“Morgan Stanley offers $200,000 to IIM student for Investment Banking role!” reads a newspaper article. What is Investment Banking (familiarly called ‘I-banking’), and why is it so ‘hot’??
Lots of people think, given the name, that I-banking means to manage the investments of clients. Not so! Investment banking, firstly, is a service offered to a business, not an individual. Secondly, it is to do with raising funds for the business, not investing it.
Also, since this is a pure Advisory service, any one – not just a bank – can offer ‘I banking’. You have a 1-2 people firms to large multinationals such as Goldman Sachs.
The two main businesses of I-banking are:
- Merchant Banking or Issue Management
- Mergers and Acquisitions
Merchant Banking or Issue Management, is the Advisory service offered to companies, helping them with raising funds in the financial markets. You will have heard of an Initial Public Offering, or IPO, when a company is offering its shares to the public, for the first time. A Merchant Banker will be advising the company throughout the process.
Mergers & Acquisitions, also called M&A, is the more glamorous I banking service. Here, an Investment Banker advises companies which are either buying other companies or being bought themselves.
For example, when Crisil recently bought Pragmatix Services, for about USD 8.5 Mn, both parties would have hired an I banker ; who would charge a fee, which is a percentage (2-3%, usually) of the deal value.
Another type of I banking service gaining popularity is Venture Capital & Private Equity (PE) funding. Here, a fund invests in a company, by buying some of its shares. VC funds invest in established startups, while PE funds in mature companies. People working in such funds, are also called ‘I bankers’.
Now that we understand what I banking is , let us see, what are the entry level roles and what courses, will prepare us for them.
It is important to understand that, I banking front office firms hire very few people, as the requirement is small. The other option is, to join a KPO. Such a company does the initial research required, for its parent firm.
For example, a Goldman Sachs KPO in India, will handle all the initial work such as preparing Excel models, Powerpoint presentations, initial data base research for possible acquirers/ acquirees, for Goldman Sachs, globally. These KPOs hire in larger numbers and are easier to get into.
The entry level role, is that of an ‘Analyst’, whether you are joining an Ibanking front office or a KPO. You will remain there, for 3-5 years. The big pay however, happens in the front office firms – that is, the main I banking business. The bonuses made by the team are spread around generously in this small team, that’s why it’s ‘hot’.
In either case, the competition to get in, is fierce! Only the ones who show a genuine interest in I banking, along with some initiative and relevant skills, stand a chance.
That’s where a good course plays a role. This course should give you the required knowledge; as well as display the interest and initiative you have. It should lead on to a recognized certification, which will help your CV stand out.
Here, we are talking about value added courses. That is, those which add value to your basic qualification – which ideally, should be a good MBA.
You have two choices for such Investment Banking courses– either go for a classroom course, or an online course. Let us understand how to choose between them: