Roles in Finance
Demystifying the roles that make the the $$$ economy hum
What's this about?
To help decrypt some of the confusing jargon used when it comes to the various divisions and job titles we’ve prepared this quick breakdown so you know exactly where you’re going and what you’ll be doing it! Let’s get into it.
Sell-side vs Buy-side
The first distinction you’ll probably hear within the finance world is: sell-side vs buy-side.
What’s the difference?
If you’re on the sell-side it means that you are primarily providing advisory or execution services to clients who have the capital. In layman’s terms, you are a bit of an information arms dealer.
If you’re on the buy-side then you / your firm is the one with the capital making the decision on whether to buy or sell the asset.
Investment Banking Advisory: this is your bread and butter when it comes to what people think of as “investment banking”.
- What do I do… you provide corporate finance advice to company’s whether that’s advising on potential strategic acquisitions, capital raisings or “running a process” which means advising a client to help sell the company.
- Make it real for me… a company wants to sell so you help the canvas potential buyers, broker introductions, prepare management materials and a dataroom, facilitate conversations with buyers and basically run an auction for the business.
Equity Capital Markets (ECM) or Debt Capital Markets (DCM): the ECM and DCM teams typically sit within the investment banking division but your role is focused on capital raisings (whether equity or debt).
- What do I do… you help formulate the structure and pricing of raising to reconcile with the client’s objectives and the current market conditions.
- Note: Depending on the bank the ECM and DCM teams often have a semi-internal facing role in that you support the clients of the advisory teams.
- Make it real for me… your client is about to close on a company changing acquisition and needs to raise $500m from new and existing institutional and retail investors. You help price the deal, identify the investors and build the book having underwritten the deal (i.e. guaranteed the amount and price of the raising)
Sales & Trading: this is probably the closest thing you’ll get to the Gordon Gecko Wall Street vibes of finance. But the reality is it’s a bit different to that too.
- What do I do… the sale and trading function is primarily an execution role. You work with clients and investors in buying and selling securities / warrants / options and also support the bank on initial equity and debt offerings.
- Make it real for me… an iron ore producer is a client of the bank and they need to hedge their FX exposure for the iron ore they sell into China so you help create, price and execute a FX hedging instrument.
Equities Research: if you have ever seen or read a “broker report” then this is the information artefact that you create.
- What do I do… your role is typically to specialise in an industry (say technology), follow a number of listed stocks and provide objective, unbiased insights and predictions which the markets often look to for guidance.
- Make it real for me… you cover the tech space and a new software market is coming to market so you sit with management, understand the mechanics of the business, conduct some industry research and formulate a view on the company’s prospect by preparing an initiating coverage report.
Private Equity: is where you, as the financial institution, take an owner-operator mindset by taking significant stakes in businesses (if not entire 100% stakes) and focus on creating value through the capital structure and operational performance of the business.
- What do I do… in some ways similar to the job of an investment banker you are mostly focused on running numbers on businesses and meeting with management teams. But everything you do is done with the lens of an investor as opposed to an advisor.
- Make it real for me… a 50-year-old family-run chicken farm business wants to sell. You’ve identified that the family has underinvested in technology and machinery and that with some investment you can deliver significant operational improvement to drive profit so you buy the company.
Venture Capital: if you are familiar with the startup world then you’ll probably know what venture capital or VC for short
- What do I do… the job is in many ways similar to private equity but the model is a little different. Instead of expecting every investment to do well and create some ROI, the VC model is centred on the idea of making really early bets in startups knowing most will fail but that 1-2 will go on to change the world.
- Make it real for me… the year is 2010 you’re an investor at Accel and you hear about this epic company in Australia called Atlassian, so you fly down meet the founders and decide to invest $60m. The company goes on to return over 10x for the VC fund!
Institutional Investors: an institutional investor is a company or organization that invests money on behalf of other people.
- What do I do… the job primarily entails buying, selling, and managing stocks, bonds, and other investment securities on behalf of its clients, customers, members, or shareholders.
- Make it real for me… you are working at a long-only Aussie equities fund with $1bn under management. Your core focus is to identify stocks, meet the management and deeply understand their business and future prospects before making a long term investment. The investment is relatively passive although as a major institutional investor you can certainly have your voice heard to influence management.
Hedge Funds: are a type of institutional investor and can have a range of mandates. But the gist of it is that their goal is to employ more aggressive trading strategies that can include short selling and high amounts of leverage.
- What do I do… it’s hard to generalise what a hedge fund manager does as they can invest anywhere in the market and have widely varying investment strategies and mandates. But in general hedge funds tend to operate in public markets (vs. private) and the concept is that their investment strategy is immune to market forces, hence hedged.
- Make it real for me… you work at a global event-driven hedge fund and so your investment strategy entails investing in and exploiting global M&A arbitrage situations. A recent example would be the BHP unification.
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