Investment banking is the process of raising capital for businesses through public floatation and private placement of securities. The investment banking industry plays an important intermediation function in all market economies.
Investment banking in India is a relatively new phenomenon exhibiting low level of competition. Most of the capabilities of an ideal investment banker are also lacking. Recommendations are thus made for Indian investment banks to improve on these capabilities in order increase the competition within the investment banking industry and subsequently attract more firms to go public.
Tasks performed by an investment banker
(I) FRONT END OFFICE TASKS
Front office tasks are typically performed by the senior management of an Investment Banking company and it includes all the precision and qualitative work relating to handling and managing relations with clients and investors.
1. Client/ investor’s interaction
One of the major tasks performed by the Investment Bankers is to interact and engage with clients who are the main sources of revenue. In order to out light on the client Interaction part, one has to understand the overall objective of Investment Banking, which is to provide a smooth path to the companies in their fund raising/ M&A process.
As fund raising and M&A requires a lot of work, analysis and investor’s interaction, clients always look for experienced professionals who have the right knowledge in the space. Hence, it is imperative for the Investment Bankers to use the right skills and build the right confidence in client so that the client will be able to engage with them.
In some cases, the client can be even fund who is taking to raise funds from FoFs (Fund of Funds). Investment Bankers are also required to engage with the investors and they pitch the company to the investors on behalf on their clients.
2. Strategy formulation/ management consultancy
Another important role of being a Front End Investment Banker is to strategize and advice management on their business’s operations, finance and other divisions.
Management Consultancy at times becomes important as most of the companies are not investment ready since beginning; hence, it is the work of an Investment Banker to help company for taking corrective steps in order to make them capable for raising funds.
The advice can be relating to various company management decisions including entering into new markets or new geographies, cutting expenses or jobs, venturing in a different line of business, growth through organic or inorganic means etc.
3. Closing engagement terms (el) and signing a mandate
Mandate is an engagement Letter signed between the Client and the Investment Banker and lists the objective of the agreement, limitations of the work performed and the commercials part.
Investment Bankers need to follow a rigorous process for closing the mandate and the process includes meeting the clients several times and pitching about themselves to sign the mandate with them and not their competitors.
4. Traveling and attending live conferences
Another role but not major role of an Investment Banker is to travel and meet clients across the Country/ Globe. For them to be able to find new clients, it is important to attend live entrepreneurship & start-ups conferences and meet the clients on regular basis.
Front end role is considered to be a 75% traveling role which requires them to meet clients and these conferences solve the purpose of an introductory meeting.
(II) BACK END OFFICE TASKS
Back end office work is performed by the Analysts and Associates and it includes majorly working on Power point, Excel and Databases of 3rd parties.
1. Collaterals building
One of the key important tasks of a Back end office Investment Banker is to build collaterals of any company which serves as the main documents which are listing/ incorporating all the information of a client. These collaterals are built for the purpose of sharing with the investors and based on the information mentioned in the collaterals, investors take a judgment.
There are predominantly three types of collaterals which are built by any Investment Banker and they are as follows:
Teaser is a one (1) to two (2) slider document built on a power point, which gives brief information on any company. Usually the teaser is prepared to circulate with infinite number of investors and investors decide on the company based on the preliminary information shared.
Teaser is majorly prepared on a no name basis (it doesn’t mention the name of the company but the business and other details). Once investors get an interest in the company, they ask for further details and this is time when an Information Memorandum (IM) is shared with them.
(b) Information Memorandum
IM is a detailed document again built on a power point presentation of around 50+ slides (Length of the slides varies as per companies). It mentions all the important information of a company including Business Model, Product or Service details, Marketing & Distribution Strategies, Management profile, operational & financial metrics etc.
(c) Financial Model
Financial Model is a document prepared on excel which incorporates financial information of a company including its past performance and future projections.
The model highlights all the three projected financial statement (Statement of Profit & Loss, Balance Sheet & Cash Flow Statement) in detail with the assumptions and management’s growth plans.
2. Conducting research
The other main key work of an Investment Banker is to conduct Industry research and competitor’s research using various databases platforms including; Bloomberg, Capital IQ, Factset, Thomas Reuters etc.
Analysts and Interns spend a lot of time in extracting information through these databases and find conduct multiple analysis on database extracted. For any client, Investment Bankers are required to do Industry and competitors study in detail.
3. Performing valuations
Another task of an Investment Banker is to do valuations on behalf of their clients. In most of the big IB firms, they tend to have a separate division dedicated towards performing valuations of their client and this division serves as an integral division of the firm.
Valuation is typically divided into two parts; Relative Valuation and Absolute Valuation. Investment Bankers also use databases support while performing Relative Valuation (Relative Valuation required studying the valuation of the competitors through their trading multiples and past transaction multiples).
4. Doing data analysis
Another work is to analyze the data captured by the company and to find out key metrics from the pool of data provided. Companies give a bunch of data to the Investment Bankers which is usually captured on day to day basis in MIS, CRM tools.
It is Analyst’s or Intern’s job to analyze and find out key results from the same which will be highlighted in the IM for showing better understanding of the company.
Key Skills required to be an Investment Banker
- Intellect: This is perhaps the most obvious characteristic. A strong intellect with particular emphasis on analytics, mathematics, finances, and economics goes a long way toward performing many of the job requirements.
- Financial modelling – To test all the scenarios and available information to know how it will impact the business and its financials.
- Discipline – News outlets often report on the high salaries of investment bankers but little is told about the long hours, hard work, diligence and self-discipline that goes into those high rewards. Investment bankers, from the entry-level analyst to the top level managing director, work in a pressure cooker environment and because of that, need to be able to perform under intense scrutiny and demands.
- Entrepreneurial –Interestingly, with all the rigor and structure in investment banking, the ability to be creative and innovation is an extremely highly regarded skill. The top-performing bankers are able to approach a task or provide a solution in a way that may be new, pioneering an avenue for products and services
- Relationship Building – This final skill is perhaps the most intangible but considered to be one of utmost importance, particularly as investment bankers climb the career ladder. Social and relationship building skills, such as being able to deal with difficult people in extreme situations, having high energy and a positive attitude that exudes power but also an “I understand your needs” attitude and developing and maintaining client relationships are characteristics that bankers must possess in order to be successful.
- Global outlook – Graduates with the ability to operate in an international context are often actively sought, and fluency in more than one language is particularly valued.
Barclays’ competencies include ‘willingness to work abroad and language skills’.Commerzbank stressed that languages are highly valued, particularly German. At Goldman Sachs, many graduate roles require strong linguistic skills. Bank of America recruits graduates with a ‘global outlook’. At Nomura, knowledge of a second language and the associated culture, while not essential, is described as ‘well received’. UBS’s competencies include ‘international experience’.
Pay scale of IB in India
An entry-level Investment Banker with less than 1 year experience can expect to earn an average total compensation (includes tips, bonus, and overtime pay) of ₹700,000 based on 24 salaries.
An early career Investment Banker with 1-4 years of experience earns an average total compensation of ₹863,157 based on 53 salaries.
A mid-career Investment Banker with 5-9 years of experience earns an average total compensation of ₹1,500,000 based on 25 salaries.
An experienced Investment Banker with 10-19 years of experience earns an average total compensation of ₹3,000,000 based on 15 salaries.
Career progression in investment banking
Getting into I-banking is very challenging. There are far more applicants than there are positions, sometimes as high as 100 to 1.
The most common job titles (from most junior to senior) in I-banking are:
- Vice President
- Managing Director
- Head, Vice Chair, or another special title