Banking Investment Placement Private by Richard_Cataman


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									                                                                KENAN-FLAGLER FINANCE CLUB

Finance Club Clarifications

1. Kenan-Flagler and the Finance Club divide the finance world into three distinct categories,
   and there are many divisions within each category (as described later):
    Industry Finance
    Investment Banking
    Sales & Trading (includes Private Client Services, Research and Portfolio Management)

2. What is an Investment Bank?
   In summary, investment banks (depending on their size) provide the following services to
   companies, institutions and individuals:

               Capital Raising
               Advisory (M&A)
               Merchant Banking
               Sales
               Trading
               Research
               Asset Management

3. Commercial Banks vs. Investment Banks vs. Merchant Banks
    Commercial Banks make loans to businesses, and they earn money from fees and interest
    Investment Banks raise capital, sell businesses, and broker shares, and they are paid on
      commissions and fees.
    Merchant Banks lend and invest their own capital and their clients capital in businesses.

4. Investment Banking vs. Sales & Trading
    Investment Banking designs and structures deals.
    Sales & Trading sells and makes a market in the deals.
    Hours, work ethic, personality and skill set for Investment Banking is completely
       different from Sales & Trading

5. Sell Side vs. Buy Side
    The sell side are the investment banks who construct and sell deals to investors.
    The buy side are the investors (i.e., hedge funds, mutual funds, pension funds, large
       financial institutions and individuals) who buy the deals from investment banks.

Industry Finance

1. Financial function within a corporation (i.e., Corporate, Group or Division).
2. Positions available in various areas:
    Treasury
    Financial Planning & Reporting
    Strategic Planning / Budgeting
    Business Development Finance
    Product Development Finance
    Sales and Marketing Finance
    Capital Markets Finance
                                                                 KENAN-FLAGLER FINANCE CLUB

Relative to Investment Banking and Sales & Trading, the hours in Industry Finance are minimal
(~40-55 hours/week). In other words, there is a great life style in Industry Finance.

Investment Banking

Investment Banking consists of three functional areas, all interrelated:
1. Corporate Finance
     Role in which the investment bank raises money for corporate clients and public
       institutions in the form of equity, debt convertible or other derivative securities through
       either a public issue or private placement.
2. Mergers and Acquisitions
     Role in which the investment bank acts as an advisor to a company that is in transactions
       involving the purchase or sale of a whole company, a division or certain assets.
3. Merchant Banking
     Role in which the investment bank acts as a principal in a transaction, either by buying or
       selling a stake in an M&A transaction or by purchasing newly issued securities of a firm.
4. Advisory/Financial Consulting
     This area is linked to all of the above activities. Advisory and consulting includes capital
       structure analysis, comparable analysis, industry research and various forms of fairness

Investment Banking requires (in no particular order):
 Strong leadership skills and enjoy working in groups
 Hard working and willing to work long hours (and weekends)
 Analytical and detail oriented
 Comfortable with numbers and computers

The greatest generalization in Investment Banking is the hours and the lifestyle. For the most
part, bankers sacrifice much of their lifestyle – all-nighters and weekend work is common. Wall
Street bankers work 80-100+ hours/week. However, hours vary by bank with regional banks
working fewer hours than Wall Street banks.

Sales & Trading

S&T is the investment bank’s distribution arm. It is responsible for selling and making a market
of all the financial products (equity, fixed income, convertibles and derivatives) developed by the
investment banking department. On an institutional level, customers include pension funds,
mutual funds, hedge funds, insurance companies and high net-worth individuals.

Under the KFBS Sales & Trading umbrella include Institutional Sales & Trading, Private Client
Services, Research and Portfolio Management.

1. Institutional Sales & Trading
    Sales professionals develop strong relationships with institutional investors (buy side)
       and serve as a quarterback of the firm’s investment bankers and research analysts to their
       institutional clients.
    Traders are responsible for taking positions and making markets in stocks that the firm
       may cover. They not only advise salespeople, clients, and research analysts on
       individuals stocks and market activity but they also manage the firm’s risk vs. the market.
                                                                 KENAN-FLAGLER FINANCE CLUB

If you are analytical and have strong people skills, Sales is for you!
If you live for non-stop action and can handle multiple tasks at once without leaving the seat of
your chair, Trading is for you!

Overall, Institutional Salesmen and Traders have a completely different lifestyle than investment
bankers. The typical workday begins at 7am and ends at 5pm. No weekends. Nevertheless, the
day is much more stressful and active than the investment banker and requires a lot of

2. Private Client Services
    PCS is the investment management division for high net-worth individuals. Investment
       Representatives are typically generalists and offer all the services of the firm (equities,
       fixed income, derivatives, private equity and asset management) to high net-worth

If you are entrepreneurial and enjoy working with sophisticated high net-worth investors, PCS is
for you! If you do not like sales, entertaining and making “cold” calls, PCS is not for you.

Basically, PCS is extremely stressful and difficult the first two years as one builds up a client
base. However, it can be one of the best jobs imaginable after one establishes a book of clients.
The typical day begins at 7:30am and ends at 6pm. Weekend work is rare but frequent
entertaining is a standard.

3. Research
 Equity and Fixed Income Research (especially Equity) is critical to investment banking, sales
   and trading for the typical investment bank. Analysts who become widely followed and
   respected can move markets in one sentence. Research incorporates quantitative research,
   industry research, market strategy research, economic research and individual company

Research requirements:
Analytical and detail oriented
Passion for the industry/coverage area
Convincing writer and oral presenter
Strong, decisive decision-maker
Hard working and willing to work long hours (and weekends)
Comfortable with numbers and computers

Overall, Research is very similar to investment banking – hours can be long and you must have
strong analytical skills. While the hours may not be as harsh as investment banking (~60-80
hours/week), research analysts have a lot of responsibilities to juggle – investment banking, sales
force, traders and buy side investors.

4. Portfolio Management
    Portfolio managers are the customer to the sell side and hold all the power - $$$. They
      essentially manage portfolios (the asset are given to them) according to their firm’s view
      on the asset class (equity, fixed income, currencies, etc) and the market and economy as a
      whole. Their focus is buying and selling securities based on the fund’s objectives, and
      they are rarely involved in raising capital for their portfolio(s).
                                                                     KENAN-FLAGLER FINANCE CLUB

       It should be noted that this is perhaps the most difficult job to get because there is huge
        demand for this position and little supply. Most portfolio managers begin as buy side or
        sell side research analysts.

There is no generalization on portfolio managers and their lifestyle. They typically work from 8am to 6pm.
However, some work more (hedge fund managers) and some work less (high net-worth portfolio
managers). Their jobs however can be very stressful given the risks involved with managing large amounts
of other people’s money.
Finance Flow Chart
                                                                            KENAN-FLAGLER FINANCE CLUB

                                                     ABC Inc.
                                              "Industry Finance"
                                             Needs to raise capital:
                                                Debt or Equity

 Commercial Bank                           KFBS Investment Bank                             Merchant Bank
 Makes a loan to ABC and                Corporate Finance Department                      Makes equity investment in
 receives interest payments             Underwrites a debt or equity offering by           ABC with its own capital
                                              placing a value on ABC Inc.

                                                 Sales Department                                NASDAQ
Research Department                    Institutional Equity Sales                                 Trader
Analyst initiates coverage             Private Client Services
      of ABC Inc.                      Fixed Income Group                                          Listed
                                          The salesmen above sell the deal                      Sales Trader
                                             to their respective clients.

                                     XYZ Capital Management

      Buy Side                                Portfolio                              Buy Side
  Research Analyst                            Manager                                 Trader

                       KFBS                                    KFBS                               Block
                    Floor Broker                            Floor Clerk                           Trader

                   Specialist Post
                   Makes a Market
                    in ABC Inc.

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