Investment Banking

An investment banking definition begins by identifying the field as a category of financial services that focuses primarily on selling securities and underwriting a company’s sale of new equity shares to raise capital. However, the roles that investment bankers play in helping businesses ensure a steady flow of capital go beyond underwriting.


Products and Services Offered by Investment Banks

The two methods used most often by investment bankers to raise capital for their clients are issuing debt and selling equity in the company, as Investopedia explains.


•Debt is typically issued by selling corporate bonds to investors. Investors usually receive a fixed return on their investment for a set number of years. The company pays investors interest throughout the term of the bond, and when the bond term ends, the firm remits the principal back to the investor. In addition to helping the company structure the bonds, the investment banker’s role is to find qualified investors by tapping the bank’s network of potential sources of capital.

•The most common way for companies to sell equity in the business is via an initial public offering (IPO). Preparing for an IPO entails potential investors doing extensive research into the firm’s operations and outlook for success. Investment bankers are charged with lining up large investors who are willing to take an equity share in the company at a price per share that meets the firm’s needs and the investors’ expectations for returns on their investment.


Private Equity vs. Investment Banking

Both private equity and investment banking have reputations for high pay and long hours. However, the duties, skills, and requirements for the two careers differ in many important ways. The aspects to consider when comparing private equity vs. investment banking include the type of clients, the type of work, and the ultimate career goals.


Investment Banking’s Focus: Find Investors and Sources of Capital for Businesses

Investment banking’s primary role is to underwrite debt and securities for all types of corporations. Investment bankers enter into capital markets to identify investment sources and advise their corporate, government, and other institutional clients as they negotiate mergers and acquisitions and other complex transactions.


As underwriters, investment bankers offer a guarantee against financial loss and accept financial risks on behalf of their clients. In addition to identifying sources of capital for their clients, investment bankers manage and oversee the many stages and processes required to complete a merger or an acquisition.


Career Opportunities for Investment Bankers

Mergers & Inquisitions presents a typical career path for investment bankers:


Intern

Analyst

Associate

Vice president

Director or senior vice president

Managing director

Senior to the managing director position are senior managing director, group head, chief operating officer, CEO, and other officer-level titles.


Pathway to Portfolio Management

Portfolio managers are charged with overseeing the assets of their clients, including stocks, bonds, and other forms of investments. This contrasts with the work of investment bankers, who serve the capital raising needs of their corporate clients by arranging and otherwise assisting the purchase and sale of securities.


While the two roles appear to be distinct, their duties overlap when it comes to required skills and experience with financial instruments and markets. WallStreetMojo explains that portfolio managers deal with assets that their clients already own, while investment bankers connect companies in need of assets with investors looking for opportunities to enrich their holdings.


Portfolio managers typically handle large funds for their well-heeled clients, so they deal directly with a handful of clients on a regular basis. By contrast, fund managers oversee smaller funds for a larger group of clients, and investment bankers work with many different companies and investors on deals to raise capital. However, both portfolio management and investment banking require in-depth analyses of financial markets.



Become a Financial and Management Consultant

Most finance positions, including those in investment banking, require a depth of knowledge about financial instruments and markets to ensure that their corporate clients receive maximum return on their capital investments.


As WallStreetMojo points out, financial and management consulting involves general knowledge of a range of fields that encompass management and economic theory, strategy, and technology.


Providing Businesses with Resources to Thrive

Without business and industry growth, economies stagnate. Without ready sources of capital, businesses would struggle to pay for their growth and expansion plans that fuel economies. Investment bankers play a critical role in connecting businesses in need of capital with investors looking for opportunities.




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