Career Opportunities
The sheer magnitude of possible financial careers is staggering; particularly for students transitioning their careers. To better understand some of the options available, we have provided a brief description of typical graduate positions, grouped into 8 primary categories:
Investment Banking
Corporate Finance
Investment Management
Private Wealth Management
Private Equity
Venture Capital
Commercial Banking
Financial Consulting
Product Coverage
Mergers & Acquisitions / Advisory
Mergers and Acquisitions (M&A) represents one of the most intense and demanding areas of investment banking. Public and private corporations often use M&A to implement corporate strategy and as a result, professionals in this area of finance must always be available to deliver their expertise to the client. Many transactions do not have the luxury of time and are developed and executed immediately. M&A professionals work in a high pressure environment where astute financial, legal, and strategic expertise is demanded. Professionals begin their careers primarily analyzing financial models and developing new ideas or “pitches” for generating new deals. After mastering these fundamental skills, responsibilities increase and the professional begins executing live transactions. Successful M&A professionals are aggressive, self-confident, and have the ability to quickly solve complex financial problems under a high degree of pressure.
Fixed Income
Raising debt capital for corporations is a critical function at an investment bank; underwriting corporate bond issues represents a major revenue generator for any large securities firm. For short-term cash needs many companies may issue commercial paper to avoid the high borrowing costs associated with bank loans. To finance long-term projects, companies may issue debentures in a large debt security offering. Mostly dealing with public companies, investment bankers who are skilled in debt securities are experts at understanding the public and private debt markets and recognizing market trends that present opportunities for clients to raise debt capital.
Derivatives
Considered one of the fastest evolving markets, derivatives cross a variety of different financial instruments. Derivative securities cover many types of products including options, swaps, forwards, futures, credit derivatives, interest rate derivatives and equity derivatives to name a few. The use of derivatives provides institutions a means of hedging or speculating with discrete functionality. Within an investment bank the derivatives business lines will cross into different areas such as capital markets and sales and trading. Derivative’s professionals typically have a strong mathematical and statistical aptitude and desire to understand the intricacies of a financial instrument. Many derivative trading desks will hire actual rocket scientists to model the instruments.
Equity Underwriting
When a company issues equity, they are raising capital in the financial markets by issuing stock. This may be the first time a company has tapped the public markets for financial capital in which case they perform an IPO (initial public offering). For companies who are already traded in the public markets, the issuance of equity is facilitated through a seasoned equity offering. In any given offering, several investment banks form a syndicate to facilitate the distribution of the securities to investors. Professionals in equity underwriting work with companies to help them prepare the required SEC fillings, price the issue based on market conditions, and distribute the offering to institutional investors. They watch the stock market very closely to gauge investor appetite and are skilled in securities laws, accounting, and finance.
Industry Coverage
Industry Coverage groups have global teams located in cities as New York, London, Chicago, Dallas, San Francisco, Hong Kong, Tokyo and Sydney. These groups provide investment banking services to large and small clients in their given sectors. Industry coverage sectors include Consumer, Health Care, Retail, Energy, Financial Institutions, Governments, Industrial, Real Estate, Technology Media & Telecom, and Transportation & Building Products.
Research
Equity
“Sell-side” research analysts value publicly traded stocks and provide recommendations to investors on whether to buy, hold, or sell the stocks they follow. They are specialized in sectors such as financial institutions, healthcare, and technology and publish reports on their analysis of stocks in their sector. Research professionals also publish reports on their sector as a whole and provide insights into trends and current conditions present in the sector. Good research analysts are detail focused and rely upon focused, disciplined analysis to reach their investment recommendations.
Fixed Income
Fixed Income research teams makes trading and portfolio recommendations for investors in global bond and other fixed-income markets. Using valuations, analytics and market dynamics, these teams help clients position themselves strategically in the global fixed income markets. There are many types of research teams in an investment bank such as; Economic, Credit, Emerging Markets, Foreign Exchange, Derivatives, and Structured Finance.
Sales & Trading
Sales
Institutional selling is the business of providing securities (Fixed Income or Equity) to professional investors such as mutual fund managers, corporate treasurers, or other large buyers of financial securities. Professionals in this area of finance are trusted by their customers to find the best prices on securities and work with their firm’s traders to negotiate preferred pricing for large, important clients. Good institutional sales professionals have outstanding personal skills and develop relationships with many institutional investors. They develop their clients by socializing with investors and presenting good investment ideas to them. Institutional sales can often be called research sales, as salespeople focus on selling the firm's research to institutions.
Trading
Traders in financial securities trade stocks and bonds to generate profits for an investment bank. They finance their positions with the firm’s own capital and large amounts of money can be made or lost depending on the trader’s judgment. Traders are the vehicle through which securities move between buyers and sellers and are specialized in certain classes of securities, trading only stocks or only bonds. Traders must possess the ability to stay in front of the market and avoid losses by selling or buying at the right time; this ability is somewhat esoteric but all good traders hold this key characteristic.There are no hard and fast rules regarding whether or not one needs an MBA. The degree itself, though less applicable directly to the trading position, tends to matter beyond the trader level. Managers (heads of desks) and higher-ups are often selected from the MBA ranks. A few traders even grow up to be CEO. Why? Because they know more about the markets and money than anyone else in banking.
Financial Reporting
In public companies, the financial reporting function is usually the largest group (in terms of employees) managed by the CFO. The purpose of this function is to develop the financial statements for required SEC fillings such as the Annual Report, Form 10K, and Form 10Q. From financial reporting, the CFO plans future capital requirements, communicates financial results to the investment community, and manages future financial performance expectations. Professionals in this function are detail oriented and have a thorough knowledge of accounting; many are CPA’s.
Financial Analysis & Strategic Planning
Professionals In this area work with each division's business team to prepare financial plans, make forecasts, and compare actual financial results to forecasts. You may also evaluate the financial consequences of alternative strategies. Responsibilities include everything from analyzing new business opportunities to restructuring a business or developing a capital-spending program. The primary concerns are to find better ways of using company assets, reduce costs, and research ways to develop better forecasts. Financial Analysis evaluates the risks versus potential return of any course of action and develops recommendations so that managers can pick the most profitable strategies, depending on their goals.
Corporate Development
Corporate development involves both corporate finance and business development. Finance experts in corporate development study acquisition targets, investment options, and licensing deals. Often they assess the best firms to buy or invest in, such as pre-IPO cutting-edge technology companies with complementary products that could either extend the company's product line or mitigate a potential future competitor. Corporate development jobs require planning and analysis know-how and the kind of skills that investment bankers working merger-and-acquisition deals put to use.
Internal Audit
When most people think of an audit, they think of an outside audit—a large accounting firm like Ernest & Young checking the corporate books on behalf of the shareholders. However, most large companies have an internal-audit group that regularly visits individual company branches and checks the company's accounting systems. Internal auditors perform the investigative and corrective work that ensures the external auditors don't find anything. The internal-audit group reviews the quality of the data, making sure it's both accurate and complete. Internal auditors also evaluate whether the corporate-accounting procedures are effective and universally followed. Finally, internal auditors introduce or revise procedures to improve efficiency and reduce costs.
Corporate Treasury
Most firms dedicate within its financial reporting chain a treasury group. The work in treasury is very similar to the work of investment and corporate banking professionals. The treasury principally manages the balance sheet and capital raising needs and works with many types of bankers to deliver the company’s capital requirements. In addition, some companies include an internal M&A team within the treasury to help the firm execute strategic acquisitions. The primary distinction between banking and treasury is the number of hours that are required. Treasury professionals do not work the same level of hours as investment bankers and are not subjected to the continual pressure of generating revenue.
Portfolio Management Analysts
The “buy-side” fixed income or equity analyst functions in much the same way as his “sell-side” fixed income or equity counterpart. The overall analysis is the same—building financial models, meeting with senior managers, analyzing competitive trends, talking with major suppliers and customers—but buy-side analysts are less exposed to potential conflicts of interest. Buy-side analysts make recommendations to portfolio managers and are compensated more for the success of their recommendations than for how much new investment banking business or trading commissions they bring in to the firm. Buy-side analysts tend to be more generalists than sector or industry specific and often are actively involved in the structuring of portfolios and/or funds.
Hedge Funds
A Hedge Fund may be described as a pool of private capital used to leverage an investment portfolio structured as a Limited Partnership. The General Partner (Investment Fund Manager) generally should have the sophisticated portfolio management skills of a seasoned and disciplined trading professional; The Limited Partners (capital investors) are generally high net-worth individuals and institutions, and function as silent partners. Unlike with Mutual Funds, the General Partner's compensation is largely incentive-based depending upon performance, productivity & fund returns. Most General Partners usually have their own money invested in the fund. The Hedge Fund is generally unencumbered by archaic regulatory (Securities Act of 1933, Investment Company Act of 1940, etc.) procedures, and hence may have restricted liquidity, as it cannot be sold (or bought) in the open market. Most hedge fund investment strategies are highly specialized, requiring in depth knowledge of specific markets and financial instruments. The professionals who manage hedge funds usually are seasoned traders and portfolio managers who have retired from their Wall Street careers.
Mutual Fund Management
Basically, mutual fund managers are the people who decide what, when, and how much to buy or sell. They must work to ensure that their fund's overall investment philosophy is borne out in actual investments and be willing to change course midstream if their strategy isn't working. They must also make sure their decisions are executed, which means following up on the work of traders and other agents. Finally, they are responsible for managing the work of researchers and analysts in order to ensure that the fund manager is receiving the best, most complete information possible. Mutual fund managers also have to engage in a certain amount of marketing and public relations; for example, helping to design sales strategies or talking to the press.
Private Wealth Management/Private Banking
PCS professionals cater to high net worth individuals and provide financial advice such as investment ideas and strategies, risk management, and wealth preservation. To qualify for PCS status, many firms require clients to have a minimum base of investment assets and it is common for this amount to be a multi-million dollar level. PCS professionals typically work in teams consisting of three to five people and target high net worth individuals to develop a franchise of clients. As with institutional sales, good PCS professionals must possess excellent personal skills.
Private Equity / Leveraged Buyout Firms (LBO’s)
LBO firms purchase firms that are in financial distress or are grossly undervalued by the market by using a high level of financial leverage to finance the acquisition. After the take-over is complete, they pay down the high debt level by selling off the non-core assets of the business and focus on developing the cash flow of the core entity. LBO firms realize their investment returns when they sell or take public the now cash generating core business. LBO firms look for professionals with a high level of transaction skills, typically investment bankers skilled in M&A. Becoming part of an LBO firm is very difficult without the required skill set and level of experience.
Venture Capital
Venture capitalists raise funds from wealthy investors and invest in businesses at the early stages of a company’s life cycle. Venture Capital firms usually invest in early stage/start-up firms while Private Equity investors typically provide later stage expansion capital. Both venture capital and private equity investors generally expect their investments to have a life of 3-5 years and are usually “taken-out” by an IPO or another institutional investor. Entrance into either of these areas of finance is very competitive; most VC firms look for professionals with extensive operating and technical industry knowledge and most private equity firms pursue professionals with extensive transaction experience.
Asset Based Lending
Asset-based finance makes it possible for companies to maximize borrowing capacity with senior secured loans backed by collateral such as accounts receivable, inventory, real estate, machinery and equipment, and certain intangible assets. This is a very common way companies secure bank capital.
Syndications
A syndicated loan is a loan underwritten by a group of banks or financial institutions. The overall structure is primarily determined by the needs and cash flow characteristics of the borrower. The book runner/lead agent is the bank selected by the borrower to lead the syndication effort and act as the agent. The book runner is responsible for the syndication process, which includes structuring, pricing, and final allocation. Professionals in syndications are skilled in financial analysis and accounting.
Revolving Credit
A revolving credit is a credit facility similar to a credit card arrangement. The borrower can draw from the facility up to the full amount of the revolving credit limit. The term of the facility can be from overnight to multiple years. In investment grade financings, companies with stable cash flow and favorable financial ratios, the preferred maturity is 364 days because of the favorable capital treatment for lending institutions. Additionally, the revolving credit can serve as “backstop” to a commercial paper facility. As with the majority of corporate bankers, professionals in this area of banking are skilled in financial analysis and accounting.
Business Valuation
Business valuation (BV) is the practice of valuing business entities or assets for specific purposes. Some valuation mandates are driven by creative tax strategies while others, such as the allocation of purchase price, are required by the SEC to be completed as part of closing M&A due diligence. Other mandates may include valuing intangible assets or intellectual property. Business valuation is primarily focused on closely-held business however; many public companies require valuation services. BV professionals are experts at quantifying corporate value and are skilled in accounting and finance.
Litigation
Litigation support involves consulting with companies involved in legal actions that require third-party opinions on a variety of financial issues.
Management Consulting
Management consulting also offers opportunities for financial professionals as companies seek expert advice on strategic options. With this field continually growing, there will remain a need for financial professionals to provide financial expertise. Successful management consultants are typically industry focused and are skilled at uncovering industry trends and translating these trends into strategic opportunities for their clients.
Restructuring
Restructuring and reorganization, commonly called “turn-around” work, is the practice of helping financially distressed companies solve their immediate cash-flow problems. Typically, turn-around firms are hired by the Board of Directors for the company in trouble and often require approval from Bankruptcy Courts.
