A Typical Structure of an Investment Bank
Now that you have a glimpse of what investment banking is, the next step for you is to figure out what type of roles an investment bank offers for candidates. Being one of the oldest and sophisticated industries, there are various divisions inside an investment bank. Throughout the recruiting process, you will definitely be questioned on “why” you choose to apply for this division rather than other divisions. A strong understanding and commitment towards your chosen role is essential for you to at least not fail your interview at the starting point.
A typical bank is usually segmented into 3 categories: the front, middle and bank office.
The front office describes divisions that generate the highest share of revenue for the investment bank which can be further segmented into 5 main areas: investment banking, capital markets, research, asset management, and wealth management.
The Investment Banking Division (IBD) assists firms in raising capital through debt and equity capital markets, and provides advisory services on mergers and acquisitions (M&A) and other corporate transactions. The IBD is commonly divided into 2 groups: products and industries. Product groups are differentiated by the services or financial products provided to clients such as Equity Capital Markets (ECM), Debt Capital Markets (DCM), Leveraged Finance, as well as Merger and Acquisitions (M&A). Industry/coverage groups are differentiated by what types of clients the groups serve. Typical sectors include Healthcare, Technology, Media, Telecom (TMT), Financial Institutions Group (FIG), Natural Resources, Consumer & Retail (C&R), Industrials, Real Estate, etc. Industry groups cover all companies within their specialized industry. However, the granularity of segmentation is constrained by the team’s size. In Malaysia’s case, it is highly unlikely to have so many industry groups given smaller sized teams.
Both teams will collaborate with each other in a deal. Product groups gain exposure to different industries given the clients’ nature whereas industry groups get exposure to a variety of financing means. For instance, in an IPO deal, industry groups will work closely with clients to understand the business model, draft IPO prospectus, etc. On the other hand, product teams will be more involved in investor marketing and tracking market sentiments.
The Capital Markets Division (CMD) assists clients to buy and sell financial products, raise funding and manage risk. This role typically covers sales and trading (S&T) activities of fixed income market, equity market, commodities market, forex market and high margin business such as structured products and derivatives. The sales team will maintain a close relationship with clients, advise clients on portfolio allocation, and sell financial products to clients ultimately. On the other hand, the role of traders is to execute trades (clients’ demand) at the best price and hedge risk.
The Research Division provides detailed company and industry research reports to support and make recommendations for S&T, AM and institutional clients on whether to buy, sell, or hold public securities. Notice the Chinese firewall between the IBD and Research Division? This is to prevent inside/nonpublic information from being “shared” from the IBD to the Research Division. Also, although the research division does not generate revenue directly for the bank, it is still considered as a front office.
The Asset Management Division (AMD) provides investment and advisory services for external institutions such as pension plans, sovereign wealth funds, insurance companies, endowments, and foundations. The AMD is further segmented into different divisions given its investment product nature. The common ones are private equity, infrastructure, and real estate.
On the other hand, the Wealth Management Division (WMD) serves the needs of (ultra) high net worth clients with personal financial solutions to address the complex challenges of managing significant wealth. Essentially, this role is somehow similar to roles in AMD, however your facing client would be some multi-billionaires who seek personalized advice in terms of allocation across different asset classes. Investment products and strategies sought by these clients are significantly different from institutional investors. While both WMD and AMD focus on building long-term relationships with clients, WMD places a higher emphasis on fostering one-to-one personal relationships with individual clients.
As shown, each division differs in their job nature, working hours and “stress causes”. The IBD and Research Division and well-known for long-gruelling working hours. Divisions such as capital markets do enjoy better and more structured working hours as compared to IBD given their work mainly revolves around market hours. However, since you are working with a highly volatile and unpredictable market, most likely you will find yourself working in an extremely strenuous and very fast-paced environment throughout the day.
To sum it up, opportunities at investment banks are not just limited to IBD, there are a myriad of opportunities for you to explore within an investment banking firm as well. Also, although this article does not deep-dive into the middle and back-office roles within investment banks, please do not be fooled by the misconception that they are inferior to the front office positions. Essentially, finding a role that best fits into your personality, and aspiration is much more important than how “glamorous” the title is.
Want to know more about unfiltered Insights and pathways into investment banking? Stay tuned for our upcoming parts of this series, which dissect in more detail of the investment banking industry.