How to get into investment banking
Do you have an idea as to what Goldman Sachs, JP Morgan Chase, Barclays, Bank of America Corporation, and Morgan Stanley have in common?
They are the top investment banks in the world. So what exactly are investment banks and what do they do? Read on to get an idea.
What is investment banking?
Investment banking is a type of financial service that helps organisations and individuals to raise capital through selling of securities and underwriting the issuance of new equity shares. This can only take place through investment banks. An investment bank is an intermediary that performs a variety of financial services such as underwriting of shares, assisting in mergers, and advising clients on financial matters.
Several investment banks also have retail divisions where they serve individuals and small and medium-sized enterprises (SMEs). Investment banks also provide other services such as:
- Developing new types of securities;
- Assisting investors with regards to the purchase of securities;
- Brokering trade and equity deals between clients;
- Investing their own money in lucrative projects.
Media tends to hype up the complexity of investment banking. However, in reality it is quite simple, and it is explained here using an analogy - investment bankers are similar to real estate agents. But instead of selling real estate, they try and sell investment opportunities. These bankers bring together people who are looking for investment, and people who have the capital and are interested in investing in projects.
An investment bankhas several types of clients, which include:
- Organisations: Companies in various sectors such as retail, healthcare, media, technology, and food and beverage (F&B);
- Individuals with high-net worth: Individuals who can afford the services of an investment bank, and at least have one million pounds to invest;
- Funds: These corporations combine the assets of the investors and invest in schemes such as private equity, hedge funds, and pension funds;
- Governments: Central and sub-national governments as well as quasi-governmental institutions such as sovereign wealth funds and export credit bureaux;
- Investment bankitself: At times, the investment bank does not invest for clients, but invests for the bank itself. This is done to earn profits or to safeguard against future risks.
How does investment banking work?
In a nutshell, investment bankers are corporate financial advisors. Investment banking is an ever-changing dynamic industry. The increasing complexities in financial instruments have led to greater competition amongst financial intermediaries. In the volatile environment, investment banksmust step up and diversify if they want to survive. Hence, they have started taking up more responsibilities. Overall, the following responsibilities fall under the purview of investment banking:
- Arranging finance: One key responsibility of investment banking is to raise funds, whether it is for organisations or governments. Bond financing is one of the most common methods of raising funds where the investment banker plans the issuance of bonds, prices it competitively to raise interest, and eventually helps in selling the bonds.
Investment banking also plays an important role in equity financing. For example, an organisation decides to raise more funds by applying for an initial public offering (IPO). In this case, an investment bank would prepare a prospectus on behalf of the organisation explaining the terms and conditions of the offering, the risks involved, and the price of shares.
- Underwriting: Underwriting basically means managing the risk involved by purchasing shares from issuers and selling them to the public or to institutions. While selling these shares, investment banks usually mark up the price, so as to make a tidy profit. In some scenarios, investment banks just market the shares and do not undertake the risk. In this case, they get paid on a commission basis.
- Private offerings: Occasionally, investment bankers assist their clients in raising capital through private means. For example, they could contact institutional investors such as retirement funds or insurance organisations to place an offering of bonds with them.
- Acquisitions and mergers: Investment banks advice organisations on how they should proceed with an acquisition. This could include targeting a company, valuating it, and offering the right price. At the other end of the spectrum, companies which are being acquired also require the services of investment banks to study and assess any offers received. More often than not, mergers and acquisitions tend to drag on for a lengthy time period.
- Risk management: Risk management involves the analysing of credit and market risk that clients add to their balance sheets while conducting their daily trades. In this case, investment banks set limits on the amounts their clients are allowed to trade to control any loss that may occur.
- Research analysis: Investment banks assess, review, and write reports regarding the prospects of companies. Even though this division is not a high-earner for investment banks, it assists investors during mergers and acquisitions.
How to get a job in this field?
Putting in hard work and effort towards joining the field can prove successful.
Investment bankers can come from a range of backgrounds, but having a strong base in mathematics is vital. You may also have a degree in finance, economics, mathematics, accounting, or even in other areas like computer science.
Prospective employees usually start off as investment banking analysts and receive training before beginning their jobs. These training programmes usually include modules such as financial modelling, principles of accounting, financial statement analysis, markets, and risk management. These programmes also focus on the analysts’ presentation, communication, and negotiation skills.
As you can see, getting into the investment banking field is not easy, but if you aspire to become an investment banker, here are some of the ways:
- Apply for internships during your bachelor’s and impress them enough that they offer you a job upon completion of your degree;
- Apply for part-time internships or investment banking jobs whilst pursuing a masters in finance;
- Apply to investment banking firms after graduating from a top MBA institute;
- Apply to investment banks or corporations after completing an ACCA or CFA qualification;
- Apply after receiving a PhD in subjects such as mathematics, quantitative finance, economics, or even computer science;
- Practicing law is usually considered to be an excellent stepping stone to join the field.
Courses in investment banking
Many people aspire to become an investment banker. So how to go about it? For starters, you can read books, research about relevant courses, and apply to universities to receive an investment management degree. Some of the best online investment banking courses are mentioned below:
- Global MBA in Investment Banking – London School of Business and Finance;
- MA in Finance and Investment (Investment Banking and Capital Markets) – London School of Business and Finance;
- Private Equity and Venture Capital – Coursera (Università Bocconi);
Additionally, Imarticus offers a certificate programme in investment banking. This programme is known as Certified Investment Banking Operations Professional (CIBOP). This is an internationally accredited course and its duration is 180 hours.
If you are interested in pursuing a career in investment banking, London School of Business and Finance (LSBF) offers two online courses — Global MBA (Investment Banking) and MA in Finance and Investment (Investment Banking and Capital Markets).
Go ahead and pursue your dream career now!
This article was written by Varun Mehta and edited and published by Anisa Choudhary.