What Are the Typical Business Groups in Investment Banking?
Though only the very best of the talents eventually make it into the best investment banks, to be fair, even rookie-undergrads are let in by them to join the Analyst roles. MBAs join a rung higher – as associates. Analysts and associates work within specialized groups (domains or horizontals) but they may not always have control over the group to which they get assigned (analysts especially).
Some of the commonest Investment Banking horizontals/ Business Groups are:
Industry or Products Coverage Group/ Domain+
Most large investment banks have a business division or domain with practice areas dedicated to industry-specific and product-specific investment banking. Hence, an Analyst or an Associate can get to be assigned either into one of these product groups (e.g., private placements) or in one of the many industry coverage groups (e.g., aerospace) that the investment bank may be playing in.
Corporate Finance Horizontal/ Business Group+
In the corporate finance domain, analysts and associates usually work with client companies to help them raise the capital needed for their new projects and ongoing operations. Work involves end-to-end solutions – right from determining the amount and structure of fund needs of a client through equity, debt, convertibles, preferred, asset-backs, or derivative securities – down to planning action for raising funds.
Capital Markets & Derivatives Business Group+
Working in this group essentially means helping clients raise money – or multiply their investments - either through Debt Capital Market operations or Equity Capital Markets (ECM) or Derivatives Markets.
Mergers and Acquisitions Business Group+
Among the hottest investment banking horizontals, M & A professionals set up lucrative, high-value deals in which one company buys another, and the investment banks earn big fee out of these transactions. Incidentally, this is an important source of income for many investment banks.
Project Finance Business Group+
Project finance involves funding infrastructure and oil capital projects of a company or government's main balance sheet. When other sources of borrowing dry up, project finance is generally still there.
Equity & Bond Trading Business Group+
Some of the most desirable jobs in investment banking are in sales and trading. Your responsibilities would involve undertaking transactions in equities, bonds, currencies (referred to as Forex or FX), options, or futures with traders at commercial banks, investment banks, and large institutional investors.
Structured Finance Solutions Group+
Positions in structured finance involve the creation of financing vehicles to redirect cash flows to investors (known as asset-backed securities). Typical asset-backs securitize credit card receivables, auto loan receivables, or mortgages.
Advisory Services Business Group+
Advisory services are often provided by investment banks to public and private clients involved in M&A and financings. The areas of capital structure advisory, valuation advisory, and risk management advisory have been popular at many investment banks. Often work will be done to determine a client's value, options for creating value, or on a client's industry conditions.
Equity and Fixed Income Research Business Group+
Security analysts are usually assigned to an industry or region. You could be responsible for making buy or sell recommendations to investors about a stock or bond. Your duties would involve visiting companies and heavy telephone contact with institutional investors. Investment banks often like to hire people with industry experience into analyst positions (as opposed to fresh MBAs or undergrads).
International Sales/ Emerging Markets Business Group+
An area of continued growth is in international sales. Despite many past disasters like the Asia crisis in 1997, investor demand for securities issued in emerging markets typically comes back strong. Firms are meeting this demand by providing sales personnel and analysts specialized in these markets. Another area of high demand is in emerging markets such as Thailand or Mexico. Firms are looking for people with specific language skills, a willingness to travel, and knowledge of these emerging markets.
Public Finance Business Group+
The market for municipal bonds is very large and calls for analysts, municipal advisors, and traders. Positions in public finance are usually difficult to obtain but offer high rewards. Persons with previous experience in public administration would be attractive to investment banks in this capacity. A major growth area in municipals is in the project finance area.
Retail Brokerage / Private Client Coverage / Stockbroker+
Private Client Bankers/ brokers are in the business of selling stocks, bonds, insurance, and other investments to individuals. Some brokers specialize in high-net-worth individuals while others span a variety of clients.
In institutional sales, you would be responsible for conveying information about particular securities to institutional investors. You would be likely to have heavy contact with portfolio managers and your own firm's analysts and traders. Sales skills and product knowledge are crucial in this area as is the ability to get through to busy institutional investors. Working in sales for an investment bank (on the sell-side) is often good preparation to move over to the buy-side (insurance companies and mutual funds). The average salaries in institutional sales can exceed $750,000 per annum.
One way to break into investment banking is to start as a rating agency analyst. The pay is relatively low and advancement opportunities aren't great, but the investment banks know it and use the agencies as hunting grounds for new analysts. The two largest agencies are Moodys and Standard and Poor's. Moodys has over 2,000 analysts and S&P has rated $50 trillion worth of securities. These highly profitable agencies grade the credit quality of companies and sovereign entities accessing the markets. Most of their revenue comes from fee paid by issuers.
