Investment banks facilitate financial transactions by creating markets to allocate capital and regulate price. Their specialized designs meet the specific needs of issuers and investors by creating increasingly effective financial instruments for both groups.
Investment bankers provide assistance and advice on mergers and acquisitions for companies, government entities and entrepreneurs alike.
Corporate Finance
Corporate finance refers to mergers and acquisitions (M&A), equity capital markets (ECM), debt capital markets (DCM) and leveraged finance (LevFin). However, investment banking actually encompasses much more than these three products alone.
One of the key aspects of corporate finance involves determining how best to raise capital for a company, including using debt or equity financing and finding an optimal ratio between them. Excess debt increases repayment default risks while too much equity dilution dilutes value for primary investors.
One aspect of this process involves analyzing the return on investment (ROI) for various projects and business areas to prioritize funding decisions. This helps prevent overpaying for acquisitions.
Mergers & Acquisitions (M&A)
Investment banks provide strategic advice to companies considering mergers. For example, Uber would enlist an investment bank’s services if it desired to acquire Lyft; an evaluation team from such an investment bank would assist them in assessing both its benefits (and potential financial ramifications).
Securities trading groups facilitate secondary market transactions between buyers and sellers of securities. They may also trade capital on behalf of clients or investors.
Research teams provide analysis on security prices and trends that support capital market activities of their firm, potentially earning revenue through external rankings or product monetization. Industry coverage groups maintain relationships with corporations within an industry to bring business for the bank as well as advice to private equity firms or alternative asset managers.
Equity Capital Markets
Equity capital markets (ECM) bankers assist companies in raising money through selling shares on the stock market. Furthermore, they identify opportunities to buy or sell stocks to clients.
ECM bankers specialize in advising and selling equity-linked securities such as convertible bonds, preferred shares or those sold through initial public offerings (IPO). ECM bankers might specialize in one field such as energy, the environment or government entities while other banks have divisions without clear niches under investment banking that still fall under its general umbrella.
Analysts and Associates working in these groups tend to work more frequently and longer hours than their counterparts in IBD or M&A; the key difference being they have fewer traditional exit opportunities and generate lower earnings at senior levels.
Debt Capital Markets
Investment banks’ debt capital markets (DCM) divisions facilitate the production and sale of fixed income instruments known as debt securities to raise funds for companies or governments. Investors purchase these investments to fund projects. DCM divisions of investment banks specialize in the origination, structuring, execution, syndication and syndication of a range of debt-related products such as corporate bonds, municipal bonds, sovereign bonds emerging market bonds leveraged finance products.
DCM teams tend to serve clients from all sectors, which makes career paths within this group less variable than they might in M&A or equity capital markets.
Hedge Funds
Hedge funds offer an attractive career option for individuals with strong analytical and quantitative capabilities. Starting salaries may be lower than in investment banking but compensation can quickly escalate up into millions or billions for top managers.
Hedge fund jobs provide more work-life balance than investment banking by requiring less all-nighters and weekend work; however, you should still prepare yourself for considerable travel.
No matter if your goal is investment banking or buy-side, exceptional academic credentials, communication and presentation skills, and an established online business toolkit course. At any point in time, these essentials could come in handy either when pitching deals or answering difficult interviewer queries.
