The financial world relies heavily on investment bankers. This explains why the industry has grown to $379.9 billion over the past five years. They enable companies to raise money in the form of stocks or bonds. But, still, many of us often wonder, what does an investment banker do? Simply put, they analyze financial information and market trends to provide the best advice. However, their role in the banking industry is more than that. Keep reading to learn more about investment bankers.
Roles of an investment banker
Investment bankers are a big part of the finance business. They facilitate raising money for companies, governments, and institutions. If you want to know what an investment banker does, you will find the answer in this detailed discussion.
1. Raising capital for companies
One of the primary tasks of an investment banker is to assist companies with money-raising. To achieve this, shares or bonds are issued. Then, they become the medium of advising the firm on how much money to raise. Investment bankers also enable companies to meet investors. This is beneficial when the companies desire to grow or initiate new ventures.
2. Helping with mergers and acquisitions
Mergers and acquisitions have much to do with investment bankers. This implies they facilitate mergers or acquisitions of other companies by companies. They research to find good business partners. Furthermore, investment bankers take charge of the deal structure and negotiation. It smoothens the process and eliminates risks.
3. Giving financial advice
Aside from raising money, what does an investment banker do? They provide expert financial advice. This can be related to the company value, market, or business trends. One of their main jobs is advising companies to be smart in their financial decisions. Their advice comes from research, numbers, and experience, too.
4. Managing initial public offerings (IPOs)
An IPO is when a company goes public for the first time and sells shares. Investment banks oversee this entire process and assist in getting the right price to ensure that everything legal is taken care of. They also market the IPO to investors, helping the company list on the stock exchange.
5. Risk management
Investment bankers assist companies in understanding financial risks. They assess what could go wrong with deals or investments. Next, they suggest how to lower those risks, which is essential for safeguarding the company’s money and reputation.
6. Trading and market making
Some investment bankers deal in stocks, bonds, or currency trading. They also play the role of market makers, which means that they facilitate a market between buyers and sellers by providing prices to each side. This makes the market vibrant and free of corruption.
7. Building investor relationships
By now, you already understand what does an investment banker do. However, you need to know their significant role in maintaining investor relationships. Thus, these experts maintain contact with investors and answer their questions. This way, the trust is developed, and future fundraising facilitation is facilitated. Effective investor relations are central to a company’s long-term success.
8. Conducting research and analysis
Research is time-consuming for investment bankers. They research industries, markets, and company data, which allows them to give precise advice and make good deals. Their research underpins all other roles they have played.
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Conflicts of interest
Conflict of interest arises when employees’ private or outside business interests interfere with their official responsibilities. However, this is not always the case.
- For instance, an employee might prefer a vendor with whom he has a personal connection even though the vendor is not the best for the company. Such situations are usually concealed and difficult to discover during normal audits if the individuals involved are not reporting.
These unsettled conflicts of interest may lead to serious problems, such as poor company decisions, legal issues, damaged reputations, and loss of trust among the company leaders. In response to these concerns, investment banks put up internal measures called “Chinese walls” to split teams with conflicting projects. Authorities often demand that clients be clearly informed about potential conflicts.
Down times
When people hear the word “investment banker,” they tend to picture fast trading floors in skyscrapers and 7-figure deals. But even investment bankers go into downtime, though not in the manner you might perceive.
To be sure, “downtime” in this profession often equals 60-hour weeks versus 80. So, this is what investment bankers do during this situation:
- Investment bankers catch their breath, refresh pitch decks, do market research, or scan potential clients during economic downturns or low deal flow.
- The break can be used for networking, setting up internal meetings, and organizing future engagements. Investment bankers are gearing up even in a sluggish deal environment.
But actual downtime, such as a vacation, personal time, or a weekend off, is rare, particularly for junior bankers. The competitive nature of investment banking means that professionals are always “on,” responding to client needs or preparing presentations when the going gets tough.
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Demographics
The investment banking world has traditionally been male-dominated, with the highest percentage of graduates coming from the Ivy League or top-tier B schools. However, this is slowly changing. The industry is adopting diversity in gender, ethnicity, and educational backgrounds to a broader extent. Most firms are currently operating diversity hiring programs and mentorship programs to attract less-represented talent.
Pattern-wise, typical investment bankers at the analyst and associate levels tend to be in their 20s or 30s. Entry-level analysts are typically recent graduates in finance, economics, or business, and associates are often people with MBAs. At higher levels, there is greater diversity in terms of age and experience; VPs and MDs come with tons of experience.
Getting started
So, what does an investment banker do? And what does it take to become one? Investment banking helps firms looking to raise capital (debt or equity), advises on mergers and acquisitions (M&A), and recommends strategic financial perspectives to firms. Usually, the process goes something like this:
- Education: The first step is having a bachelor’s degree in finance, economics, or a related discipline. Many people also pursue MBAs to climb up the ladder.
- Internships: These are crucial. Full-time offers are logical progressions of summer analyst internships with big banks.
- Networking: Having someone know you in the industry can be the difference between an interview and no interview.
- Recruitment Process: This means several technical rounds of interviews, case studies, and behavioral questions.
- Entry-Level Roles: They spend most of their time as analysts or associates writing financial models, pitch books, and deal logistics management.
Explain it to me like I’m five
Imagine a person wanting to purchase a huge toy shop, but has no idea what to pay for it or how to raise the funds. At this point, an investment banker comes in. They determine what the toy store is truly worth and help the buyer locate individuals who will provide or invest this money to purchase the toy store. They also ensure that all complicated paperwork is managed correctly and that both parties agree to the deal.
If you are still wondering what an investment banker does, they are mature counselors knowledgeable about money, business, and wise decisions. They assist large companies in interacting with each other, making big moves, and avoiding costly mistakes. Although the job can seem fancy and complicated, it is a job of being a smart guide for businesses that require help in making huge financial decisions.
The bottom line
Do you want to understand what an investment banker does? They advise firms on how to raise capital, merge, or even go public. Not only that, they develop complicated models, prepare presentations, contact customers, and negotiate.
Although the job involves long hours and high stress, it has great benefits, such as big bonuses, prestige, and a great career track. To sum up, investment bankers play a significant role in the financial ecosystem. They help businesses develop and grow by serving as links to capital and strategic opportunities.
FAQs
1. What is it that a real investment banker does?
Investment bankers play a vital role as far as companies are concerned. They assist in raising capital, advise on mergers and acquisitions, and provide strategic financial advice. In other words, they are middlemen between businesses and investors, ensuring a deal is correctly structured and executed.
2. What exactly does investment banking do?
Investment banking offers financial advisory services to corporations, governments, and institutions. It enables them to collect funds by issuing stocks or bonds, merging with other companies or acquiring them, and advising expertly on major financial deals and business strategies.
3. What are the three main functions of an investment banker?
Key investment banking activities include capital raising, mergers and acquisitions, advising services, and market–making or market–trading activities. These functions assist clients with expanding, restructuring, or maneuvering difficult financial markets.
4. What are the roles and responsibilities of investment bankers?
An investment banker analyzes financial information, prepares valuation models, creates pitch books, and negotiates deals. They also handle transactions, provide consulting to clients, and ensure compliance with regulatory and market standards.
