So You Wanna Be An INVESTMENT BANKER? The Ultimate Investment Banking Career Guide For 2024 Investment Banking Overview Ya ya, we know- this was too easy of an explanation for what investment bankers do on a day-to-day basis, but hey, we just wanted to warm you up for what's to come. Looking to discover what’s beyond the glamour & larger-than-life tales cited in money sections of your favorite financial publications? We have got you covered!
If you're anything like the rest of us mere mortals,
the mention of "investment bank" might trigger an involuntary eye roll, accompanied by visions of complex valuation metrics and financial statements - each more mind-numbing than the previous one. Or perhaps, your mind takes a detour to the dramatic Wall Street from movies, where people & companies only exist to be treated as pieces of chessboard by super charming investment bankers.
But hold on – what if you're not repelled by the
complexity but are, in fact, drawn to the mental Olympics of investment banking? The allure of big bonuses and the promise of untold riches for those in the know might just be what led you to open this ebook.
Well then, brace yourself for The Ultimate
Investment Banking Career Guide For 2024. Let’s begin. What Does Investment Banking Mean?
When did investment banking start? Pinpointing the exact
time has been challenging, but it must be around the time currencies came to existence & people realized that they needed to store them in some place much safer than their homes. Believe it or not, the earliest precursors to modern banks took the form of affiliations with religious institutions, rulers, and wealthy trading families. Though tracing the transformation of banking & financial institutes from the back of a religious establishment to offices in New York City skyscrapers could be interesting, let's take it up some other day.
For now, just know that investment banking is like
match-making. It's about getting cash from folks who want to invest and making sure it ends up in the hands of visionary entrepreneurs and ambitious business builders facing financial constraints.
In practice, investment bankers procure capital by issuing
securities to investors and subsequently allocate these funds to individuals or entities embarking on ventures such as business startups, infrastructure development, urban projects, or other substantial undertakings.
While the multifaceted nature of investment banking can cloud
this fundamental purpose, it essentially boils down to investment bankers identifying and capitalizing on opportunities to optimize the value of companies or ideas, fostering business creation, and steering dormant capital toward productive ventures. What Do Investment Banks Do?
An investment bank operates as a financial services entity,
playing a crucial role as an intermediary in intricate financial transactions. Their involvement is almost inevitable when a company undergoes an initial public offering (IPO), engages in mergers, or becomes part of an acquisition. Additionally, investment banks serve as brokers for significant institutional clients, including pension funds. Some renowned names in the investment banking sphere as you might know are JP Morgan Chase &Co., Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, Deutsche Bank, etc.
As for their modus operandi, investment banks generate revenue
primarily through fees for the services they offer. The trading division may also earn commissions based on market performance. Some banks boast both commercial and investment divisions, the former turning a profit by extending loans to consumers and businesses.
Understanding the services offered by investment banks can be a
bit tricky because it's like a menu of financial services, and different banks may offer different things. Let’s try to understand the key business areas where larger Investment banks like Goldman Sachs & Morgan Stanley function:
Capital Raising: This is where investment banks help companies
get money from investors, often by selling stocks or debt.
Financial Advisory: Investment banks are hired to guide
companies or governments on managing their money. This could involve decisions like acquiring another company or selling part of the business, known as mergers and acquisitions (M&A) advisory. Corporate Lending: Investment banks help companies sell securities to raise money and sometimes extend loans, like short-term bridge loans to help a company during a transitional period.
Sales and Trading: Investment bankers are creative types who
construct financial instruments for buying and selling. They may also buy and sell stocks and other financial instruments for clients or on their own.
Brokerage Services: Some investment banks offer brokerage
services, holding clients' assets or assisting with trades.
Research: Investment banks not only help institutions sell
securities but also assist investors looking to buy. Research units advise on investment decisions.
Investments: Investment banks often act as middlemen
between those who need money and those who have it. Sometimes, they invest their own money in promising companies or projects, known as private equity.
Keep in mind that different investment banks might focus
on some of these activities but not all. There's no rule saying they must do everything, but as they grow, they often add functions to become more valuable to clients and offer a range of services. The Sell-Side & The Buy-Side
Investment banks extend their influence beyond the
straightforward task of raising capital through investment sales. While the sale of securities remains their undeniable forte, these institutions assume various roles, neatly categorized into two main spheres: selling and buying.
On the Sell Side: Investment banks shine in this domain, known
as the "sell side," as they expertly navigate the sale of securities. This pivotal function revolves around identifying investors eager to acquire the offered securities, thereby generating crucial funds necessary for the prosperity and expansion of both businesses and governments.
On the Buy Side: Investment banks also step into the advisory realm, guiding substantial investors with an interest in acquiring financial instruments. In their role on the buy side, these banks offer counsel to major institutional investors like mutual funds, pension plans, or endowments, suggesting suitable securities to meet their return objectives.
The inherent duality of investment banking, serving both
those who buy and sell securities, raises valid concerns about potential conflicts of interest and dual-dealing. Legitimate questions arise about the ability of the same investment bank profiting from an IPO's share sales to deliver impartial advice to investors grappling with decisions to buy or sell. The prominence of conflicts of interest in investment banking operations has been magnified since the financial crisis in 2007. Quick Glance: How Does Make Money?
Established in 1869 and headquartered in the bustling
metropolis of New York City, Goldman Sachs stands as a prominent American multinational investment bank and financial services firm with a formidable global presence. Operating in key financial hubs like London, Hong Kong, and Tokyo, the firm has solidified its status as the world's second- largest investment bank by revenue, securing the 55th position on the prestigious Fortune 500 list.
Goldman Sachs has earned recognition for its active
involvement in financing startups, particularly leveraging their initial public offerings. Noteworthy companies that have benefited from its support include Twitter, Spotify, Foodpanda, and Dropbox.
Source: https://fortune.com/company/goldman-sachs-group/fortune500/ Source: https://businessmodelanalyst.com/goldman-sachs-business-model/#Investment_banking At the core of Goldman Sachs' operational framework are four fundamental pillars: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management.
In the realm of Investment Banking, Goldman Sachs extends
advisory services for mergers and acquisitions, underwrites equity and debt securities, and devises structured finance solutions catering to diverse industries.
Global Markets witnesses the firm delivering trading and
market-making services across an array of asset classes, spanning equities, fixed income, currencies, and commodities.
In the domain of Asset Management, Goldman Sachs assumes
the responsibility of managing and investing assets on behalf of both institutional and individual clients. The firm presents an array of solutions, including mutual funds, private equity, hedge funds, and alternative investments.
Lastly, Consumer & Wealth Management is where Goldman
Sachs directs its focus on providing banking and investment services. This primarily involves serving high-net-worth individuals and institutional clients with a commitment to delivering personalized advice and tailored solutions. How Is An Investment Bank Organized?
Similar to the organizational structure of a major corporation, an
investment bank is arranged into front office, middle office, and back office components. The front office holds the utmost significance in contributing value to the bank, with the middle and back office serving as supportive divisions that ensure the seamless operation of the bank. Types Of Investment Banks
Navigating the multitude of investment banks is a daunting task
due to their sheer number. However, a simplified overview categorizes them into three main types: bulge bracket, middle market, and boutique.
Bulge Bracket (BB):
BB banks, such as Goldman Sachs and J.P. Morgan, stand as colossal entities with significant resources, managing substantial deals. They boast a broad spectrum of services, including handling IPOs and SEOs. The term "bulge bracket" originates from the prominence of their name on a prospectus, symbolizing their leading role. These companies demand an intense workload, offering substantial compensation and excellent opportunities for career advancement.
Middle Market (MM):
MM banks, cater to clients with needs not requiring the scale of BB banks. Operating on a smaller scale, they handle deals ranging from $50-$500 million, often serving private or smaller public firms. Although lacking international exposure, MM banks provide similar services with a more localized focus.
Boutique: Boutique banks, subdivided into elite, regional, industry-specific, and up-and-coming, differ by focusing more on strategic transactions like M&A and restructuring rather than major financing deals. Elite boutiques, compete with BB in deal size and compensation. Regional boutiques, have a narrower geographical focus. Industry-specific boutiques, specialize in a particular sector. Up-and-coming boutiques are founded by talent departing elite and BB banks to establish smaller, highly specialized shops. Careers In Investment Banking Why A Career In Investment Banking?
Let’s be real- most of the folks out there are attracted to investment banking because of the cash – even in the middle ranks, you'll be among the top 1% earners in most places.
Some dig the thrill of big deals and mingling with CEOs; others find the mechanics of deals fascinating. And then there's a crew lured by the exit opportunities, especially the tantalizing prospects awaiting junior bankers like Analysts and Associates. It's the career path with perks that go beyond the paycheck!
Who Should You Be To Become A Successful I-Banker
The investment banking career track attracts individuals who embody
the following characteristics:
1. Competitive Achievers: Those willing to put in long, arduous hours to
achieve high standards. 2. Detail-Oriented: Individuals with a keen eye for detail. 3. Solid in Reading/Writing and Math: While not necessarily exceptional in these areas, a decent grasp is essential, as the role demands practical application rather than theoretical prowess. 4. Deal Enthusiasts: Those more interested in orchestrating deals than passively tracking markets or investing in public companies. 5. Specific Exit Opportunity Seekers: Individuals eyeing exit opportunities tied to investment banking prerequisites, like private equity or corporate development. How To Get Into IB?
Well, the first & most opted route to land a Junior investment banker role in India is an undergraduate degree & then an MBA in finance from top B-schools (renowned firms also hire folks from IITs- because the tag, duh!)
If we are being real, the truth is that IB is one of the most challenging sectors to get in for freshers due to limited positions and high demands for technical skills from hiring firms. If you haven't graduated from top- tier institutions like IITs and IIMs, your chances of securing a rewarding role narrow down even further.
So, how do people still make it? Well, if you ask us, there are 3 ways you can boost your hiring chances as a fresher-
- First, strengthen your technical skills (this is a must & you really can’t expect to successfully compete with your peers from top colleges if you slack off on this front).
- Gaining real-world experiences via internships & live projects is a
great way to attract recruiters' attention to your profile as it testifies to your skills & expertise in the domain.
- Lastly, Network. If you are from a lower-tier college, aggressive
networking can open doors to job opportunities in firms that work on smaller deals and could be a great place for you to gain exposure & prepare for those lucrative front-end roles. Since there are very few openings in the top firms, networking will also keep you at the top of your job search & help you build valuable connections in the field. Career Transition To IB?
So, if you decided to become an investment banker right out of the gate of your undergrad........well done.......you have some time to figure out your next move & you can start making specific career decisions that will drive you closer to IB roles.
But what if you didn’t?
Well if we are being real, let us tell you that transitioning to IB is much more challenging than any other domain. But it’s not something unheard of! Here's the scoop on alternative pathways for those who didn't decide on it right out of the gate:
1. Lateral Hiring is a thing:
Lateral hiring is the technique employed by banks to bring in candidates with substantial full-time work experience, commonly from other realms of investment banking or related fields like valuation, corporate banking, and transaction services. This approach differs from recruiting fresh graduates directly from undergraduate, Master's, or MBA programs. Pro tip: Closer the field, smoother the move.
2. MBA Magic: Late to the game? Reset with an MBA from a top-notch B-School to make that IB leap.
3. Field-to-Finance Feat: Navigate the shift by downplaying your past, emphasizing transferable skills, and swearing allegiance to finance. Research on doing it in non-core regions; less competition, more possibilities.
Remember, it’s not going to be as straightforward as the college-to-analyst
route, but if you're up for the challenge, you might wanna show them that you are at the top of your skills, can very well skip the novice stuff & pick things up at an unmatched pace. Corporate Hierarchy & Salaries
What does each one of them do?
1. Analyst: Excel and PowerPoint tasks Administrative duties like tracking buyers and sellers, managing data rooms, and handling deal documents Responding to client and potential client requests
Age Range: Within the 22-27 age range, individuals who have recently completed undergrads/ Master’s, or any other full-time roles.
Work Hours: Office commitment: 70-85 hours per week
Weekends may see lighter work, with occasional protected weekends for Friday night into Saturday off.
Exit Opportunities: Large bank Analysts enjoy diverse exit options: private equity, hedge funds, asset management, corporate finance, corporate development, venture capital, and more. Smaller banks may limit opportunities to other banks, corporate finance, and corporate development roles. 2. Associate: Associate assigns & checks Analyst’s work; occasionally dives into complex tasks Attend more meetings and interact with clients
Age Range: Associates' diverse backgrounds result in an age range of 25-
35. Rare to become an IB Associate much before 25, unless graduating university exceptionally early. Some Associates recruited from top MBA programs, others are Analyst promotions. Rarely do Associates transition from entirely different industries.
Working Hours: Averaging 65-80 hours per week, Associates experience
fewer last-minute emergencies.
Exit Opportunities: Limited exit opportunities for Investment Banking
Associates. Proactivity is essential; headhunters won't court you actively. PE or HF roles require targeted efforts, focusing on smaller firms.
3. VP:
Assumes a more strategic "project management" role
Avoids getting into detailed tasks like Analysts and Associates Communication and Coordination Interface with Directors and Managing Directors Engages more with clients Conducts activities like pitching potential buyers Balancing deal pitching, execution, and relationship development
Age Range: Typically falls between 28-40. Prior Associate experience is
almost a prerequisite; external hires are rare.
Work Hours: Averaging around 55-70 hours per week. Shift towards project management results in more predictable hours.
Exit Opportunities: More limited compared to Associates, traditional
private equity or hedge fund roles are challenging to secure. Options include switching banks, entering corporate development, or exploring different industries. Industry shifts may come with significant pay reductions, making transitions challenging for VPs. 4. Director:
Also known as “Senior Vice Presidents” or Senior VPs (SVPs)
Role dynamics is a blend of VP and MD responsibilities. Varied tasks depending on the bank and group Involves relationship development, client acquisition, execution work, and project management. Progression towards Managing Director requires a focus on client acquisition.
Age Range: Minimum age likely in the 30s. Estimated range: 32-45.
Work Hours: Weekly hours decrease to around 50-60. Increased work
travel requirements.
Exit Opportunities: Options include transitioning to a non-finance
company or switching banks. Rare chances to move to the buy-side, especially private equity, primarily if a strong network has been developed Most private equity firms prefer early-stage hires from banking. Mid-level hires are less common.
5. MD:
Main role is to make it rain: Winning clients, meeting companies, and
building relationships take center stage for Managing Directors The MD is the King of the Jungle, wielding authority over lower-tier counterparts who follow the MD's directives MDs may jump into deal negotiations, especially for crucial or relationship-driven deals; otherwise, their focus remains on securing new deals
Age Range: Climbing to MD status typically happens in the early 30s,
setting an age range of 35-50 for MDs.
Work Hours: Weekly hours fall in the 50-60 range, with increased travel demands compared to Directors.
Exit Opportunities: MDs can explore high-level positions in other
companies, private equity, or buy-side roles due to the universal importance of a robust network. Many MDs willingly exit at this point due to personal reasons. Exit Opportunities
Getting a good entry into the world of Investment Banking shows smarts, but pulling off a great exit? That's pure brilliance!
“I plan on staying at the bank for the rest of my career……….” said NO
Investment Banker ever!! A large chunk of Investment Banking’s appeal lies in the kind of career mobility & exit options it offers- gain a few years of experience, unlock roles in the buy-side, and start your journey into high finance. So Are You Ready To Kickstart Your I-Banking Career?
