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Jobs in the Investments Industry II:Investment Management

Bryan SudweeksBryan Sudweeks

Fall 2007Fall 2007

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Jobs in the Investments Industry

I. Investment Banking

• Investment banking, Asset Management, Sales and Trading, Research

II. Investment Management

• Investment Management, Investment Research, III. Financial Planning

• Investment advising, Insurance, and Estate planning IV. Corporate Finance

• Pension Fund Administration and Management V. Financial Consulting

• Pension Fund Consulting

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I. Investment Banking and Investment Management

Objectives

• A. Understand the purpose of Investment Banking

• B. Understand the purpose of Investment Research

• C. Understand the divisions of Investment Management

• D. Know where the potential jobs are in Investment Management

• E. Know how to prepare for a career in Investment Management

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A. Purpose of Investment Banking

An intermediary between the capital markets (investors) and corporations (borrowers)

Offers strategic advice and financial analysis on Mergers & Acquisitions, Divestitures, and Capital Structure

Offers Equity and Fixed Income Underwriting (e.g.. IPO’s, High Yield Offerings)

Provides asset management advice to high net worth individuals and institutions

Provides Sales and Trading of Equity (Stocks), Fixed Income Securities (Bonds), Derivatives (Options).

Offers research and advice on publicly listed stocks and bonds to institutional and individual investors

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Structure of Investment Banks (continued)

Investment Bank

I-Banking Division (IBD)

ResearchSales &Trading

Asset Management

Private Client Services• Work with HighNet Worth Individuals

Industry Groups Corporate FinanceProduct Groups M&A High Yield Debt Capital Markets Equity Capital Markets

Buy and Sell Financial Securities and Derivatives

Analyze allPublic information in order to give advice to investors and sales and trading group

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Structure of Investment Banks (continued)

Investment Bank

I-Banking Division

ResearchSales &Trading

Asset Management

Product Group

Industry Group(Corp Finance)

Manage fundsfor institutionsand individuals

EconomicDerivativesFixed Income

EquityFixed Income

EquityEquity CapitalMarkets

Debt Capital Markets

High Yield Debt

M & A

Consumer ProductsTechnologyTelecommunicationsReal EstateUtilitiesHealth CareRetail

Consumer ProductsTechnologyTelecommunicationsReal EstateUtilitiesHealth CareRetail

Private ClientServices

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B. Purpose of Investment Management

Major investment management divisions include:• Asset Management

• Provide asset management services to investors and institutions including:

• Private Wealth Management• Portfolio Management• Asset Allocation• Performance Attribution

• Research • Provide research on public stocks and bonds

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Structure of Investment Management (continued)

Investment Bank

ResearchAsset

Management

Private Client Services• Work with HighNet Worth Individuals

Analyze allPublic information in order to give advice to investors and sales and trading group

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Structure of Investment Management (continued)

Investment Bank

ResearchAsset

Management

Manage fundsfor institutionsand individuals

EconomicDerivatives

Fixed Income

Equity Fixed Income

Equity

Consumer ProductsTechnologyTelecommunicationsReal EstateUtilitiesHealth CareRetail

Consumer ProductsTechnologyTelecommunicationsReal EstateUtilitiesHealth CareRetail

Private ClientServices

Derivatives

Asset Management Companies

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Top 15 Asset Management Companies

Rank Firm ASSETS UNDER MGMT (bill.)

1 Fidelity Investments $853

2 State Street Global Advisors $785

3 Barclays Global Advisors $768

4 JP Morgan Flemming Asset Mgmt. $604

5 Capital Group Cos. $589

6 Mellon Financial $537

7 Merrill Lynch Inv. Managers $529

8 Citigroup $503

9 AXA Financial (Alliance Capital) $481

10 Morgan Stanley Investment Mgmt. $415

11 Vanguard $412

12 UBS Investment Management $405

13 Allianz $383

14 Amvescap (AIM / Invesco) $334

15 Putnam Investments $315

Source: Institutional Investor

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C. What are the Divisions of Investment Management?

Investment management divisions include:• Investment Management• Portfolio Management• Operations• Investment Research• Private Wealth Management

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D. Potential Jobs in Investment Management

Where are the jobs in Investment Banking?• Most investment banking jobs are in analysis

• Equity market analyst• Debt market analyst• High Yield analyst• Industry Analyst

• Consumer products, telecommunications, real estate, finance, etc.

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Jobs in Investment Management (continued)

Research

Product Group

Industry Group(Corp Finance)

Equity CapitalMarkets

Debt Capital Markets

High Yield Debt

Consumer ProductsTechnologyTelecommunicationsReal EstateUtilitiesHealth CareRetailAssistant Analyst

Research Analyst

Analyst

Senior Analyst

Asset Management

Research Analyst

Analyst

Senior Analyst

Portfolio Manager

Partner

Assistant Analyst

Research Analyst

Analyst

Senior Analyst

Research Analyst

Analyst

Senior Analyst

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Jobs in Investment Management (continued)

What are the different types of analyst positions?• Analysts position vary depending on who they are doing

research for, i.e., sell-side versus buy-side research What are sell-side analysts?

• Analysts whose work is used for selling securities to investors, i.e. Research, Sales and Trading, etc. Analysts prepare the research for potential investors in the hope that investors will buy and sell companies through the I-bank

What are buy-side analysts?• Analysts whose work is used in the process of buying

securities for specific portfolios, i.e. Asset Management, Private Wealth Management, etc. Analysts prepare the research and then act on that research to buy companies.

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The Analyst Position (continued)

Why are Investment Management analyst positions so hard to get?• They provide instant exposure to senior management teams

of the largest companies in the world• They have the highest exposure, learning potential, and

salary of any job in the Financial Services Industry (out of college)

• They give opportunity to work in small teams, with learning from senior partners

• After you have built experience in the field, it offers wonderful opportunities at top business schools and companies

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Compensation

< 5 5 - 10 10 - 20 20 +Total Years Years Years Years

2005 Median $113,000 $85,000 $105,000 $140,000 $160,000Salary

2004 Median $35,000 $15,000 $34,000 $55,000 $50,000Bonus

2004 Median $5,000 $0 $4,200 $10,000 $12,000Non-Cash Comp.

Median Total $170,000 $111,207 $160,000 $233,750 $260,000Compensation

90th Percentile $530,000 $252,500 $425,000 $670,000 $940,000

• The median total compensation for investment professionals is $170,000. Total compensation has increased materially since bottoming out in 2003 due to positive market conditions. Source: CFAI & Russell Reynolds Associates - 2005 Investment Management Compensation Survey

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The Analyst Position (continued)

What are the skills gained as an analyst?• Financial modeling and strong quantitative work

• Solid Understanding of Corporate Capital Structure & Capital Markets

• Solid understanding of companies and industry composition and structure

• Professional presentation analysis

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The Analyst Position (continued)

What are the responsibilities of an analyst?• Financial Analysis and Modeling

• Discounted cash flow and Free cash flow analysis,

• Comparable company

• Precedent transactions, and

• Leveraged buyout

• Client Exhibits and Presentations

• Market research and competitive analysis

• Client interaction

• Roadshow execution management

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The Analyst Position (continued)

What type of work do Analysts do?• Company Analysis (both buy and sell side)

• Financial forecasting• Strategic analysis

• Industry Analysis (both buy and sell side)• Strategic analysis

• Portfolio implementation, construction, and reporting and attribution

• Investment policy statement• Portfolio construction and management• Portfolio reporting and attribution

• Whatever is needed to attain company goals and objectives

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The Analyst Position (continued)

What are the criteria used to select analysts?• There is a record of achievement

• A strong academic record

• A balanced individual with extracurricular activities

• A good employment history

• Strong communication skills

• Evidence of being a team player

• A tireless work ethic

• Attention to detail

• A strong analytical capability (with examples)

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E. How to Prepare for a Career in Investment Management

Understand the industry, the positions, and the lifestyle

• This is a wonderful but crazy industry

• Are you suited for the lifestyle—very long hours Start building your contacts

• Meet with as many of the visiting speakers as possible Do well in your classes

• A strong GPA is important

• Have a good financial analysis project to leave with potential employers as an example of your best work

Look to beginning your CFA program

• It is looked on highly in the industry

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A Career in Investment Management Don’t get discouraged

• Understand yourself and your goals• Work hard and be patient—Faith precedes the miracle

Keep your priorities in order• Obedience is the first law of Heaven--do what you

should• He will help take care of the rest

Follow the Spirit• Stay worthy of the Spirit• He is your competitive advantage--stay worthy of His

help Remember the Lord’s hand in your blessings

• Always be appreciative of his blessings• Remember to share them with others