Investment banking is a specific division of banking related to the creation of capital for other companies, governments and other entities. Investment banks underwrite new debt and equity securities for all types of corporations, aid in the sale of securities, and help to facilitate mergers and acquisitions, reorganizations and broker trades for both institutions and private investors. Investment banks also provide guidance to issuers regarding the issue and placement of stock.
Many different financial institutions employ traders. Trading jobs can be found at commercial and investment banks, asset management firms, hedge funds, and more. As a result of the 2008 financial crisis, the regulations which govern the average trading position have changed somewhat, but overall most traders at different types of banks work to provide liquidity for their clients and to earn a profit via a bid/ask spread. Traders for asset management firms seek the best price in a security when conducting trades on behalf of a client. Traders for hedge funds aim to take proprietary positions in an attempt to benefit from expected market movements.
Private equity typically refers to investment funds organized as limited partnerships that are not publicly traded and whose investors are typically large institutional investors, university endowments, or wealthy individuals. Private equity firms are known for their extensive use of debt financing to purchase companies, which they restructure and attempt to resell for a higher value. Debt financing reduces corporate taxation burdens and is one of the principal ways in which private equity firms make business more profitable for investors. Private equity might also create value by overcoming agency costs and better aligning the incentives of corporate managers with those of their shareholders.
Venture capital (VC) is a type of private equity, a form of financing that is provided by firms or funds to small, early-stage, emerging firms that are deemed to have high growth potential, or which have demonstrated high growth (in terms of number of employees, annual revenue, or both). Venture capital firms or funds invest in these early-stage companies in exchange for equity, or an ownership stake, in the companies they invest in. Venture capitalists take on the risk of financing risky start-ups in the hopes that some of the firms they support will become successful. The start-ups are usually based on an innovative technology or business model and they are usually from the high technology industries, such as information technology (IT), clean technology or biotechnology.
A hedge fund is an investment fund that pools capital from accredited individuals or institutional investors and invests in a variety of assets, often with complex portfolio-construction and risk-management techniques. It is administered by a professional investment management firm, and often structured as a limited partnership, limited liability company, or similar vehicle. Hedge funds are generally distinct from mutual funds, as their use of leverage is not capped by regulators, and distinct from private equity funds, as the majority of hedge funds invest in relatively liquid assets.
Equity Research is a division within either a buy-side or sell-side firm which is responsible for the research used by the firm and its clients. The purpose of an equity researcher is to provide insight and detailed analysis into a company, entity or sector and this information is then used by investors to decide how to allocate their funds and by Private Equity firms and investment banks to value companies for mergers, LBOs, IPOs etc.
An often overlooked career area in finance is real estate. For those who are interested in working with real property, job opportunities in real estate are still plentiful. Commercial real estate and residential real estate are the main categories from which to choose. Commercial real estate usually involves financing for multi-family homes, shopping centers, industrial and office properties. Residential real estate, on the other hand, involves financing for private/individual homes.
Asset Management is a team within a financial firm that is dedicated to managing the assets (cash, investments etc.) of clients. The asset management firm has dedicated portfolio managers as well as access to internal, detailed equity research reports which should give it an edge over investors controlling their own money.
The Asset Management service is usually offered to high net-worth individuals, sovereign wealth funds, pensions and corporations. The firm will typically charge a management fee (a fixed percentage of total funds managed) and sometimes take a percentage of the profits although this blurs the line between an asset management fund and a hedge fund.