Finance Job Description

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Corporate Finance:

Corporation Finance is either a divisional or functional area within a corporation dealing with financial responsibilities relating to Treasury, Operations, Marketing or Accounting.  In a Corporation Finance position, an MBA may be responsible for modeling, special project analysis, merger/acquisition analysis, debt/equity structuring,  management/investment of cash reserves, budgeting, financial planning, strategic analysis, accounting issues.  These opportunities vary depending on the organizational structure and the MBAs placement within the organization.

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Investment Banking

Investment banks serve two major constituencies: organizations that need capital in order to operate, and institutional investors that have capital to invest.  Investment banks act as middlemen; they help companies and governments raise money at reasonable rates and help investors find a good return.  
Investment banks perform the following major functions:

1. Act as matchmakers between those who have capital and those who need it.
2. Lend and invest the bank's own capital
3. Provide and execute financial advice for organizations
4. Develop research and opinions on securities, markets, economies
5. Buy and sell securities on behalf of investor clients
6. Manage investment portfolios
7. Trade stocks and bonds on their own behalf in order to make profit

Most investment banks organize themselves on three dimensions: functions, products, and clients.  People within the bank specialize along one of these dimensions:

1. Functions--Investment banking (Corporate Finance), Mergers and Acquisitions (M&A), Sales and Trading, Research
2. Products--Equity, Fixed Income, Real Estate, Private Placements, High Yield
3. Clients/ Industries--Telecommunications, Oil and Gas, Financial Institutions, High Tech., Media and Entertainment, etc.

When people refer to investment banking they are typically referring to either the Corporate Finance group or the Mergers & Acquisiton group within an investment bank.  Corporate Finance helps companies raise capital through debt and equity.  M&A advises a corporation in the process of merging with, acquiring, or selling a business.

The leading investment banks including Merrill Lynch, Salomon Smith Barney, Morgan Stanley Dean Witter and Goldman Sachs are said to be in the bulge bracket. Other investment banks are regionally oriented or situated in the middle market (e.g. Piper Jaffray). Others are small, specialized firms called boutiques which might be oriented toward bond-trading, M&A advisory, technical analysis or program trading.  

Investment banking is a relationship business.  Investment bankers build long-term relationships with large corporations in the hope of acting as their advisor on all financial matters.  For their guidance in raising cash or negotiating a merger, investment bankers earn fees based on a percentage of the total sum of money that changes hands.

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Private Client Services

This is a division within an investment bank that concentrates on managing the assets  of high net-worth individuals, usually defined as those with investible assets exceeding $5MM.  A career in PCS requires a strong interest in sales and the financial markets.  It can be a highly rewarding field, but compensation is almost totally dependent on individual performance.  After the first two years, the pay is linked exclusively to fees generated on a percentage of client assets managed.

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Asset Management

Portfolio managers hold stocks, bonds, and other assets (real estate, derivatives, etc.) for institutional and individual clients.  Because they are the end consumer of investments and research, they are referred to as the "Buy Side" of Wall Street.  Depending on the size and composition of the assets under management, portfolio managers use strategies ranging from strictly quantitative, to passive (indexing), to active management.  

MBAs enter the Investment Management industry as an analyst researching individual sectors or industries.  Alternately, the MBA could be asked to focus on particular asset classes.  As a research analyst, the MBA makes recommendations to his or her portfolio managers as to which securities are appropriate investments in a given industry or asset class.  Successful research analysts will earn portfolio management responsibility.

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Private Equity-Leveraged Finance & Venture Capital

Venture Capital firms take equity positions in start-up companies prior to an IPO.  These firms provide financial expertise, industry expertise and a networks of contacts to their portfolio companies to help them grow.  An associate with a venture capital firm will be responsible for reviewing company business plans, performing industry analysis to determine the market size of the opportunity, evaluating management's capabilities, developing valuation models for the firm, conducting the due diligence on investment opportunities (reviewing strategic partnership agreements, calling references, reviewing management's projections and the validity of the assumptions driving those projections, etc.), and monitoring/advising portfolio companies.  

Leveraged Buyout firms take equity positions in firms that results in the purchase of a significant portion or majority control of the company.  These transactions are typically highly leveraged and utilize high yield debt extensively.  The goal of the LBO is to restructure the company in a fashion that it is more valuable than at the time of purchase.  This restructuring can come in many different forms but always requires a considerable amount of financial engineering and capital structure manipulation.  An associate will be extensively involved in developing different financial models (cash flow projections, asset sale projections, break up valuations, capital structure implications on cash flows and rates of return, etc.), conducting the due diligence on companies (calling references on proposed management team, reviewing projections and the validity of the assumptions driving those projections, evaluating contingent liability exposure, calling potential buyers of different business units that could be spun off, working with the auditors, etc.) and monitoring portfolio companies.

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Sales & Trading

All major investment banks have sales and trading departments.  These departments serve two clients: their own bank, for whom they trade to make money, and their clients, whose investing and trading needs they serve.  

Sales:  The salespeople, also called the institutional sales force, cover institutional investors. Most banks have a separate department that caters to wealthy individuals, but othwerwise have no retail business.  The salespeople's mandate is very broad: He/ she is to use all the firm's resources to serve an investor's needs.  After developing an idea of a customer's investment preferences, the salesperson will provide the customer with market information and investment advice (gleaned from colleagues in trading and research).  

The salespeople will also help the customer buy and sell securities by acting as a liaison with traders, who actually execute the orders.  Salespeople's annual bonuses reflect the "credits" they earn for these transactions.  Salespeople call on ten to twenty institutions each, interacting with a client who has investment responsibility.  Beyond the debt-equity distinction, a salesperson is either a generalist covering several types of products (treasury bonds, corporate bonds), or a specialist covering just one product.  Generally, investment banks set up specialist groups for more complex products, such as mortgage-backed debt or convertible bonds.  Because salespeople from rival banks also call on the client, each salesperson searches for ways to encourage the client to take his calls and value a business relationship with them.  

Salespeople have different styles of serving clients:  Some use a relationship approach, while others like to use an analytical approach and provide clients with data.  Junior salespeople perform backup work for others for several months, then are assigned small accounts of their own, with the idea of limiting the damage they can do to the firm when untrained.

Trading:  Traders differ from salespeole in that they take risks with the firm's capital.  In other words, they are able to buy and sell securities.  Securities traders deal in products ranging from straight equity or debt to derivatives, convertibles, and other complex securities.  Typically, traders work with just one product and/or maturity range.  On the trading floor, they are grouped according to specialty.  Specialty areas are called "desks," as in the Foreign Exchange Desk or the Equity Convertible Desk.  

Traders may work with investment bankers from the corporate finance group of the bank in cases where the structure of the security determines whether the security gets sold or issued.  Some trading areas see more active trading than others; in areas with larger deal flow, it is unlikely that the trader will be performing much analysis, because he has little downtime between trades.

Traders and salespeople have a mutually beneficial relationship.  Salespeople provide traders with information on investment opportunities and market demand for securities.  Traders provide salespeople with price quotes on securities and provide liquidity to the latter's customers by buying securities they want to sell.  Salespeople earn commissions when a trader makes a trade on information they've provided

sanpao

thank you, it really broadens my vision!