Ask a banker what do investment bankers do and you might be surprised.
The answer is: they sell money to companies.
Of course, while looking up online articles and papers about investment banking, you will find nicely wrapped answers, in the so-called ‘business vernacular’ that tend not to be extremely precise.
However, if you were to get a tete-a-tete with an investment banker and ask him or her this straightforward question, this is the answer you’re going to get. Curious as to why? Let’s take a closer look.
Understanding the basics of being an investment banker
To understand what do investment bankers do, let’s take an example. Let’s presume that a particular company, called Company X, needs to get more money. They need it to build a production facility or a factory, in laymen’s terms, or they have to hire more employees. One way the company can get a hold of more money is by issuing bonds or stocks.
As investment bankers put it themselves, to issue bonds or stocks means actually to borrow money from some strangers. Of course, the process is a lot more complicated than that, so this is where you, the investment banker, come in. You need to convince people to invest in Company X by buying those stocks and bonds. Therefore, through you, Company X relinquishes the rights to parts of itself in exchange for money. This agreement is legally formatted by said stocks or bonds. The relationship between Company X and its investors, as well as the legal procedures, the paperwork, and the consultancy, all fall into your care.
At this moment, you need to take some time out and think if this is the right path for you. Do you have what it takes to be the person handling this kind of responsibility and money? If so, read on, because we have some excellent advice for you to get to that point.
Another question you might be asking yourself at this stage is why would Company X and its investors need you to handle the transactions. Simply enough, because you’re lucky and because most companies don’t actually know how to trade. They need an advisor, or a middleman, if you will, to do it for them. And, seeing as this is such an outstanding job for them, they are willing to pay you huge amounts of money to do it.
Continuing the process, once you, the investment banker has decided and settled upon the investors, you need to perform ‘due diligence.’ Lightly put, you have to ensure that Company X’s accountants say that its financial situation is exactly what they say it is. They will write what’s called a ‘prospectus’ for you in which they will explain exactly what are the risks and profits of buying the stocks or bonds in question.
The last step of the process you, the investment banker, needs to do is to take this prospectus up to the Sales and Trading departments within the bank you’re working for. These colleagues of yours are the ones who get to go out and convince companies, mutual funds, hedge funds, rich and less rich people to buy all those stocks and bonds so that you can make as much money as you can for Company X.
What do you do during all these procedures? You get to relax, prod them along, make sure they do their job, and they don’t take a lot of time doing it. Also, you hope for the best.
One piece of advice here, from investment bankers all over – never worry about the prospectus. Nobody reads it.
This is the simplified, light, and nice version of the answer to the question ‘what do investment bankers do?’ Evidently, all the steps of the process are highly complicated and require a lot of work and knowledge on your part. Building on this statement, let’s take a look at what you actually need to do to become an investment banker.
What to do to become an investment banker
When it comes to acting upon this matter, there is a trifecta of factors you need to do. Not take into consideration, but do. The trifecta is academia-internship-work. Here is a detailed look at these steps and all the actions you need to take.
While you will find quite a few testimonials online from people saying they made it into the business with college degrees that are not field related, do not rely on them. They are true, indeed, but these are exceptions that happen so seldom it’s not a good idea to bank on them, pun intended. You will see why when you understand the underbelly of investment banking. It all starts with the way people get hired in investment banks.
The demand for an IB job is so high, that there are some 10 applicants per job at every bank out there, no matter how big or small. This is what renders job advertising moot for banks. They don’t even bother to parade their openings on the market, as they know people will come to them. And people do. However, since the jobs are not advertised out in the open, i.e. in newspapers or online, only the ones in the field know about them. This brings us back to college degrees. If you’re not in the field, it’s almost sure you won’t even hear about an opening, especially if it’s at a huge bank, such as Goldman Sachs or JP Morgan.
Second of all, investment banks are known to choose their future employees from Ivy League field related colleges. The professors there usually act as mentors and turn into a veritable link between the banks and the students.
Thirdly, academia matters not only for job networking but for the education itself. Banks hire people who have a working knowledge of their business, even if they have no experience. You will receive training, but you need to have the basics first.
Therefore, taking the above into consideration, what do you need to do regarding academia?
- Study as hard as you can in high-school
- Do not back down from subjects such as economics, calculus, and math
- Pass your SATs with as high a score as you can, because your degrees in high school will help you get into an Ivy League college
- Get accepted into an Ivy League College
- Graduate top of your class, because this is the only way scouts and banks will notice you and want to hire you.
- Do as much networking as you can during your education years. Make yourself known from an early age, by participating in training and conferences.
This particular step if pretty straightforward. After you graduate from college, you absolutely must sign up for an internship. It’s the best and safest way to get into the world of investment banking, learn the secrets of the trade, get as good as you can, earn money, and, last but not least, make yourself know and coveted. Here are the best IB internships for 2016, which you need to apply to now.
- The HoulihanLokey Internship, which ranks 9.680
- The Evercore Advisory Summer Analyst and Summer Associate Program – 9.677
- The Centerview Partners Summer Analyst – NYC – 9.371
- The Perella Weinberg Partners Advisory Summer Internship Program – 9.293
- The William Blair Investment Banking Summer Analyst Internship – 9.255
- The RBC Capital Markets Summer Analyst/Associate Program – 8.781
- The UBS Summer Internship Program – 8.734
- The Goldman Sachs Global Summer Internship – 8.540
- The J.P. Morgan Corporate, Asset Management and Corporate & Investment Bank Programs – 8.522
- The Nomura Investment Banking Summer Internship Program – 7.880
Any investment banker out there, when asked ‘what do investment bankers do’ will tell you this – work. They will also inform you that they can’t possibly stress enough how important this is. As explained above, being an investment banker is not your ordinary 9 to 5 job. Far from that, it’s a job that will take over most of your life, with bountiful remunerations, awards, and personal gains. You will need to do the following.
- Network – this is one actionable verb you will need to imprint in your memory. Nothing helps an investment banker more than networking. The more people you meet and establish professional or even friendly relationships with, the better your chances are at doing your job greatly. Don’t forget that your job as an IB is to sell stocks and bonds to companies and funds. These, in the end, mean people. Win them over to your side and half your work is already done.
- Put in all the hours you can spare – 8 hours a day is not nearly enough when you’re an IB. Get up early in the morning, go to the office, and leave late at night. Why? Because ‘money never sleeps’, remember, so why should you?
- Participate – in absolutely anything you can and that is field-related. Trainings, internships, meetings, calls, actions organized by your company and so on. Be present and aware of everything that is happening. Let people know you’re on top of things and that you’re here to stay.
- Never stop learning – the financial market is a living organism. Treat it as such. Understand that what you’re dealing with are not numbers and figures in an Excel spreadsheet. They’re changeable entities that you must control.
- Cultivate your professional personality – given the fact that you need to work with people, your personality and people skills are crucial to the job. There is no room for shy people in investment banking. Put your foot in the door and a smile on your face. Develop your communication abilities, as well as your selling skills. Be charming, dapper, poised, and elegant. Via your behavior, show people they can trust you because they are putting all their money in your hands, after all.
- Cultivate yourself – believe it or not, the most successful bankers are the ones who have hobbies and interests you would never have thought about. They play in a band, go to wine tastings, are skilled in cooking, do surf-kiting, hike, and climb mountains like they were born to do it. Not only are they successful at what they do, but they also get picked by their respective banks to handle the biggest accounts.
The reason is the same. You have to deal with people in this job. Not any type of people, but rich ones. Chances are they will be interested in the very same things we listed above. If you relate to them at a personal level regarding these interests and hobbies, your account is in the bank, so to say.
Therefore, what do investment bankers do? We’ve given quite a few answers in this piece, one more interesting than the other. In the end, you’ll find the truth is in all of them. All you need to do is act on it.