Investment Banking Careers

This article outlines what investment banking is, how the different front office divisions are organised, the roles available, how to break into investment banking and what exit opportunities are available. It is key to note that each investment bank has a unique organisational structure, meaning the teams may be organised differently within the division. Additionally, there is a large amount of overlap between the roles, hence it is always important to remember that aspects of certain job descriptions may fall under different roles depending on the bank. Whilst this article focuses on front office roles, there are many other roles that are central to investment banking, including operations, finance, HR, technology etc.

What Is Investment Banking?

Investment banking, also known as financial advisory, advises institutions and companies on acquisitions and financing, whilst providing channels for them to acquire capital. Investment banks underwrite new debt and equity securities for a range of corporations, aid in sale of securities and enable mergers and acquisitions. Additionally, investment banks help corporations and governments plan large financial projects – essentially a financial advisory role. [1].

Mergers & Acquisitions Group

The Mergers & Acquisitions teams are often divided by industry (e.g. consumer, TMT, etc) or by geography (e.g. US M&A) or generalist teams that cover everything. Other roles include:

• Structured transactions including:
• Spin – offs (selling shares of a current business/ division of the parent company thus creating an independent company [2])
• Carve – outs, where a company sells some of the shares of their subsidiary to the public, through an IPO, allowing the subsidiary to be a stand alone company. It’s similar to a spin – off but the parent company sells offs their shares to new shareholders in comparison to a spin – off where the shares are given to the current shareholders [3]
• Divestitures, which includes selling, exchanging, closing or declaring bankruptcy a part/ all aspects of the business. Most commonly happens after a management decision to no longer run that element of the business as it is thought to be redundant after a merger or acquisition. Through divestitures a company may be able to cut costs, repay debts and streamline the business. This decision may be pressured by a regulatory body which is trying to increase competition within that industry or by court order [4].
• Capital Markets research: Researching prospective mergers or acquisitions and preparing presentations for business executives

Equity Capital Markets (ECM):

This is where the investment bank helps companies raise equity financing through primaries (e.g. through an IPO, an initial public offering) and the secondary markets (where the existing shares are sold and future, options and swaps are traded.) The ECM division is differentiated by the range of financial instruments available [5].

Roles within ECM include [6]:

1. Equity Origination, pitching and raising capital for firms and then executing financing deals like IPOs.
2. Syndicate, communicating with other banks to coordinate deal executions and to underwrite the transactions. Most deals have multiple banks acting as underwriters to distribute the risk associated.
3. Convertible Bonds/ Equity Linked, raising capital with “convertible bonds” which initially is a debt issuance but converts into equity once the firm’s stock price has surpassed a certain level.

Debt Capital Markets (DCM)

Debt Capital Markets is where firms/ governments raise funds through issuing and trading different debt securities and financial instruments. These include corporate bonds, government bonds and credit default swaps [7]. Firms would want to raise funds for numerous reasons, such as for an acquisition, or refinancing/restructuring their existing debt [8]. A DCM analyst would be advising their clients on the best ways to raise debt finance.

The DCM team would be expected to:

1. Pitch to prospective/actual clients on debt issuance
2. Execute debt issuance for the client
3. Make marketing slides and create case studies of recent deals

Structured Finance

Providing complex financing solutions including Collateralized Debt Obligations (CDOs) and Collateralized Bond Obligations (CBOs). The products are usually securitised assets that use the underlying asset as collateral, enabling the borrower to obtain more capital. These securities are useful when sufficient capital cannot be raised through traditional debt products, requiring specialist and highly customised solutions from structured finance teams. [9]

The Structured Finance team would be expected to [10]:

• Pitch to clients, after analysing their cash flows and credit worthiness, to recommend them a complex financing solution that suits their strategic and financial needs.
• Responsible for structuring the deal.

Leveraged Finance

This team provides strategic advice to firms on how to raise debt, which includes pitching to actual/ prospective clients and executing the debt issuance on behalf of clients. Leveraged Finance is differentiated from DCM as it invests in below-investment grade issuance (i.e. ‘high – yield bonds’ or ‘leveraged loans’) whereas DCM is investment grade. High yield debt includes financial instruments which are rated Ba1/BB+ (Moody’s/S&P, respectively) or lower, meaning the firms tend to be riskier as they have a higher chance of default than the ones dealt with in DCM. Therefore, the financial instruments that the Leveraged Finance team offers tend to have higher yields to compensate the investors for taking on this risk [11]. These leveraged loans are often used by Private Equity firms in a leveraged buyout, to acquire a portfolio company, or for corporate clients needing capital to execute an M&A transaction. The finance raised from this debt can also be used for recapitalisations (share buybacks or dividend payments) or refinancing existing debt that is about to mature.

Undergraduates Breaking into Investment Banking

Many undergraduates who work in investment banking post-graduation complete an internship in the industry during their degree, typically in the summer before final year. For some of the largest banks, entering through spring summer or off-cycle internship programmes and then converting these into full-time analyst offers is the best way to break in. However, it is still possible to gain a role in investment banking without an internship during your degree. In this case, you would need a demonstrated interest in the field, potentially through society-level involvement and keeping up your commercial awareness/technical skills. Many successful analysts also complete a relevant Master’s in the year after their graduation. This can help make you stand out more as a candidate and improve your technical knowledge and preparation for the job.

3+ Years After Undergraduate Degree

If you are working in a job closely related to investment banking, the transition is easier. For example, a good alternative could be to pursue a Big 4 transactions advisory graduate role, where you will gain corporate finance skills, transaction exposure, and a network of contacts which you can leverage to transition your career to investment banking. Turnover is high within investment banking as it is a very stressful environment, so there are analyst openings that appear beyond the graduate level.

Top Skills For a Career in Investment Banking

Investment banks seek candidates who boast a blend of analytical skills and interpersonal competencies. You will need to have at least a basic understanding of corporate finance topics (accounting, valuation methods, etc) and a grasp of the current industry trends and recent deals. In addition, quantitative aptitudes are valued to deal with the high levels of numerical analysis. Also, if you are competent in Excel, it is important to make this known to the recruiters.

In addition, communication and interpersonal skills are imperative to being a successful analyst. It is useful to exhibit being comfortable in a team setting, having the capability to lead, and thriving in client-facing situations. Analysts spend very long hours working together on these deals, so it is crucial that they can work effectively in this environment.

Finally, having additional skills such as languages (sometimes a requirement), coding (python, R, etc), and hobbies (competitive sports, music, etc) can show that you are a well-rounded individual that can balance multiple commitments. These may also provide you with transferable skills (e.g. leadership skills from captaining a sports team).

General Exit Options:

• Private Equity (funds that directly invest in private companies or buyout public companies thus delisting the company as public equity [13]). These funds value your technical understanding of valuation and accounting, as your job will hinge on building models to value private targets and running due diligence on the investment opportunity.
• Hedge Funds (alternative investments which tends to use non – traditional investment methods to take advantage of market opportunities) [14]
• Venture Capital (essentially private equity, but focused on early-stage/growth businesses such as tech startups or biotech firms) [15]
• Startups/ entrepreneurship

Conclusion

Whilst the working hours are tough, investment banking is a very attractive career due to the generous compensation and the highly transferable skill set. The intensity of the career also lends itself to quick learning and fast career progression, which attracts many applicants. That said, the lifestyle is heavily work-focused, which means it does not suit everyone. It is always good to research the roles before applying, either by reaching out to others on LinkedIn or asking questions at graduate networking events. This should give you more clarity about which industry and division is best suited to your early career aspirations.