INVESTMENT BANKING CAREERS
OVERVIEW OF INVESTMENT BANKING
Investment banks serve the investing community through a wide range of financial services associated with Wall Street, including trading securities, managing assets, giving financial advice, evaluating companies, etc... The largest investment banks, often referred to as bulge bracket investment banks, serve the global community with this array of investment services. Smaller boutique investment banks may specialize in niche vertical markets such as leveraged buyouts and mergers and acquisitions. Boutique investment banks may also specialize in specific industries, or they may serve exclusively small and mid-size companies.
BUY SIDE AND SELL SIDE OPERATIONS
Most large investment banks operate on both the buy side and the sell side of securities trading. On the buy side, they represent individuals and pools of investors (such as pension funds, hedge funds and mutual funds) in the purchase of securities. On the sell side, they serve the governments and private companies issuing those securities by putting them on the market and managing their sale.
THE BASIC HEIRARCHY OF THE INVESTMENT BANK
The various departments of an investment bank reflect its functions. On the buy side, sales and trading departments serve investors by acting as their agent in securities transactions. On the sell side, investment banking departments work with the companies and governments that issue those securities. Investment banks are involved in underwriting, which is the act of raising capital on behalf of an organization by overseeing the sale of the securities it has issued, including initial public offerings (IPO’s). Capital markets departments mediate in the trading of those securities.
Positions in the hierarchy of an investment bank, of course, hold titles that may vary between one institution and another. In general, however, it is the financial analyst, or, simply, analyst, who actually performs most of the technical financial services the investment bank offers. The financial analyst’s main tasks are typically valuation and financial modeling. The financial analyst’s immediate superior, the associate, will supervise the work of several analysts and assist in its presentation.
The vice-president generally acts as project manager, whether for marketing or for the operations that the associates and analysts are executing. The senior v.p. has an intermediary role between the v.p. and the managing director, who is generally responsible for marketing initiatives.
FRONT, MIDDLE AND BACK OFFICE: A MORE DETAILED STRUCTURE OF THE INVESTMENT BANK
Investment banks, particularly those in the “bulge bracket”, may informatively be divided also into a front, middle and back office. This division can instructively be thought of in terms of primary activities, conducted in the investment bank’s front office, and supporting activities, conducted in the middle office and back office. Furthermore, the middle office can be thought of as providing support that is directly involved in making financial decisions for the investment bank, while the back office is the source of administrative and technical support (IT).
The front office is where the most visible activities of the investment bank are conducted. This is where traditional investment banking activities, like mergers and acquisitions and leveraged buyouts, are conducted. The front office is also the locus of investment management services, with financial advisory aimed at individuals and institutions, a trading division, and other functions of investment management. Private Equity funds may also be run from an investment bank’s front office. Additionally and crucially, there is a research department in the front office of major investment banks, which is responsible for producing research for internal (to the investment bank) and external clients.
The middle office contains all of the finance-focused departments not in the investment bank’s front office. In most middle offices there is a division of risk management, charged with the assessment of risk associated with the activities of the front office. The investment bank’s finance department, similar to the accounting department of large non-finance companies, is also found in the middle office. Finally, every investment bank will have the equivalent of a compliance department in its middle office. Compliance has the duty of assuring that the investment activities of the investment bank are in accordance with relevant laws and standards.
The back office of an investment bank has two crucial divisions. The operations department is responsible for the administrative and quality checking duties associated with the investment bank’s transactions. Information technology is also run from the investment bank’s back office. Because most investment banks require complex analytical and trading software, and view this software as a significant source of competitive edge over other investment banks, the IT department plays an important role in the investment bank by creating and managing an investment bank’s proprietary software. This is in addition to the obvious intense need for standard IT services within an investment bank, because of its heavy reliance on computers and networks.
RELEVANT TRAINING FOR ADVANCEMENT THROUGH THE HEIRARCHY OF INVESTMENT BANKS
In order to progress though the traditional ranks of an investment bank one must master the skills of advanced financial analysis. These skills may be acquired though a combination of formal education, such as an undergraduate degree in Business or Finance, and experience, e.g., working as a junior financial analyst at a Wall Street firm. The traditional trajectory for advancement beyond the level of financial analyst is to obtain an MBA and then return as a vice-president or partner at an Investment Banking firm. However, mastery of the art of financial modeling to the level required in managerial positions as an investment banker is difficult and neither experience nor formal education may provide complete training and exposure to the art. The course taught by the in the Investment Banking Institute’s Investment Banking Bootcamp aims to fill in the significant gaps in this training for those with significant experience in the investment banking industry or relevant advanced education, such as an MBA with an emphasis on finance. Also, for those with less experience and training, the Investment Banking Bootcamp can provide a very thorough introduction to the entire process of constructing financial models for investment banking, such as the leveraged buyout, and merger and acquisitions models. The Investment Banking Institute’s course also provides a detailed overview of the entire investment banking process, making it an ideal introduction to the investment banking profession for the ambitious prospective banker. In short, the Investment Banking Bootcamp provides a unique opportunity to obtain or reinforce this skill set in a relatively short period (one month) without sacrificing rigor.
There are many professional trajectories in an investment bank in addition to that of the traditional investment banker. Several, such as the financial analyst working in private equity, research or investment management, require much the same skills as those of the investment banker. Indeed, most of the advanced positions in an investment banking firm, including sales, IT and legal support (for example, attorneys in the compliance department), make use of a significant amount of financial analyst know-how. This is what will enable the sales associate to promote the investment bank’s products, particularly to its more knowledgeable clients, such as hedge funds. Similarly, the programmer working to write a financial modeling program will need ample knowledge of the relevant financial modeling technique. Finally, the lawyer working in compliance must be able to understand what the financial analysts are doing in order to advocate for the investment bank in cases where it has been charged with non-compliance with regulations. Many who seek these positions in an investment bank do not have traditional investment banker training or experience and, as a result, are at a disadvantage for procuring a position or advancement. The Investment Banking Bootcamp can serve as an excellent way to erase this disadvantage with thorough and quick training.
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