amount and structure of fund needs of a client through equity, debt, convertibles, preferred, asset-backs, or derivative securities – down to planning action for raising funds.
Working in this group essentially means helping clients raise money – or multiply their investments - either through Debt Capital Market operations or Equity Capital Markets (ECM) or Derivatives Markets.
Among the hottest investment banking horizontals, M & A professionals set up lucrative, high-value deals in which one company buys another, and the investment banks earn big fees out of these transactions. Incidentally, this is an important source of income for many investment banks.
Project finance involves funding infrastructure and oil capital projects of a company or government's main balance sheet. When other sources of borrowing dry up, project finance is generally still there.
Some of the most desirable jobs in investment banking are in sales and trading. Your responsibilities would involve undertaking transactions in equities, bonds, currencies (referred to as Forex or FX), options, or futures with traders at commercial banks, investment banks, and large institutional investors.
Positions in structured finance involve the creation of financing vehicles to redirect cash flows to investors (known as asset-backed securities). Typical asset-backs securitize credit card receivables, auto loan receivables, or mortgages.
Advisory services are often provided by investment banks to public and private clients involved in M&A and financings. The areas of capital structure advisory, valuation advisory, and risk management advisory have been popular at many investment banks. Often work will be done to determine a client's value, options for creating value, or on a client's industry conditions.
Security analysts are usually assigned to an industry or region. You could be responsible for making buy or sell recommendations to investors about a stock or bond. Your duties would involve visiting companies and heavy telephone contact with institutional investors. Investment banks often like to hire people with industry experience into analyst positions (as opposed to fresh MBAs or undergrads).
An area of continued growth is in international sales. Despite many past disasters like the Asia crisis in 1997, investor demand for securities issued in emerging markets typically comes back strong. Firms are meeting this demand by providing sales personnel and analysts specialized in these markets. Another area of high demand is in emerging markets such as Thailand or Mexico. Firms are looking for people with specific language skills, a willingness to travel, and knowledge of these emerging markets.
The market for municipal bonds is very large and calls for analysts, municipal advisors, and traders. Positions in public finance are usually difficult to obtain but offer high rewards. Persons with previous experience in public administration would be attractive to investment banks in this capacity. A major growth area in municipals is in the project finance area.
Private Client Bankers/ brokers are in the business of selling stocks, bonds, insurance, and other investments to individuals. Some brokers specialize in high-net-worth individuals while others span a variety of clients.
In institutional sales, you would be responsible for conveying information about particular securities to institutional investors. You would be likely to have heavy contact with portfolio managers and your own firm's analysts and traders. Sales skills and product knowledge are crucial in this area as is the ability to get through to busy institutional investors. Working in sales for an investment bank (on the sell-side) is often good preparation to move over to the buy-side (insurance companies and mutual funds). The average salaries in institutional sales can exceed $750,000 per annum.
One way to break into investment banking is to start as a rating agency analyst. The pay is relatively low and advancement opportunities aren't great, but the investment banks know it and use the agencies as hunting grounds for new analysts. The two largest agencies are Moodys and Standard and Poor's. Moodys has over 2,000 analysts and S&P has rated $50 trillion worth of securities. These highly profitable agencies grade the credit quality of companies and sovereign entities accessing the markets. Most of their revenue comes from fees paid by issuers.
To help you envision your career path in this field, it is vital to understand the leading roles and their contributions to the overall hierarchy. The steps of IB hierarchy include these roles:
Administrative Responsibility: Low
Salary Range: $50,000 - $60,000 Per annum
Time to Next Level: 2+ months
Summer analyst responsibilities include developing client presentations, gathering information, building financial spreadsheet models, working on various projects to support client relations, and assisting banking teams with day-to-day responsibilities.
The responsibilities of a summer associate are similar to that of a full-time associate in the Division. Summer associate mostly works with a product group or industry group on a variety of client and deal assignments throughout the summer.
Administrative responsibility: Low/Medium
Salary Range: $100,000 - $150,000 Per annum
Time to Next Level: 3+ years
The responsibilities of an Analyst are to help with project work, develop and prepare marketing presentations, analyze client equity and fixed income portfolios, research current trends and assist with trading and offer general client service and team support.
Administrative responsibility: Medium
Salary Range:$110,000 - $300,000 Per annum
Time to Next Level: 3.5+ years
Over a three-and-a-half-year period, the associate will be exposed to transactions in many areas, across different industries, regions, and products, all the while developing banking and managerial experience that will prepare them for senior deal management. Day-to-day responsibilities might include planning, structuring, and executing financing transactions in the public and private markets, advising corporations on mergers and acquisitions, and devising and executing strategies that enable companies and institutions to capitalize on the value of real estate assets.
Administrative responsibility: High
Salary Range: $150,000 - $450,000 Per annum
Time to Next Level: 3+ years
The primary role of the Vice President is to be the “project manager,” whether for marketing activities or on a transaction. It is the VP that typically decides the structure of the presentation (e.g. a pitch book). On live engagements, the VP is typically the banker “running the deal.” The VP must manage clients and guide internal resources to handle transaction implementation across industry groups. It is often at the VP level that bankers begin to form valuable relationships with clients.
Administrative responsibility: High
Salary Range: $250,000 - $1.5 Million Per annum (include bonuses)
Time to Next Level: 2 years (sometimes indefinite)
The Director or SVP may either act more like a Managing Director (play a high-level client development role) or more like the VP (play a project manager role). Sometimes, the Director/SVP’s role will depend also on the specific situation and/or other deal team members. Ultimately, for Director/SVPs to be promoted to Managing Director, they will have to demonstrate that they can form client relationships and have the ability to market and bring in new business.
Administrative responsibility: Very High
Salary Range: $500,000 - $ 4 Million Per annum
(Gross Income may hit $10 Million)
The managing director spends time winning deals and clients, developing relationships, meeting companies, and providing direction and vision to team members for management presentations and client pitches. They act as the primary contact and advisor to targeted client groups. A Managing director is responsible for winning most capital markets, M&A, restructuring deals, which means they are responsible for investment banking revenue.
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