Investment Career Opportunities
What does it mean to work on Wall Street? What are the most common occupations that a background in investments can provide? What does finance even mean? All these questions answered and more in this week’s deep dive into career opportunities which your experience in GCI will prepare you for.
To start, let me just say that this article is merely an introduction to what one might expect to look forward to with the background provided by GCI. We encourage everyone to do further research on each and every career opportunity they deem interesting. The best way we recommend doing so is to reach out to Georgetown Alumni in a field you’re most curious about and ask them a few questions (you can find them via LinkedIn or HoyaGateway). Additionally, you’ll be able to learn more through GCI’s mentorship program and career development events.
Investment Banking
The most common goal right out of undergrad for those interested in finance is a career in investment banking (IB). Investment banks (such as these) hire en-mass every year because of the extremely high turnover in the field. While retail banks deal with individual consumers, investment banks deal with corporations and institutions to provide various financial advisory services.
These services are typically broken up into Industry Groups and Product Groups. Industry Groups run valuations on and maintain relationships with companies within a certain sector (like tech, healthcare, energy, etc) and advise on how the companies can best leverage the abilities of the bank’s Product Groups. Product Groups usually include teams specializing in Mergers & Acquisitions, Capital Markets, Leveraged Finance, and Restructuring. These groups team up with according Industry Groups to perform and execute deals.
The valuations (discounted cash flow analyses) and pitches are similar to what GCI teaches and practices. Those who are excited to go into investment banking will describe their desire to be surrounded by the smartest people in the world, be part of massive corporate deals, and be able to later transition into Private Equity (which will be described later in this article). Those who stay far away from IB say working 12+ hours a day for six days a week is far too intense, and that what you learn is more oriented toward choosing the best font for a pitch rather than actual valuation experience. On the contrary, investment bankers are certainly paid for their hard work with one of the highest starting salaries for undergrads.
Sales & Trading
At an investment bank, sales and trading (S&T) are actually two separate jobs on the same desk working to generate and carry out trades for big institutions, such as hedge funds or mutual funds, to generate fees on said trades. If you work in sales, you will represent the work of your bank’s financial analysts, pitching the different packages of securities (stocks, bonds, etc) that your IB team puts together to various buy-side firms in the hopes that those firms will then execute their trades with your bank. Trading, on the other hand, generally means executing these and other trades at the lowest point possible. At a hedge fund, for example, a trader would buy and sell stocks at the lowest prices possible in the hopes of saving the firm hundreds of thousands, if not millions, of dollars in transaction fees. The trader most often does this with the help of an investment bank. As a trader at an investment bank, you are the intermediary that allows for bigger trades to happen without major increases or decreases in the stock price. The investment bank reduces the price increases caused by big purchases by having a database of who wants to buy and sell shares and then matching buyers and sellers at prices that satisfy both parties. The investment bank then makes a certain fee on the transaction.
Equity Research
Equity research simply boils down to analyzing and valuing public equities (stocks). As an analyst, you will be assigned a certain number of companies to cover, sometimes by yourself, but often with 1-3 others. Equity research is divided into two parts: buy-side and sell-side. When doing equity research at an investment bank, you will be on the sell-side, which is where you value companies, in a similar way to GCI, then profit by selling your report to the buy-side. The buy-side, such as mutual funds and hedge funds, buys these reports and uses them to further their own investment decisions. The main difference between equity research analysts on the buy-side and the analysts on the sell-side being that sell-side is largely just research, while the buy-side uses that information to then advise portfolio managers on what might be a good investment. Equity research at investment banks make slightly less than investment bankers, but have a slightly better work-life balance.
The following graph was provided by the MSB Career Services Office.
Private Equity
IB probably has the most diverse array of exit opportunities, the most popular of which being private equity (PE). The first few years of working at a private equity firm are similar to investment banking, where you work on valuing businesses to buy-out and the creation/formatting of the sales pitches to do so. Although they may seem similar, PE is a very different ballpark to what GCI does for a few reasons. The first of which is PE only deals with private companies, and are therefore not publicly traded making them far less liquid. The second is that, unlike GCI, private equity firms buy into private companies with the goal of influencing management to improve the value of the company and then cash out in an IPO. In the past 15 years, the amount of money invested in private equity has grown seven-fold, a growth rate that is twice as fast at public equity. Seeing as there is so much money in PE, a lot of your job once you reach higher positions will become sales and networking with the upper management of private firms to convince them to partner with you. Some hedge funds invest in both private and public markets for both high returns and increased diversity.
Mutual Funds
Mutual funds and hedge funds are both considered in the general category of asset management or investment management. A mutual fund is a publicly traded fund that is either passively or actively following a broader index. A passively managed mutual fund would follow simply all you to invest in a group of stocks, such as the S&P 500, in a digestible way, while actively managed mutual funds try to beat their index by a percentage or two per year. For example, Apple makes up 3.6% of the S&P 500. If the portfolio manager of a mutual fund that was tracking the S&P 500 thought Apple was going to outperform, they would buy more of it to have it have a larger impact on the future returns of the fund, such as 3.8% for example. Therefore, mutual funds offer similar levels of diversification, but with slightly better returns. There is, however, a small fee for this luxury. At a mutual fund, you usually start as an equity research analyst (as described earlier), but could eventually move on to managing a several billion dollar fund. Those who are excited to work at a mutual fund tout the better work-life balance when compared to IB, the increased autonomy, and the ability to talk to incredibly important people, such as the portfolio managers, c-suite members of large public companies, and the top experts on the market. As a macro note, money is generally flowing out of actively managed funds such as mutual funds and hedge funds in favor of passive investing due to increased skepticism of active managers’ ability to justify their fees with outperformance. It is important to note that another branch of asset management, which usually manages the money of institutions, is private wealth management, which manages the money of high net worth individuals; similar job, different clientbase.
Hedge Funds
Hedge funds are also on the buy-side, but instead of being publicly traded, a hedge fund’s actively managed portfolio of stocks is private and often only available to accredited investors, someone with either an annual income of at least $200,000 or a net worth of at least one million. To invest in hedge funds, there is also often a minimum investment which could range from hundreds of thousands of dollars to multiple millions. While mutual funds often have several portfolio managers and dozens of analysts, hedge funds are often, but not always, smaller in employee count. When you invest in a hedge fund, you invest in the portfolio manager more than anything else. As an analyst, you would be doing quite similar work to analysts at mutual funds with the additional possibilities of shorting stocks and investing in alternative investments. As an analyst, you have a wonderful opportunity to work closely with the portfolio manager of your hedge fund. This can either be a blessing or a curse depending on if your interests, investment style, and risk tolerance match that of your portfolio manager. Seeing as hedge funds are constantly under scrutiny from investors who want to make sure they’re getting their money’s worth out of the exorbitant fees they’re paying, hedge funds are often forced into a more short term outlook on investing in order to meet their quarterly, if not monthly, numbers. This mindset can be fast-paced and entertaining, but also cause much more stress than working at a mutual fund. In addition, job security is much lower at hedge funds as they are much more likely to shut down if they can’t beat their bench mark. High risk, high reward, however, as hedge fund employees are paid extremely well.
Activist Investing
When I first started looking into activist investing as a career opportunity, I assumed it would be an interesting combination of investing and consulting. I thought activist investing was finding an underperforming public company and then building up a position of stock to then be able to influence management to turn the company around. While this is true, the “influencing management” portion - what I considered to be the consulting part - is a much smaller part of the process than I previously imagined (and you certainly won’t be part of the implementation of the turnaround strategy you suggest). Therefore, activist investing is often a more involved form of investing in public companies, which entails finding an underperforming company, building a large enough share of stock (usually around 10%), and then writing a very public letter to shareholders on how the company should change going forward. These changes largely manifest manifest themselves in ousting the current CEO or other parts of management. In a similar vein, some buy-side investors I’ve talked with claim that activist investing is too short term oriented, as it is quite common for activist funds to bully upper management into returning extra cash to shareholders in the form of dividends or stock buybacks only to then sell their shares after the payoff. This method is in direct contrast to long term activist investment funds which slowly build up a share of stock (over a period of several years) in order to build a strong relationship with management. Another positive, or negative depending on your perspective, of activist investing, is that these firms usually make far fewer investments than mutual or hedge funds, maybe to the tune of three to four investments a year. This means that lower level analysts have far less power when it comes to running the day to day operations.
Venture Capital
Venture capital (or VC) is basically Shark Tank, but not on TV. Venture capital firms invest in early stage companies and either have a hands-on or hands-off approach to funding the venture depending on the firm. The major difference between VC and PE is that VC firms are more long term oriented, while PE firms usually have an exit strategy in the form of an IPO. Although the path to getting into venture capital varies greatly, a basic understanding of running companies, especially startups, is a must. Therefore, starting a successful business is the simplest route into VC, but that’s easier said than done. On a similar note as all of the above careers, however, there are countless sizes of VC firms that one can get into, therefore creating an opportunity for someone to succeed at a smaller company and then transition to one with more AUM over time. Since VC involves large, specialized investments, there is a need for trusted analysts that have significant knowledge of a field of expertise. So if you want to break into the next wave of startups, I’d recommend becoming the number one expert on machine learning (do so here). On a separate, but relevant, note, an angel investor is someone who carries out a similar investment style to VC firms, but often much earlier in the process (this is called seed investments) and on a much smaller scale. Angel investors are also more likely to act as mentors, but it varies from investor to investor.
Consulting
Although consulting is not a direct pathway from an investment background, many GCI alum have placed in consulting firms each year, so it’s worth mentioning. Consulting is one of the most sought after careers in Corporate America, as it requires intelligent and diverse people to travel to different companies to help them solve problems. In general, consultants solve real world business problems by researching and understanding the problem at hand and then suggesting a methodical approach to go about solving that problem. Each project usually last between three to six months and offers interesting opportunities to meet new people as you might be working with a new team for each project. Consultants have slightly hectic work-life balances as they are often required to be on call for their clients at all times, but their work-life balance is still not as volatile as in investment banking. Consultants also travel the US, or the world depending on your firm, but often to places that are probably less ideal than what you’re imagining. Now-a-days, consulting firms are trying to have more long term relationships with their clients so that analysts don’t just recommend a strategy and then move on to the next project, but actually get to see their strategies’ impact on the company. The field is quite meritocratic, but the industry requires a lot of talking to experts, customers, and clients, therefore requiring more outgoing personalities.
The jobs I’ve outlined above only scratch the surface of the potential opportunities you could have with an investment background (which also include careers in government, corporate development, quantitative investing, compliance, accounting, management, starting your own venture, etc.)
Although these descriptions are based on testimonies from those in the respective industries, these careers often vary widely so if you have any additional comments or criticisms on the above descriptions, please feel free to reach out. I’m sure we’ll be running an updated version of this post at some point in the future.
Continue the conversation with James at jem365@georgetown.edu