INVESTMENT BANKING SCHOOL
THE FORMAL EDUCATION OF AN INVESTMENT BANKER IS NOT OBTAINED IN SCHOOL; IT IS STILL THE ONLY VOCATION LEARNED BY APPRENTICESHIP
Some investment bankers have an MBA. However, an MBA does not provide complete training for an investment banking career. The MBA and even aspects of undergraduate degrees in, e.g., business, mathematics or the sciences, can cultivate important skills used in investment banking. An investment banker must have significant quantitative skills as well as general knowledge of business organization, accounting and even particular industries and geo-political regions. All of these areas of learning are covered quite well in the formal educational venues mentioned above. However, in order to succeed in an investment banking career one must pursue direct experience, working in an investment banking or related finance job.
A very significant portion of an investment banker’s job is constructing highly sophisticated financial models for the valuation of companies under consideration for a deal, such as a leveraged buy out (LBO), a merger or an acquisition. The financial models pertaining to these investment banking activities incorporate all of the valuation features of a financial model used for the valuation of a publicly held company’s security: a financial statement analysis, a comparative company analysis and more. But the investment banker must often construct such a model for a privately held company or a highly distressed business. Both of these cases present unique challenges for the accurate determination of the value of a business and its securities. Furthermore, because investment banking transactions, such as mergers, have complex and potent affects on securities valuation, affects that are not easily determined from financial data available prior to the potential investment banking transaction, investment banking valuation models must incorporate complex hypothetical scenarios, called sensitivities in financial modeling. The complex form of financial modeling employed by the investment banker is not learned via formal education to the degree of mastery required for a successful investment banking career.
PROSPECTIVE BANKERS MUST HAVE ALREADY BEEN TRAINED WHEN APPLYING FOR JOBS
It is possible to learn how to construct the complex financial models required in investment banking career from on-the-job experience, beginning as a junior financial analyst in an investment bank or in a closely related finance job. Many investment banks also have their own training programs that cover financial modeling. However, there are at least three drawbacks to relying on experience or in-house investment bank training courses to learn the financial modeling methods required in an investment banking career.
1. In order to secure a job in as an investment banker and to advance in an investment banking career, it is often necessary to demonstrate significant ability with relevant methods of financial modeling. This means that it is important to obtain substantial knowledge of the methods financial modeling pertinent to investment banking, as well as the reasoning behind these methods, prior to taking up a job in investment banking or seeking a promotion.
2. Neither of these methods for obtaining investment banking financial modeling training is ideal. Both on-the-job experience and in-house training are, by their natures, not comprehensive. It is possible to hold an investment banking job for many years and not encounter an important form of financial modeling. For example, one might work in a unit of an investment bank that focuses on mergers and, as a result, never work with a leveraged buy out model (LBO model). The in-house training programs offered by investment banks are necessarily short, as they are expensive for investment banks because of the salaries paid to both instructors and trainees. Hence, these training programs offer only a brief overview of the relevant financial modeling techniques.
3. Possibly most critically, the need to practice investment banking financial modeling techniques in order to develop adequate understanding of and facility with them runs counter to the time constraints of both on-the-job learning and the in-house financial modeling training programs. In order to learn how investment banking models work and how to construct them, a novice investment banker must work carefully with the models, repeating the construction process, witnessing its execution from beginning-to-end (e.g., from financial statement analysis to completion of a merger and acquisition model with relevant sensitivities), and comprehending why each step in building a model is taken.
HOW TO FIND "INVESTMENT BANKING SCHOOL"
Fortunately, there is a third option for obtaining investment banking training that provides comprehensive instruction in investment banking financial modeling methods while also affording the student ample opportunity for practice with and study of the models. The Investment Banking Institute’s Investment Banking Bootcamp provides rigorous and comprehensive training in the financial modeling methods of investment bankers while, at the same time, providing students with the exercises and time to master these methods. The Investment Banking Bootcamp is a month-long, intensive course in which students, led by experienced investment bankers with substantial real-world experience from Wall Street, carefully construct the financial models used in real investment banking transactions. The Investment Banking Institute’s course also emphasizes an understanding of how financial modeling is employed by investment bankers, so that students not only learn how to construct models, but they also gain a substantial understanding of the entire process involved in undertaking the various investment banking transactions.
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