What do investment bankers actually do?
Investment bankers. You hear the name often enough, sometimes mired in controversy, other times, simply stated in a financial report of some kind. In all cases, the world of investment banking often remains enigmatic to the uninitiated layperson.
With good reason. It’s difficult to parse out exactly what an investment banker does in part because the job might ask many different things of its operators. One investment banker, for example, might represent Microsoft. Another could represent the city of Seattle.
In a field so diversified, it’s easy to find oneself asking, what exactly is it that investment bankers do? In this article, we take a look at just several of the investment bankers’ many responsibilities.
Financial advisors
At their core, investment bankers are financial advisors working on behalf of either a company or in certain circumstances, a country, to ensure that their client’s financial interests are being nurtured and cared for.
Kind of vague right? But then so is the nature of financial health. In fact, the role of an investment evolves fluidly with the needs of their employer. The investment banker may find that as a business evolves, so too will their responsibilities.
Taking a company public
Perhaps the most romantic, lionizing moment in an investment banker’s career is when they get to help bring a new company public for the first time. Investment bankers take the owners through all of the steps, setting stock pricing, establishing trade volume, and, in short, making sure all of the tees are crossed.
Involved in the process is a significant degree of strategy and knowledge. The process of taking a company public is typically done to help raise funds. However, this can only happen when the right price is selected. Price too high, no one will buy. Price too low, and the company will be undervalued. In striking the right balance at this critical juncture, investment bankers put a newly publicized company on a path that they will follow for decades to come.
Though exciting, and perhaps more attention-grabbing than other aspects of an investment banker’s work, however, this duty is just one of their many responsibilities.
Getting the funds
Say you own a company that wishes to build a new manufacturing plant. The cost will inevitably be incredibly high. Even if you do have the liquid assets to manage the build, chances are it won’t be financially prudent to put that much cash down at once.
On the other hand, once the factory is up, it will be a predictable source of revenue that, over time, will more than cover the costs associated with the build. What can be done? Enter the investment banker.
In this situation, investment bankers, working on behalf of the company can fund the build through bonds that will be paid off by the eventual revenue generated by the factory.
In other situations, an investment banker might fulfill a similar duty on behalf of a government, who might pay off the bond through projected tax revenue.
Mergers and acquisitions
Any time a business buys another business, the process is often protracted and full of disagreements. In this battle of competing interests, investment bankers are there to make sure their client—most often the business who is making the acquisition—gets exactly what they are looking for.
This may mean taking a very direct role in the negotiations process. More often than not, however, it will mean serving in the capacity of an advisor.