The Purpose of Investment Banking - BYU Investment Banking Club

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					      Jobs in the
Investments Industry II:
Investment Management

      Bryan Sudweeks
        Winter 2008

    Jobs in the Investments Industry

 I. Investment Banking
   • Investment banking, Asset Management, Sales and
      Trading, Research
 II. Investment Management
   • Investment Management, Investment Research,
 III. Financial Planning
   • Investment advising, Insurance, and Estate planning
 IV. Corporate Finance
   • Pension Fund Administration and Management
 V. Financial Consulting
   • Pension Fund Consulting
I. Investment Banking and Investment
 Objectives
   • A. Understand the purpose of Investment Banking
   • B. Understand the purpose of Investment Research
   • C. Understand the divisions of Investment
   • D. Know where the potential jobs are in Investment
   • E. Know how to prepare for a career in Investment

   A. Purpose of Investment Banking

 An intermediary between the capital markets
  (investors) and corporations (borrowers)
 Offers strategic advice and financial analysis on
  Mergers & Acquisitions, Divestitures, and Capital
 Offers Equity and Fixed Income Underwriting (e.g..
  IPO’s, High Yield Offerings)
 Provides asset management advice to high net worth
  individuals and institutions
 Provides Sales and Trading of Equity (Stocks), Fixed
  Income Securities (Bonds), Derivatives (Options).
 Offers research and advice on publicly listed stocks
  and bonds to institutional and individual investors    4
  Structure of Investment Banks (continued)
                                   Investment Bank

      I-Banking             Asset                 Sales &
    Division (IBD)        Management              Trading

Industry Groups          Private Client          Buy and Sell
                                                                   Analyze all
  Corporate Finance      Services                Financial
                                                                   Public information
Product Groups           • Work with High        Securities
                                                                    in order to give
  M&A                    Net Worth Individuals   and Derivatives
                                                                   advice to
  High Yield
                                                                    investors and
  Debt Capital Markets
                                                                   sales and trading
  Equity Capital Markets

             Structure of Investment Banks (continued)
                                                              Investment Bank

                  I-Banking                   Asset                                  Sales &
                   Division                 Management                               Trading

                       Industry          Manage funds
   Product             Group                               Private Client
                                        for institutions
   Group               (Corp Finance)                         Services
                                        and individuals

Equity       Debt       High
                                                                            Fixed                                           Fixed
Capital      Capital    Yield    M&A                           Equity                 Derivatives   Economic    Equity
                                                                            Income                                         Income
Markets      Markets    Debt

                                         Consumer Products
                                         Technology                                                   Consumer Products
                                         Telecommunications                                           Technology
                                         Real Estate                                                  Telecommunications
                                         Utilities                                                    Real Estate
                                         Health Care                                                  Utilities
                                         Retail                                                       Health Care
                                                                                                      Retail                        6
        B. Purpose of Investment
 Major investment management divisions include:
  • Asset Management
     • Provide asset management services to investors
       and institutions including:
         • Private Wealth Management
         • Portfolio Management
         • Asset Allocation
         • Performance Attribution
  • Research
     • Provide research on public stocks and bonds
Structure of Investment Management

                         Investment Bank


     Private Client                        Analyze all
     Services                              Public information
     • Work with High                       in order to give
     Net Worth Individuals                 advice to
                                            investors and
                                           sales and trading

    Structure of Investment Management

                                                                                            Asset Management
                       Investment Bank


          Manage funds
                                      Private Client
          for institutions
          and individuals

Equity                       Derivatives                                            Fixed
              Income                                   Economic      Equity                    Derivatives

Consumer Products                                             Consumer Products
Technology                                                    Technology
Telecommunications                                            Telecommunications
Real Estate                                                   Real Estate
Utilities                                                     Utilities
Health Care                                                   Health Care                                      9
Retail                                                        Retail
    Top 15 Asset Management Companies
Rank              Firm            ASSETS UNDER MGMT (bill.)
1 Fidelity Investments                        $853
2 State Street Global Advisors                $785
3 Barclays Global Advisors                    $768
4 JP Morgan Flemming Asset Mgmt.              $604
5 Capital Group Cos.                          $589
6 Mellon Financial                            $537
7 Merrill Lynch Inv. Managers                 $529
8 Citigroup                                   $503
9 AXA Financial (Alliance Capital)            $481
10 Morgan Stanley Investment Mgmt.            $415
11 Vanguard                                   $412
12 UBS Investment Management                  $405
13 Allianz                                    $383
14 Amvescap (AIM / Invesco)                   $334
15 Putnam Investments                         $315
Source: Institutional Investor                                10
C. What are the Divisions of Investment

 Investment management divisions
   •   Investment Management
   •   Portfolio Management
   •   Operations
   •   Investment Research
   •   Private Wealth Management

    D. Potential Jobs in Investment
Where are the jobs in Investment Banking?
  • Most investment banking jobs are in analysis
     • Equity market analyst
     • Debt market analyst
     • High Yield analyst
     • Industry Analyst
         • Consumer products, telecommunications,
           real estate, finance, etc.

   Jobs in Investment Management (continued)

Asset Management                           Research

Research Analyst
Analyst                       Product
Senior Analyst                Group
                                                                       (Corp Finance)
Portfolio Manager
Partner                                                   Consumer Products
  Equity            Debt           High                   Telecommunications
  Capital           Capital        Yield                  Real Estate
  Markets           Markets        Debt                   Utilities
                                                          Health Care
            Assistant Analyst                             Retail
                                           Research Analyst                    Assistant Analyst
            Research Analyst
                                           Analyst                             Research Analyst
                                           Senior Analyst                      Analyst
            Senior Analyst                                                                  13
                                                                               Senior Analyst
Jobs in Investment Management (continued)
 What are the different types of analyst positions?
  • Analysts position vary depending on who they are doing
    research for, i.e., sell-side versus buy-side research
 What are sell-side analysts?
  • Analysts whose work is used for selling securities to
    investors, i.e. Research, Sales and Trading, etc. Analysts
    prepare the research for potential investors in the hope that
    investors will buy and sell companies through the I-bank
 What are buy-side analysts?
  • Analysts whose work is used in the process of buying
    securities for specific portfolios, i.e. Asset Management,
    Private Wealth Management, etc. Analysts prepare the
    research and then act on that research to buy companies.
        The Analyst Position (continued)

 Why are Investment Management analyst positions so
  hard to get?
  • They provide instant exposure to senior management teams
    of the largest companies in the world
  • They have the highest exposure, learning potential, and
    salary of any job in the Financial Services Industry (out of
  • They give opportunity to work in small teams, with learning
    from senior partners
  • After you have built experience in the field, it offers
    wonderful opportunities at top business schools and

• The median total compensation for investment
professionals is $170,000. Total compensation has increased
materially since bottoming out in 2003 due to positive
market conditions.
Source: CFAI & Russell Reynolds Associates - 2005 Investment Management
Compensation Survey
                                 < 5       5 - 10     10 - 20       20 +
                     Total      Years      Years      Years         Years
2005 Median        $113,000     $85,000   $105,000   $140,000      $160,000

2004 Median         $35,000     $15,000    $34,000     $55,000      $50,000

2004 Median           $5,000         $0     $4,200     $10,000      $12,000
Non-Cash Comp.

Median Total       $170,000    $111,207   $160,000   $233,750      $260,000

90th Percentile    $530,000    $252,500   $425,000   $670,000      $940,000 16
        The Analyst Position (continued)

 What are the skills gained as an analyst?
   • Financial modeling and strong quantitative work
   • Solid Understanding of Corporate Capital Structure &
     Capital Markets
   • Solid understanding of companies and industry composition
     and structure
   • Professional presentation analysis

     The Analyst Position (continued)
 What are the responsibilities of an analyst?
   • Financial Analysis and Modeling
      • Discounted cash flow and Free cash flow
      • Comparable company
      • Precedent transactions, and
      • Leveraged buyout
   • Client Exhibits and Presentations
   • Market research and competitive analysis
   • Client interaction
   • Roadshow execution management
    The Analyst Position (continued)

 What type of work do Analysts do?
  • Company Analysis (both buy and sell side)
      • Financial forecasting
      • Strategic analysis
  • Industry Analysis (both buy and sell side)
      • Strategic analysis
  • Portfolio implementation, construction, and
    reporting and attribution
      • Investment policy statement
      • Portfolio construction and management
      • Portfolio reporting and attribution
  • Whatever is needed to attain company goals and
    objectives                                       19
       The Analyst Position (continued)

 What are the criteria used to select analysts?
   • There is a record of achievement
        • A strong academic record
        • A balanced individual with extracurricular activities
        • A good employment history
   •   Strong communication skills
   •   Evidence of being a team player
   •   A tireless work ethic
   •   Attention to detail
   •   A strong analytical capability (with examples)

  E. How to Prepare for a Career in
       Investment Management
 Understand the industry, the positions, and the lifestyle
   • This is a wonderful but crazy industry
   • Are you suited for the lifestyle—very long hours
 Start building your contacts
   • Meet with as many of the visiting speakers as possible
 Do well in your classes
   • A strong GPA is important
   • Have a good financial analysis project to leave with
     potential employers as an example of your best work
 Look to beginning your CFA program
   • It is looked on highly in the industry
A Career in Investment Management
 Don’t get discouraged
   • Understand yourself and your goals
   • Work hard and be patient—Faith precedes the miracle
 Keep your priorities in order
   • Obedience is the first law of Heaven--do what you
   • He will help take care of the rest
 Follow the Spirit
   • Stay worthy of the Spirit
   • He is your competitive advantage--stay worthy of His
 Remember the Lord’s hand in your blessings
   • Always be appreciative of his blessings
   • Remember to share them with others                     22

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