Financial Services
Investment Banking
The first thing to realise as a doctor is the range of different roles that exist under the investment banking 'umbrella'. Working in an investment bank can be very different according to which functional area you decide to work in and the areas are briefly divided into:
- Mergers and Acquistions (this is known as traditional investment banking)
- Equity Research
- Sales and trading
- Equity/Debt Capital Markets
- Other e.g. leveraged finance (covered under private equity)
Banking (M&A) is an extremely lucrative career, but this is balanced by above average working hours and significant amounts of responsibility even at the junior levels. Despite this intensive working environment, there are both short-term financial gains as well as a long-term 'return' in the sense of a new and extremely useful set of skills acquired from operating in this type of role.
Mergers and Acquisitions
This type of position is considered by most as the traditional 'banker' role. M & A banking is considered extremely prestigious. M & A bankers advise Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) on high-level mergers and acquisitions e.g. M&A bankers will have advised on the merger between the pharma giants Glaxo and Smthkline.
They essentially work on deals that are supposed to create value for corporations. At the junior levels you would be responsible for analysing companies and sectors, and building financial models to value companies, as well as making presentations. As you progress you would help to oversee juniors and liase with the MDs (managing directors) to manage the M&A process. The more senior the role, the more interaction with clients will ensue. The pinnacle of the career is becoming a managing director (MD), which in the finance world is analogous to becoming a consultant in the NHS.
Managing Directors manage the client relationship and essentially become known to the CEOs and CFOs in industry. Renumeration is generally in the millions for these positions. Many people work in banking for a few years to get a firm foundation in finance and financial modelling prior to going to other careers e.g. 'in-house' financial roles at a large corporation (those who have been in banking for a few years can transfer over to mid sized companies as the Chief Financial officer or directly into private equity).
Equity Research
Equity research analysts analyse shares, generally specialising in a sector e.g. pharmaceuticals and will follow several companies in a sector, know them inside out, and write regular reports that are given out to investors and other clients. The nature of equity research has changed significantly as a result of new legislation. Whilst in the past equity researchers spent a great deal of time supporting bankers, creating issues with independence, newer legislation has divided banking and equity research into completely separate entities. There now exists a 'Chinese wall' such that they the two are not permitted to communicate as freely as the old situation allowed.
Research Associates work in partnership with a Senior Research analyst to develop deep expertise in an industry coverage sector (consumer, healthcare, industrial, media & telecommunications or technology). Associate responsibilities include conducting extensive company and industry research, creating financial models and valuation analyses, identifying industry trends and explaining their implications on specific stocks and writing company and industry investment reports. Associates have frequent and direct contact with senior executives of pubic traded companies.
The researchers are often required to brief the sales force. Many people work in research for a few years prior to moving over to the buy side and transferring into investment management or hedge funds.
Sales and Trading
Sales and trading services is an area of investment banking that would generally not be accessible to most doctors without relevant investment banking experience or an MBA. We would recommend clients wishing to pursue this particular career path to consider application to a top tier business school as a first step. We can, alternatively offer directed advice to those with previous M&A or equity research experience.
Capital Markets (Debt/Equity)
The capital markets group help corporations raise equity (in the form of issuing shares) or debt to help companies grow. They are involved in Initial public offerings and advise CEO's/CFO's on how to financially structure the company.
Private Equity
Private equity is a broad term which commonly refers to any type of equity investment in an asset in which the equity is not freely tradeable on a public stock market. More specifically, private equity refers to the way in which the funds have been raised - on the private markets, as opposed to the public markets. Private equity firms were commonly misunderstood to invest in assets which were not in the public market. However this is not necessarily the case, and larger private equity firms such as KKR and Blackstone invest in companies listed on public exchanges before taking them into the private sector. Passive institutional investors may invest in private equity funds, which are in turn used by private equity firms for investment in target companies. Categories of private equity investment include leveraged buyout, venture capital, growth capital, angel investing, mezzanine capital and others. Private equity funds typically control management of the companies in which they invest, and often bring in new management teams that focus on making the company more valuable.
As they are not listed on an exchange, a private equity firm owning such securities must find a buyer in the absence of a traditional marketplace such as a stock exchange. The "exit" or "selling out" is often achieved by way of an initial public offering (IPO), i.e. floating the company on a stock exchange, trade sale or secondary/tertiary buy-outs (i.e. sale to another private equity house).
Private equity is very competitive to get into and should be considered as a next career step after gaining experience in investment banking or strategy consulting.
Venture Capital
Venture capital is a type of private equity capital typically provided by professional, outside investors to new, growth businesses. Generally made as cash in exchange for shares in the investee company, venture capital investments are usually high risk, but offer the potential for above-average returns. A venture capitalist (VC) is a person who makes such investments. A venture capital fund is a pooled investment vehicle (often a partnership) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans. Venture capital can also include managerial and technical expertise. Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships.
This form of raising capital is popular among new companies, or ventures, with limited operating history, who cannot raise funds through a debt issue. The downside for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to a portion of the equity.
Venture capital in the biotechnology/life sciences sector is a growing area that doctors with additional experience (e.g. consulting/pharma industry) are suited to. It is an intensely competitive field to get into but the financial rewards can be in the tens of millions over a normal career span.
Hedge Funds
A hedge fund is an investment fund charging a performance fee, typically open to only a limited range of investors and are therefore usually exempt from any direct regulation by the usual regulatory bodies. Although the funds do not necessarily hedge their investments against adverse market moves, the term is used to distinguish them from regulated retail investment funds such as mutual funds and pension funds, and from insurance companies. Hedge funds' activities are limited only by the terms of the contracts governing the particular fund. They can follow complex investment strategies, being long or short assets and entering into futures, swaps and other derivative contracts.
As with private equity and venture capital, the hedge fund industry is intensely competitive to get into, and we advise our clients to get a solid base in finance before contemplating a move into the world of hedge funds.
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