Investment Banking Vs. Asset Management
Investment banking and asset management are two of the most prestigious and competitive areas in the financial services industry, typically attracting highly qualified candidates from top universities. Along with strong academic credentials, candidates must demonstrate solid numerical capabilities and financial literacy, as well as superlative written and verbal communication skills. However, a business degree is not necessarily required. Expertise in areas such as healthcare, technology, or telecoms can be a good fit for roles that require specialist sector knowledge. Degrees in fields like mathematics or physics are also in demand. Professional qualifications are another route to accumulating strong industry credentials and regulators usually require a minimum threshold of competence demonstrated by passing specific exams. Both careers demand more than the standard 40-hour work week, especially investment banking, but in return the earning potential is significant. In addition, both can offer excellent exit opportunities.
Key Learning Points
- Both career paths have high standards and require robust numerical and financial literacy, along with a range of soft
- Investment banks serve their clients by offering advisory services, raising capital through debt and equity issues, and representing clients in M&A transactions.
- Asset managers invest client funds. They generate investment ideas, construct portfolios, and are responsible for ongoing portfolio management.
- Investment bankers typically receive higher salaries, but are expected to work longer hours, usually including weekends.
What is Investment Banking?
Investment banking involves raising capital for clients ranging from public and private companies to institutions and governments. Investment banks may underwrite new debt and/or equity securities for clients and offer support through the sales process. They may conduct bond issues or raise equity capital through Initial Public Offerings (IPO). Other activities include assisting, advising and facilitating Mergers and Acquisitions (M&A), restructuring companies, and executing broker trades for institutions and private investors.
Day-to-day activities in investment banking are quite diverse and depend on the function and seniority of the position. On the brokerage side, equity analysts conduct research and make buy or sell recommendations, while other professionals conduct market-making activities by connecting buyers and sellers and providing liquidity. Their activities are separated from Investment Banking by a “Chinese wall,” or ethical barrier to prevent the exchange of information and conflicts of interest. The hierarchy varies across institutions, but university graduates typically start as analysts while MBAs come in at the associate level. The titles thereafter progress from vice president and senior vice president to managing director.
Investment banks are classified according to their size, based on trading volume, the number of offices, and the number of employees. They fall within four categories – regional boutique banks, elite boutique banks, middle-market banks, and bulge bracket investment banks (smallest to largest). The latter include large US names such as JP Morgan, Goldman Sachs, Citigroup, Bank of America, and Morgan Stanley, as well as HSBC and Barclays from the UK, the French BNP Paribas, and Societe Generale, the Swiss UBS and Credit Suisse, and Germany’s Deutsche Bank.
What is Asset Management?
Asset managers are responsible for managing the money of their clients. They manage investment mandates that differ in the objective, risk, and eligible instruments. The client base can be quite diverse as well, ranging from institutions like sovereign wealth funds and pension funds to insurance companies, wealth managers, financial advisers, charities, and individual investors. Investment managers manage portfolios across multiple asset classes – from equities and fixed income to real assets like property and infrastructure and more complex strategies such as private equity or debt, commodities, and derivatives. Normally, more complex and higher-risk products are offered only to institutions or high-net-worth individuals known as accredited investors. Individual investors are typically offered liquid, pooled products that offer daily or intra-day trading such as mutual funds or exchange traded funds (ETFs).
The hierarchy in asset management is relatively flat compared to investment banking. New graduates typically start at the junior analyst level and then progress to senior analyst roles. Analysts are responsible for producing investment ideas. The next step is portfolio management, where fund/portfolio managers make investment decisions in terms of portfolio construction, investment selection, and ongoing monitoring of existing and potential holdings. Company structures are different and some prefer to separate management responsibilities by having a head of research function, while others keep reporting lines to portfolio managers.
Asset managers also employ sales teams to take charge of product distribution and client relationship management. That includes marketing and data teams that build presentations for the use of both portfolio managers and clients. Sales teams are usually managed by the head of distribution and are split across different geographies, for example, EMEA or APAC. Local teams are headed by a dedicated manager who can use the company’s broader resources to provide clients with informational resources and marketing materials.
Education and Skills
When it comes to education and skills, both investment banking and asset management demand talented individuals who can demonstrate high numeracy, intellectual curiosity, and strong verbal and written communication skills. While a bachelor’s degree is considered a prerequisite for any role, many decide to pursue graduate degrees such as a Master’s in Finance or Master of Business Administration (MBA) after a few years of experience to advance their careers. Another way to demonstrate a higher level of competence is by obtaining professional qualifications. This route is more popular at asset managers, where qualifications like the Chartered Financial Analyst (CFA) designation, Chartered Alternative Investment Analyst (CAIA), or the Chartered Wealth Manager are highly valued.
The image below demonstrates the education expectations throughout a typical Asset Management career path. To learn more about the typical career path in Asset Management, including key responsibilities and experience, access the free download.
Both investment banking and asset management require specific skills like financial modeling, financial statement analysis, and strong knowledge of markets and economics. If you are looking to start your career in investment banking or asset management, take our online investment banking course to get the same training as new hires to the top 4 investment banks in accounting, financial modeling, and valuation. Enroll on our online portfolio manager course, to master the skills needed to build successful investment portfolios, and receive a recognized Wall Street Certification.
Hands-on experience with financial software is often required too, depending on the role, and facility with popular data providers like Bloomberg, Morningstar or Thomson Reuters is welcome.
Last, but not least, communication, presentation, and writing skills are also essential. Our online business toolkit course will help you to unlock your presentation potential, understand how to develop your writing skills to communicate effectively, and build your brand.
Lifestyle and work/life balance can be quite different for investment bankers and asset managers. In terms of work hours, investment banks demand anywhere between 60 to 80 hours per week and plenty of weekends. In contrast, asset managers (of course depending on many factors like team resources and the current market environment) require between 40 and 60 hours per week and rarely expect employees to work on the weekend.
Compensation for both career paths is quite lucrative. Entry-level positions for investment bankers at bulge bracket banks typically start from $90,000 with bonuses (based on performance) ranging from 50% to 100%. In asset management, graduates can expect a starting salary of around $70,000 as well as a performance-related bonus. After a few years of experience, both careers offer base salaries in excess of $150,000.
Since both careers are intellectually demanding and recruit only top candidates, it is not surprising that there are attractive exit opportunities available to them. The financial expertise acquired through working in investment banking can be applied in other areas like asset management, private equity, venture capital, and hedge funds. Those seeking better work/life balance will prefer asset management, while private equity and hedge funds could offer even greater compensation than investment banking.
Typically, turnover in the asset management industry is much lower due to the more attractive hours combined with excellent compensation. However, those who seek to move to private markets or hedge funds will be in a strong position to do so. Analysts may also find opportunities within the companies they cover given their industry expertise and deep knowledge of covered companies.
While both careers are highly regarded and financially lucrative, the choice is personal. For those who are willing to work long hours and sacrifice their personal lives, investment banking is the obvious choice. They should expect to be well compensated for their sacrifice. On the other hand, those who prefer a better work/life balance but still want an attractive salary may want to explore opportunities in asset management.
To learn more about the typical career path in Asset Management, access the free download.