Positions in Investment Banking

This part will be interesting in order for you to see what job description, lifestyle, and skill set fits the best with your personality. There are pretty much four different entry-level job opportunities within investment banks. You can go into investment banking, sales & trading, research, or capital markets. Although there are many different opportunities that no one ever hears about before they enter the industry, these four are the most common ones.

Investment Banking Analyst

Are you comfortable with staying up late, working in Excel and Power Point all day long, and doing it seven days a week? If you are, investment banking might be a great fit for you. If you aren’t, you better start looking for something else.

Investment banking analysts are hired in order to support the business of investment banking. If you think of the senior management as the brain of the deals, analysts are thought of as the machine that produces all the work that managing directors need to deliver the results. As an analyst, you will spend 80+ hours/week on average working on various analyses and pitch books that help managing directors win new business, as well as on producing the necessary transaction documents once the business has been awarded to your bank.

Work

Investment banking analysts are working on the private side of the business and are split into industry or product groups. No matter whether you end up in an industry or a product group, your responsibilities will be pretty similar.

As an investment banking analyst you will be expected to create financial models, pitch books, and transaction documents day in and day out. Some of the main activities will include:

  • Conduct industry research
  • Develop various financial models
  • Prepare presentation materials
  • Draft transaction documents (e.g. investor presentation, confidential information memorandum, rating agency presentation, etc.)

On top of that, sometimes you might be asked to print and bind various presentation materials. In certain situations, you will work very hard on assignments that will be mostly time consuming, and not always mentally challenging. However, this is your opportunity to excel. You should always show a good attitude and willingness to work no matter what is asked from you. It is not a good idea to wear an “I’m-too-smart-for-this” attitude around the firm. Too many analysts that get into this business think they’re on the top of the world, while they’re still really on the bottom of Wall Street.

 

Skills

A lot of students ask, “What do I have to be good at in order to get a job as an investment banking analyst?” Most of the time, the answer is surprising to students. The main thing bankers look for is someone who is a quick learner and willing to work hard with a good attitude. Many people think they have to be extremely good at math and be able to construct financial models and other analyses before they enter the job, but this is not true! As an analyst you have to be disciplined, responsible, detail oriented, hard-working, and excited about learning new things. Everything else can be learned. Once you realize that investment banks are looking for the right people, not for your current knowledge, you’ll be ahead of many of your peers.

Let’s say you finally got your dream job and you’re an analyst. What skill set can you expect to develop at your job? One of the most important things that you will get out of your analyst position is a deep knowledge of finance and how companies work. Specifically, you will understand what, how, and why a company is doing something. For example, when a company comes and asks you for money, you will be able to see what their needs are, evaluate their financial and strategic position in the market, and make a good recommendation that fits their needs. You will also know how to quickly assess a company’s financial statements and learn how to create a “story” about the company and how it is positioned within its industry. Finally, you will improve all of the skills that were required in the first place to get to the job.

 

Career Path

So where do you go after your two years in investment banking? Well, first of all, if you’re good, you don’t have to go anywhere. Many banks will extend the offer to the best of their class for the third-year analyst position, and after that promote you directly to the associate level. However, if that doesn’t work out, you can always go back to business school to get your MBA. If you don’t want to stick with investment banking, and don’t want to go back to school, you might transfer to a private equity firm or a hedge fund. As you can see, options are plentiful. There is neither a right nor a typical career path. As an investment banking analyst, you will be lucky to develop such a valuable skill set that is transferrable to many industries and positions. A great thing about being an investment banker is the fact that you can pretty much go wherever you want afterwards.

Lifestyle

In short, the lifestyle of a banker sucks. It’s pretty bad. You wake up, go to work, and then if you’re lucky enough, you get a good night sleep. It is not rare that you’ll have to stay in your office past midnight working on a model or a pitch book, and still be expected to show up tomorrow morning for work. Weekends? A little bit more flexible, but don’t expect to not work on weekends. Sometimes, weekends might be your biggest nightmare when you have something big coming up on Monday morning. All in all, don’t expect to work less than 70-80 hours per week, and be ready for weeks of 100+ hours. Remember, a week has 168 hours. You do the math of how much time you have left for sleeping and other activities.

Although this looks pretty bad at first, remember you’re not the only one doing it. When you stay late working, you’ll work with your colleagues. That definitely makes it easier. Another thing to think about is that this is only the beginning of your career. You have to look at it as an investment for your future. When you look at it that way, it doesn’t sound as bad anymore.

 

Compensation

The compensation is great! You’ll get paid more than any of your peers working in any other industry. Although your base salary is pretty comparable with other prestigious jobs, the bonuses make the difference.

So to be a little bit more specific, the compensation splits into three categories – signing bonus, base salary, and year-end bonus. If you end up working in New York, here is the breakdown of how much you might expect to get paid:

  • Signing bonus: ~$10,000
  • Base salary: ~$70,000 – $90,000
  • Year-end bonus: ~$30,000 – $60,000

All three of these categories can depend on the type of bank (bulge bracket vs. boutique) and how active the bank’s business is (many deals/higher revenue vs. fewer deals/lower revenue). Also, your year-end bonus as an analyst is typically based on performance, which is just an added incentive to always work hard and have a great attitude. In the end, these are pretty fair ranges to assume, but it is hard to generalize and encompass what every bank pays, so use this only as guidance.

Sales & Trading (S&T) Analyst

Multiple monitors, graphs, stock tickers, and rows of people sitting next to each other with no discretion… Welcome to sales and trading. This is probably the section of the bank that is closest to what people describe as Wall Street. This fast-paced environment is completely opposite from what you will find in investment banking or research.

It is very difficult to generalize S&T because it has so many different positions that even people who work in the bank don’t know about. S&T generally splits into fixed income, commodities, currencies, and equities. Each of these positions is very different from each other, meaning that if you were to transfer to another position, you probably wouldn’t know what’s going on for a few weeks. However, there are some things that all sales people and traders have in common. Just remember that everything that is desk-specific can be learned at the desk.

Work

First of all, why do we call this sales and trading? Because there are sales people and traders. As a sales person, you will be in touch with your clients and try to facilitate the trades. Once the sales person got in touch with the client, it will try to coordinate the trade with the trader. The trader will then either buy or sell the security (take a position), and try to mitigate (avoid) the risk as best as possible.

One common misconception about trading is that people think traders make money by buying low and selling high. This is not true. This happens on the buy side(link underlined text to Buyside vs. Sellside). On the sell side of the business, traders are market makers, meaning that almost all the time they have to take positions that will cost them money.

What does market-making mean? It means that the trader has to take the position in a certain security in order to facilitate trading of that security. In order to be a successful market maker, the S&T people have to be great risk managers. They have to understand how the market is moving and what price they can offer. If you have ever heard of a bid and ask price, this is what traders do all the time. They have to quote a price at which they are willing to buy (bid price) a security, and at which they’re willing to sell (ask price) a particular security.

You might be asking yourself, “If they’re losing money in those trades, how do they make money?” From commissions. Let’s say that Fidelity (a big mutual fund) calls and wants to buy 10 million shares of company XYZ for $10.00. This stock is probably priced higher in the market, let’s say $10.02. Even though the trader would lose money by selling it for the lower price, it has to do it in order to keep money moving in the market. However, this is not all that bad for the trader. The trader will get paid a fixed commission per share, let’s say 3 cents per share. So by making this trade with Fidelity, the trader will earn $300,000 for sure. Now the only thing that the trader has to make sure to do is to lose less money by making the transaction than what he/she gets paid in commissions. The trader will have to “work” those 10 million shares and try to get the best price for them in the market and then sell them to Fidelity. Rarely are securities traded in extremely big blocks.

 

Skills

In order to be a successful trader, you have to be quick thinker, be comfortable with risk and losses, and not get too excited with wins. The worst thing someone in sales and trading can do is to involve their emotions and become greedy or afraid. A S&T analyst has to be rational and be able to stick with his or her goals (e.g. if you decided to sell your position once you made 10% gain, you sell it at 10% and not wait for 11%).

After being in the business for a while, you can expect to develop a very strong sense for the market. In addition to that, you will learn a lot from previous mistakes and hopefully apply those lessons in the future. This should make you more rational and a better risk manager. Being able to manage your positions will be a crucial skill that you will acquire. Additionally, with so much technology and information available, it is sometimes hard to know and focus on important things. As a S&T analyst, you will learn what news drives your industry and become very good at distinguishing what’s really important and what’s only nice to know.

 

Career Path

Unlike investment bankers, S&T people usually stay within their business until they retire. The skill set they acquire is very specific to what they do, and it is hard to find a better job outside of the industry where they could apply it. For that reason, if you start as a S&T analyst, there’s a good chance you are going to do it for the rest of your life (or you’ll have to start over in some other industry). However, you might move in between the buy- and sell-side. Many analysts end up going to the buy-side and get involved with mutual funds or hedge funds.

Although there is no typical career path for any career, if you become a S&T analyst, it is likely that you will not get your MBA. It is seen as a waste of money and time, because what you learn is not necessarily transferrable to your job. Additionally, you might move between different companies or change your position slightly, but in the end, you will do a similar job until you retire (which might come early if you’re good at what you do).

 

Lifestyle

S&T analysts have to wake up early every morning and make it to the office by 6am, but they also leave earlier than anyone else in the industry, which is around 6pm. Also, S&T people rarely work on the weekends. If the market is closed, there’s not much to work on besides do some research or prepare for the Monday morning meetings.

Another perk of being a S&T analyst is all the outings you go to with your clients. You get to spend firm’s money to entertain your client and establish relationships. This includes (but is not limited to) going to baseball and football games, and many bars and restaurants, all for free. However, many S&T professionals will tell you that they’d rather get a good night sleep than party with the client till after midnight and then still have to show up in the office by 6am.

 

Compensation

Just like in investment banking, compensation is great. You’ll get a similar breakdown of your pay, including signing bonus, base salary, and year-end bonus. However, the year-end bonus in S&T might be lower in the beginning than the bankers’ bonus. You shouldn’t worry about this, because if you’re a rock star, you’ll start getting paid a lot very early in your career. While the banking career is very structured, in S&T you eat what you kill. And if you can kill a lot early on, you’ll eat a lot as well – much more than bankers of the same age. In statistics terms, S&T career has a higher standard deviation of getting paid. Again, here’s the breakdown of what you can expect as a first year analyst:

  • Signing bonus: ~$10,000
  • Base salary: ~$70,000 – $90,000
  • Year-end bonus: ~$10,000 – $40,000

Although these are pretty fair ranges to assume, it is hard to generalize and encompass what every bank pays, so use this only as guidance.

 

Research Associate

Even before we start, we need to clarify that the “associate” title is not a typo. In research, you start as an associate, and then if you’re good, you eventually get promoted to the analyst level. Why would anyone want to keep things standardized and simple, right?

Anyway, have you ever seen reports that suggest whether you should buy, sell, or hold a stock? Also, have you ever asked yourself where those reports come from? Well, this is what a typical researcher does in Investment Banking. They focus on a specific industry or a set of companies and they become an expert at it. The tricky part is that they have to know as much as possible without access to private information.

Work

If you are interested in research, you should expect to construct financial models and write a lot. By working in research, you have to be on top of your industry. You have to understand everything that is going on and how it may affect whatever you’re following. If the company reports bad earnings, you have to be able to explain why that happened and what impact that might have in the future. Additionally, every morning around 7:00 am (depending on the bank), research employees get on the phone with sales and trading (S&T) people for a morning call. A morning call is an update on the most relevant news for the day, and a discussion about how this might impact a particular stock and the market as a whole.

Similar to an investment banking analyst, you can expect to do a plethora of financial models. You will keep readjusting them for new quarterly numbers and revise the estimates. If you’re lucky and end up working for a top analyst, you might get the chance to take calls from less important clients.

Skills

Skills: problem solving, confidence, maturity, initiative, creativity, detail oriented, disciplined, hard-working

Being analytical, detail oriented, creative, and a good problem solver are the most important skills that describe a research associate. Of course, this list is not exhaustive. You also have to be very enthusiastic about your job, reliable, respectful, and hard-working. The main point is that you will spend a lot of time trying to figure out new and different things out of information that is available to everyone. Thus, you will have to be able to look for the smallest details that might make a difference and come up with new ways how to interpret them. In some sense, research people are also sales people. You have to be able to write your research in a way that will be appealing to your client so that he/she will keep buying it from you.

After working in this position for a period of time, you will not only enhance all the skills that you needed to get the job but also develop a strong sense for what is going on with the industry you’re following and what its drivers are. Additionally, you will learn finance inside and out. Reading financial statements and getting valuable information out of them will be your daily routine. All in all, as a research associate, you can expect to become an expert on an industry, and learn how to get the most out of all the public information that is available.

Career Path

When you get hired as an associate, you can expect to work there for two to three years, and then come to the point where you either stay on board and get promoted, or go someplace else. You might go and get your MBA, or you might find a job at a private equity firm or a hedge fund. Again, just like with investment banking, there’s no typical career path. However, your expertise will be finance related so you can at least expect to stay in that field.

Lifestyle

In terms of the office “feel,” research feels very similar to investment banking – you’ll most likely get your cubical and sit there crunching numbers and following the news. As far as hours go, you can expect to come early in the morning and leave late at night. However, hours probably won’t be as bad as your banker friends’ hours. To be more specific, you can expect to come to the office around 7:00 am, and leave around 10:00 pm.  Spending time after midnight or pulling all-nighters are not impossible to happen, but are very rare (if they happen, it’s usually around the earnings season). Additionally, you can expect to work on weekends. They will be flexible, but you’ll still be working.

Since you’re going to be working around 70-80 hour weeks, don’t expect to have much life outside of work. The nice thing about research is that it is more predictable than a banking analyst position. So if you have something scheduled in your free time, there’s a good chance you’ll be able to make it.

Compensation

Compensation for research associates is great. It is usually split in three buckets: signing bonus, base salary, and year-end bonus. To put it all in numbers terms, here’s what you can expect for your first year:

  • Signing bonus: ~$10,000
  • Base salary: ~$70,000 – $90,000
  • Year-end bonus: ~$10,000 – $40,000

Although these are pretty fair ranges to assume, it is hard to generalize and encompass what every bank pays, so use this only as guidance.

Capital Markets Analyst

Some would argue this is the sweet spot in the investment banking industry. It lies right in between investment banking and S&T, and it allows you to interact with both the private and public side.

Capital Market Analysts work along-side a company when they are trying to raise money either through equity or debt. Let’s refer to the graph below to give you a little bit of background on where capital markets fits within investment banking.

When a client wants to raise capital (money) through either equity or debt, the professionals in the Capital Markets group coordinate the communication between the investment banking industry group, S&T, and research. The goal of the Capital Markets group is to come up with a reasonable deal for both client and investors. If a company wants to sell 10 million shares at $15, and investors only want to buy 8 million shares at $11, there’s a problem. Capital markets professionals’ job is to try to reach an agreement that both the company and investors will be happy with.

 

Work

Your main goal as a capital markets employee is to make the deal go through and make both your client and investors happy. This is much easier said than done. As a capital market analyst you can expect to be involved in multiple tasks around the deal offering. These tasks might include pricing the deal, dealing with investors, organizing road shows, writing pitch books, or producing sales memos.

As we talked before, the deal has to be priced fairly and preferably make both sides happy. For pricing a deal, capital markets have to consider what the company wants to get and what investors are willing to pay. The communication between the two sides goes back and forth until the agreement is reached, or until company decides that it doesn’t want to proceed with the offering because it is unfavorable for them. Remember that the market always has more power than the company since they’re buyers.

You will have to help companies present their story to investors. This is done through so-called road shows. A road show is nothing more than an organized set of meetings where the company meets with the main potential investors and presents their story to them.  An investment bank serves as a coordinator between the two.

Finally, you will be working together with the fellow investment banking analysts, research, and sales force in creating pitch books and sales memos. Pitch books are created in order to show your client how great your bank is, that you’ve done research regarding their situation, and to present your valuation models. On the other hand, sales memos are created as a supporting document to sales force. So when they speak to the institutional investors and try to convince them to buy a certain security, they can have all the relevant information and arguments at one place.

 

Skills

Since capital markets are kind of a hybrid between investment banking and S&T, your skill set should also be somewhere in between the two skill sets for those jobs. It is always helpful to be detail oriented and very analytical. However, you will also find yourself working against time when trying to get the deal through. You can expect to develop good interpersonal skills because you will be dealing with a lot of clients.

On a relative basis, you will do much less modeling than investment bankers do. Therefore, if you want to become a financial modeling expert, you will either have to practice it on your own schedule, or consider working for an investment banking group.

Finally, you will learn how to keep private information private. It is extremely important for capital markets analysts to be able to know what information they can and cannot share. Remember that you will serve as a bridge between the private and public side. You will have to be extremely careful about not saying private information to the public side.

 

Career Path

Career path of a capital market analyst is very hard to generalize. People who start in capital markets usually continue their career in the same field and move up the ladder. The skill set that you get as a capital market person is transferrable, but it will serve you the best if you stick with the field.

 

Lifestyle

Once again, being a banker is tough work! You will work around 12 – 13 hours on weekdays, and have fairly flexible weekends. This doesn’t mean you won’t work on weekends, but definitely less than investment banking analysts. Capital markets people usually come to the office between 7:00 and 8:00 am. The hours are much more predictable than in banking, which means you can have life outside of work. All in all, being a capital markets guy/girl can be great. You still get all the benefits of Wall Street and you can have more predictable life.

 

Compensation

Capital market compensation mirrors investment banking compensation. Year-end bonuses might be slightly lower than your fellow bankers, but when you consider other factors (e.g. work-life balance), even slightly lower pay seems like a better deal. The numbers are following:

  • Signing bonus: ~$10,000
  • Base salary: ~$70,000 – $90,000
  • Year-end bonus: ~$30,000 – $60,000