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Focus on DiversityCareers in Financial M

arkets 2005-2006w

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.efinancialcareers.com

Your guide to finding a job in securities and banking

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ml.com/careers

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WelcomeWelcome to Careers in Financial Markets and eFinancialCareers.com.

Investment banking is one of the most popular career choices among the very best graduates and MBAs, and competition to secure that all-important first foot on the ladder is intense.

The aim of this guide is to offer you real insights into this multi-faceted field to help you stand out from the crowd. We hope that eFinancialCareers.com will be your online companion as you develop your career.

eFinancialCareers.com serves the global financial community as the Web’s top site for career management and jobs in the securi-ties, investment banking and asset management fields. In addition

to graduate and senior level jobs, eFinancialCareers.com provides premier job market and pay analysis, employment advice and a series of tools to help you maximize your career opportunities.

One such tool for job seekers is our series of careers guides: Careers in Financial Markets U.S. and U.K. editions, and sister publications Careers in Accounting and Finance (U.K.) and le Guide des Carrières en Finance (France). These unique guides profile the current trends, career paths, top players and skills required for the principal financial professions.

If, having read this guide, you’d like to learn more about the industry, conduct some pre-interview research, or simply post your resume for your next job, come and visit us at eFinancialCareers.com.

With best wishes for your future career,

Nicki Gilmour Managing Director, eFinancialCareers.com

Employers DiversityPlanning AheadFinding a JobSectorsOverview Careers www.efinancialcareers.com

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ContentsWelcome 1

Contents 2

How to Use This Guide 3

Overview A Career in Investment Banking 4

Trends: A Cyclical and Highly Competitive Industry 6

Sectors Mergers and Acquisitions 8

Debt and Equity Capital Markets 9

Sales, Trading and Research 10

Alternative Investments 13

Foreign Exchange 14

Corporate Banking 15

Private Banking 17

Operations 18

Fund Management 19

Investment Consulting 21

Private Equity 22

Global Custody 23

Risk Management 24

Compliance 26

Human Resources 27

Legal 28

Information Technology 29

Marketing and Public Relations 30

Ratings Agencies and Information Providers 32

Finding a Job The Recruitment Process: A Survival Guide 34

Interview Insiders: Know Your Q&A 36

Job Offers Rebound for Grads 37

Planning Ahead Voices of Experience 38

Take the Offer and Run 39

How the Right Recruiter Can Push Your Career 40

How to Blow Your Career in 90 Days or Less 41

How to Future Proof Your Career 42

Flexible Working in the Financial World 44

The Global Private Equity Club and How to Get In 46

What it Takes to Make Managing Director 48

Diversity Trends in Diversity: Banks Chase Same Minority Talent 50

Enlarging the Talent Pool: Necessity, Not Luxury 53

Bank Profile: UBS Embraces Diversity at All Levels 56

Culture and Shared Values: Finding the Right Fit 58

Careers Career Path: Merrill Lynch MD, Multi-Product Derivatives Sales 60

Career Path: Sanford Bernstein Associate Analyst 61

Career Path: FWA President and Managing Director, JPMorgan 62

Careers in Financial Markets is published by eFinancialCareers Ltd, www.efinancialcareers.com

Editor: Ian Brown; Assistant Editor: Melissa Donohue; Project Manager & Writer: Lena Quek; Design & Production: Michael Ballou Dudley

Writers: Mark Feffer, Jane Carruthers, Sarah Butcher, Teri Karush Rogers, Tom Groenfeldt, Marcia Stepanek

Additional copies: [email protected] +1 800-380-9040; ©2005-06 eFinancialCareers Ltd; no part of this publication may be reproduced without permission

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Employers Going Global: International Career Options for Graduates 64

Better to Go Bulge or Boutique at Career Start? 65

Employer Essentials 66

Employer Profiles 68

Glossary 72

Future Bankers and the Work/Life Balance Spiderweb 76

How to Use This Guide Careers in Financial Markets is designed to be used in conjunction with www.efinancialcareers.com, where you’ll find up-to-date graduate pay and hiring news, careers advice and employment trends in the financial markets. This guide serves as a grounding in the sectors, entry routes and skills neces-sary for a successful career in this field.

To be credible at interviews, you must know your global custody from your pri-vate equity. That’s why our Sectors section reflects the range of professions and skills needed for each. The Overview section presents trends and career paths across investment banking and the securities industry as a whole.

In Finding a Job, you’ll find the tips you need to land that first job, while our Planning Ahead section explores ways to take you to the top. Careers profiles some of the players in the financial markets; Employers outlines the main insti-tutions looking to hire the best talent.

This year’s issue also features a Diversity section that examines how and why banks are seeking to improve on their diversity efforts.

I hope this guide will inform and inspire you for your future financial career.

Ian Brown Editor, eFinancialCareers.com

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Careers in Financial Markets 2005-06

Employers DiversityPlanning AheadFinding a JobSectors CareersOverview www.efinancialcareers.com

04

A Career in Investment BankingFrom analyst to managing director – the ‘typical’ investment banking career

Whether you join a large investment bank or a small boutique, you’ll en-counter roughly the same retinue of job titles, in the same order of importance.

Analyst An analyst is the lowest position of all, and what graduates become when they join. In investment banking speak, analyst is simply another way of saying trainee.

What analysts do vary from division to division. In corporate finance,

analysts are hardworking number-crunchers who put together pitchbooks (company and sector research that help banks win bids for business) and analyze a company’s financials. In sales, analysts telephone relatively unimportant clients on non-crucial matters. On the trading floor, analysts can’t trade until they’ve passed their regulatory exams, and even then are heavily constrained until they’ve proven they’re not going to press the wrong button and lose millions.

At most banks you’ll be an analyst for three years. The bank then decides whether or not to renew your contract, and you have the option of whether or not to stay on. So what does it take to move up to the next rung? An analyst being considered for promotion should demonstrate an aptitude for leadership, the ability to present his or her point of view persuasively, whether contrary or not, and an understanding of both clients’ and the firm’s needs and motivations.

Associates The next rung on the ladder, associates are analysts who have made the grade, or business school students who joined after studying for a Masters in Business Administration (MBA). Associates typically manage and allocate work to their own team of analysts.

Expect to be an associate for another three years before moving up to the next rung – vice president.

Vice Presidents At this level, life starts to become exciting. The title sounds daunt-ing, but don’t be deceived: Vice presidents (VPs) are plentiful at any large investment bank.

As a VP in corporate finance, you’ll manage the day-to-day affairs of the associates and analysts under you and you’re more likely to have frequent contact with clients. If you work in sales, trading or research, you will likely have your own book of customers, more flexible trading risk parameters, or your own list of companies to research. Because sales people and traders work on their own to make money, an exceptionally talented VP on a trading desk could

potentially make more than a managing director.

You’ll typically work as a VP for three years, but you could be one for much longer, as VP can be a more difficult career transition point. VPs who fail to progress at one bank tend to move to another one, where they can join at the next rank up: director or executive director.

Director or Executive Director By this point, the top rungs of the ladder are within your grasp. Directors and executive directors (the titles are used interchange-ably) are the right-hand men or women of the real big-wigs of the investment banking world, managing directors. In corporate finance, executive directors help managing directors handle relationships with client companies. In sales and trading, directors have bigger and more important clients to call and ever larger trades to place.

Managing Directors You’ve made it! Managing directors (MDs) sit at the upper echelons of the banking hierarchy. They typically make the most money, have the biggest offices and command the most respect. MDs are the rainmakers – they deal directly with clients and bring in business.

As with any pyramid structure, very few people who started out as analysts will make it this far. At one large U.S. bank, only 6%-8% of directors are promoted to managing director each year. Goldman Sachs, for example, has roughly 1,000 MDs for 20,000 employees.

At the end of the day, individual performance, revenue generation, and client service are paramount to moving up the investment banking ladder. If you progress smoothly, you can become an MD by the time you’re in your early 30s.

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Global graduate careers

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Trends: A Cyclical and Highly Competitive IndustryOpportunities and volatility abound across financial services

If you’re looking for a slow and steady career where you progress predictably up the corporate ladder and pocket an engraved watch when you retire, the financial industry is not for you.

A career in investment banking follows a path something like the lifecycle of a butterfly: You’ll have to do your time as a grub (analyst/associate) before you morph into a triumphant winged creature (managing director). Successful managing directors earn fortunes and can retire young, but the unsuccessful at any level are crushed early on. And throughout your life, your career is susceptible to fits and starts, depending on the phase of the economic cycle.

The financial industry is both highly competitive and highly prone to the ups and downs of the global economy. There are few other industries where tens of thousands of graduates apply each year for just a few thousand places and where you can make millions by your mid-30s. At the same time, few organizations are as ruth-less as investment banks and securities firms at downsizing when business stalls.

Only the Best Succeed (and Get Big Bonuses)Investment banks pride themselves on being meritocracies.

This means two things. First, you won’t move up – or keep your job – unless you’re very good. Following annual talent reviews, firms like Goldman Sachs regularly cull 5% or more of their worst-per-forming staff. Goldman Sachs’ Business Principles, listed on their corporate website, state: “We offer our people the opportunity to move ahead more rapidly than is possible at most other places. Advancement depends on merit and we have yet to find the limits to the responsibility our best people are able to assume.”

Second, you won’t become a multimillionaire unless you also bring in millions of dollars of revenue to the firm and land a big bonus. Most investment banks cap salaries at around $250,000 and bonuses for top performers add hundreds of thousands, or even millions more, to annual salaries.

“Financial service firms have suppressed salaries in favor of performance-related bonuses for the last twenty years,” says Alan Johnson, a New York-based expert on investment banking pay structures. “If you’re a senior person, less than 20% of your pay is base salary, and the rest is down to performance. At junior levels it’s likely to be 50-50.”

Hiring and Firing The potential to be paid phenomenally well is the upside to a career in finance. The downside is the risk of losing your job.

Financial companies have a reputation for hiring wildly when things are good and firing just as wildly when things are bad. The

rash of layoffs in the years after 2000 followed a manic hiring spree in the late 1990s. In 1996, for example, worldwide head-count at Goldman Sachs was 6,000; by 2001 it was 25,000, and by 2004 it was down to 20,000. Merrill Lynch reduced its headcount by 24,000 in two years in the early part of the decade and as of 2004 had 48,100 employees worldwide.

Those going into the business should be aware that the industry has a flexible approach to recruitment. To avoid being left high and dry, would-be investment bankers should develop strong transferable skills relevant to other industries or sectors. Working for companies with established brand names also helps build a more impressive resume, leaving you better placed to find a new job when necessary.

Graduate Recruitment: A Variable Flow The industry’s flexible approach to hiring extends to graduate re-cruitment. When times are hard, companies might cut recruitment to little or nothing in some divisions. When times are good, there’s a graduate hiring bonanza.

The best known hiring spree was in 2000, when financial com-panies dramatically increased their hiring and boosted pay by as much as 50% in an effort to compete with dot-coms. Over the next two years, graduate vacancies fell 25% and students found it increasingly hard to secure jobs.

The good news is that by mid-2005, things were looking fairly promising for graduates. In late 2004, business schools reported that investment banks and management consulting firms were more aggressively recruiting MBA graduates in comparison to prior years. Several banks are expecting to increase their 2005 intake by around 30%. Whether or not this trend holds true for 2006 remains to be seen.

Hot SectorsBearing in mind the roller-coaster nature of the financial business, it’s worth giving some thought about where you want to work. Fixed income? Equities? Corporate finance? Choose carefully: You’re not just selecting a job, you’re positioning yourself in an industry where some sectors are healthier than others.

Ted Moynihan, a partner with management consulting firm Mercer Oliver Wyman, lists two factors to consider when choosing where to work: the economic cycle and a sector’s long-term growth prospects.

“Different points of the economic cycle will favor some divisions above others. However, several areas of the financial services in-dustry are benefiting from underlying structural growth, regardless of the point in the cycle,” he says.


06

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07


Which are the areas currently experiencing either long term or structural growth?

Structured Products This is where demand for people is hottest right now – and it’s likely to remain this way for the foreseeable future. Structured products are complex derivative instruments based on underlying stocks, bonds, currencies or assets. At their most simple, they might be futures, in which a buyer acquires the right to purchase a financial product at a specified future date and a specified price. A more exotic structured product might be first-to-default baskets, which allow buyers of protection to hedge themselves against market-to-market risk as well as broader default risk.

As a rule of thumb, the more complex the products, the greater the demand for employees, both those who can work on existing products and develop new ones. Most banks are interested in hiring structured product specialists. According to Forbes.com, “the most sought after candidates at banks are people who specialize in de-rivatives and other structured products, as well as merger advisors.”

Recruitment is being driven by the pursuit of better investment returns: Equity markets have performed poorly in recent years, and debt products haven’t been great either. Derivatives based on underlying debt and equity products have been one of the only ways for investors to achieve high rates of return.

If you ultimately want to work with structured products, you should train in a sales, trading, or capital markets role. If you go into opera-tions, you could also end up clearing and settling derivatives trans-actions. Traders who work with structured products will typically need a Master’s degree, or even a PhD, in a mathematical subject.

Leveraged FinanceRecruiters also report a rash of interest in leveraged finance specialists. Leveraged finance refers to debt raised by companies typically considered below investment grade by ratings agencies like Standard & Poor’s (see the Ratings Agencies and Information Providers sector profile for more detail). Leveraged debt is typically secured against a company’s assets. Leveraged finance teams in investment banks help put the debt package together.

Demand for leveraged debt is high and there are lots of jobs avail-able. Unfortunately, most positions require a few years’ experi-ence. If you want to break into this sector, you should start out in credit analysis or corporate banking. Accountants can also move into the sector.

Compliance Another area of persistent hiring is compliance. Greater scrutiny

by the world’s regulators is prompting securities firms to hire more staff to help keep their departments on the straight-and-narrow.

Marie Rice, a senior consultant at Jay Gaines & Company, Inc., a Manhattan-based financial services recruitment firm, says that compliance is definitely a growing sector. “Not only is there a premium for compliance people now, the job of compliance is getting bigger,” she says. “The market is demanding, more than ever, people who can sort through the complexity of the law and translate that into the specific initiatives across the corporation.”

Firms such as Goldman Sachs and UBS run graduate training programs for compliance specialists. Other routes into the area include law or working in the regulatory division of a large ac-counting firm.

Private Banking Private banking is also looking like a growth sector.

“Wealth is driving demand for brokers in the U.S. market,” says Harry Pilkington, a search consultant at Armstrong International who covers the U.S. market out of London. “Merrill Lynch, UBS, Deutsche Alex. Brown, Smith Barney - all the big brokerage houses are hiring.”

Strong demand is pushing up prices. Private client brokers are typi-cally paid 30%-40% of the fees they generate. This can amount to $2 million or more. To encourage top people to join, Pilkington says some houses are offering upfront payouts equivalent to a year’s commission.

If you want to go into private banking, try to start in a bank like JPMorgan or Goldman Sachs, which are known for training private bankers. Or you could complete a few years’ training as a corpo-rate financier, capital markets banker or fund manager and then move across departments.

Hedge Funds Finally, despite the tribulations surrounding recent poor returns and fund closures, the hedge funds sector is still fairly hot. You might not be able to go in as a fund manager, but there’s plenty of demand for people to work in hedge fund risk management, compliance, or information technology.

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Employers DiversityPlanning AheadFinding a JobOverview CareersSectors www.efinancialcareers.com

08

Mergers and AcquisitionsBig deals, long hours and lots of travel… oh, and lots of money

Definition and TrendsMergers and acquisitions, or M&A, specialists travel the world, earn millions, and work on deals that reshape entire industries.

Strictly speaking, it would be more accurate to talk of MA&D than M&A. As well as mergers in which two companies join as equals, and acquisitions in which one company buys all or part of another, M&A bankers also work on disposals, helping client companies sell all or part of their businesses.

Most large banks only become involved in deals worth at least $150 million. Lower value transactions, worth $20 million to $150 million, are typically handled by the M&A divisions of accounting firms.

M&A deals are hard work. The people involved often work days, nights, and weekends, and are at their clients’ beck and call. Once a deal is underway, junior bankers can expect to be kept very busy assembling the reams of financial information and legal documen-tation required for its completion.

Nevertheless, M&A is very popular with graduate applicants. In 2004, for example, 30% of graduate applicants to JPMorgan wanted to work in M&A, which accounted for just 16% of the bank’s openings.

Roles and Career PathsMergers and acquisitions is an advisory role, with M&A bankers providing advice to client companies on all aspects of buying, selling, and merging with other companies. They are typically part of a broader corporate finance advisory team, which also advises client companies on how to raise the money needed to finance a transaction.

As a rule of thumb, the more senior you become in M&A, the more contact you will have with clients. As an analyst, or junior banker, you will spend a lot of time working on pitchbooks. These are documents outlining a bank’s ideas for a particular transaction (e.g. should the client buy company X or company Y and, if so, how should the deal be financed?).

Analysts in the M&A division usually conduct basic industry research for the pitchbook and build the financial models used to price the companies concerned. Associates, who are one level higher than analysts in the banking hierarchy, oversee analysts’ work and check that their models are correct.

A further rung up, vice presidents oversee the work of analysts and associates, and often ask for the pitchbook to be partially or completely rewritten, even if it means staying up until the early hours of the morning making last minute changes. Vice presidents report to directors and managing directors who own the client relationship, meaning they are the main point of client contact.

It is usual for pitchbooks to come to nothing. Clients may decide not to go ahead with the suggestions, or they may engage a rival bank. However, when a pitchbook elicits a positive response, the M&A team moves into execution mode – seeing the deal through to completion.

Skills and Qualities• Appetite for hard work

• Analytical ability and statistical aptitude

• Team-working prowess

• Good communication skills and self-confidence

• Strong attention to detail

U.S. Announced M&A 2004

Advisor Value $bn No. of deals

JPMorgan 270.8 137 Goldman Sachs 258.8 153 Lehman Brothers 241.7 114 Citigroup 205.4 162 Morgan Stanley 158.3 140 Merrill Lynch 134.9 84 Lazard 131.6 60 UBS 89.8 95 Credit Suisse First Boston 88.8 115 Deutsche Bank 74.7 71

Source: Thomson Financial

Pay: Mergers and Acquisitions

Role Salary Range ($)

Analyst 55k – 75k + Bonus Associate 75k – 85k + BonusVP 100k – 125k + Bonus

Source: Wall Street Options, LLC

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09

Debt and Equity Capital MarketsThe ‘factory floor’ of the financial markets

Definition and TrendsCapital markets divisions are where traded financial products are born. Bankers here produce the core financial products for companies and institutions looking to raise money. The two main products are stocks, traded on the equity capital markets (ECM) and bonds, traded on the debt capital markets (DCM).

Stocks, also known as shares or equities, are bought by investors who then share in the profits of the company through dividends. If the price rises, they can sell them on to other investors at a profit; if it falls, they might sell them at a loss.

Bonds are a form of debt. Like equities, a company or a govern-ment issues bonds to investors in order to raise money. At some designated point in the future, the issuer promises to pay the bondholders back. Since bonds can also be sold on to other investors in the bond markets, the bondholder who is eventually reimbursed is likely to be totally different from the original buyer.

Until the redemption date, the bondholder receives interest pay-ments from the company in payment for the service of lending the money. Because these interest payments take the form of a fixed cash sum paid at regular intervals, bonds are known as fixed income products. Similarly, the bond markets can be known as the fixed income markets.

As well as simple equities and bonds, capital markets divisions also issue more complex products, such as equity-linked products, or bonds which can be converted into equities at a pre-arranged price, and derivatives.

ECM divisions and DCM divisions have traditionally been separate businesses. Over the past two years, however, a trend has emerged for banks to combine them into a single division.

Both types of markets grew during 2004. Companies raised 400% more money by listing their shares for the first time, known as initial public offerings or IPOs, on stock exchanges. Bond issuance rose by a more modest 15%, but high yield bonds, which are riskier and so offer a higher rate of return, rose more dramatically.

Roles and Career PathsIf you work in a capital markets division you could do anything from originating, to structuring, or syndicating.

Origination specialists are usually senior capital markets bankers. It’s a job that involves a lot of travel: Originators spend their time meeting clients in an effort to gain insight into their financing needs, and persuade them to offer up their business.

By comparison, structurers are distinctly desk-bound. They spend their time creating complex financial products to suit a company’s financing needs as communicated by the originators.

It’s up to the people on the syndication desk to ready the market for the sale. They calculate the best price range for the product concerned, assess demand for the product, and make sure the correct documents are in place.

Skills and Qualities• Analytical ability and statistical aptitude

• Awareness of how markets work

• Strong communication skills

• Ability to manage multiple projects

• Perseverance

Global Debt, Equity & Equity-related Issues 2004

Bookrunners Proceeds $m No. of issues

Citigroup 534.5 1,892Morgan Stanley 413.5 1,334JPMorgan 385.8 1,492Merrill Lynch 374.3 1,564Lehman Brothers 369.6 1,292Credit Suisse First Boston 362.4 1,359Deutsche Bank 334.8 1,299UBS 299.6 1,175Goldman Sachs 285.9 855Banc of America Securities 203.7 780

Source: Thomson Financial

Pay: Debt and Equity Capital Markets

Distressed Debt / Equity Research Salary Range ($)

Analyst 55k – 75k + BonusAssociate 85k – 100k + BonusVP 100k – 140k + Bonus



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10

Sales, Trading and ResearchFortunes are won and lost trading in the secondary markets

Definition and TrendsEvery day, millions of financial products are traded in the second-ary markets. The secondary market provides a marketplace for traders to buy and sell financial products subsequent to original issuance. This is distinct from the primary market where brand new financial products are initially issued. Salespeople, traders, and researchers advise on and carry out secondary market trading.

Sales Salespeople spend their time working the phones. They call clients from the moment the financial markets open to the moment they close, as well as several hours before and after. Clients are gener-ally high net worth individuals, pension funds, and institutional investors. Salespeople take orders for financial products, which they communicate to their traders who buy the products on the financial markets.

Salespeople have to be charming and persuasive. Clients often need to be encouraged to purchase particular products, and salespeople might just as easily call them up for a friendly chat to discuss events in the market as to plug 20,000 shares in a particu-lar company or the latest government bond.

In between salespeople and traders exists a hybrid: the sales-trader. Like salespeople, sales-traders call clients to recommend securities. Like traders, they can also trade the securities once a sale has been made.

Trading Traders are the people who actually buy and sell products on the secondary markets. They make snap decisions worth millions and can make substantial profits in the process.

If you work as a trader, you’ll have to get up before dawn to be at your desk when markets open. The rest of the day is spent sitting before an array of computer screens in the company of scores of other traders on the trading floor. The screens are a window onto the financial markets and show movements in the prices of stocks, bonds, commodities, and other financial products, as well as real-time news and research reports. At the touch of a button, traders can buy and sell the products whose prices they’re tracking.

Trends in trading teams’ profits and hiring differ with each financial product. Traders in fixed income, or debt, products in particular, if anything, are on a bit of a roll. Since 2000, banks have derived an increasing proportion of their profits from trading complex fixed income derivatives and proprietary trading. How-ever, traders working with simple equity products are increasingly being replaced by electronic systems, which can do their job more quickly and efficiently. In June 2005, for example, Goldman

Sachs fired 30 equity traders in New York as it prepared to boost electronic trading.

ResearchThese days, researchers exist for the benefit of salespeople. Researchers produce written reports on topics like trends in the share prices of particular industry sectors. Reports are read by salespeople who then use the information to make investment recommendations to clients.

Researchers spend their time scouring companies’ balance sheets, talking to company directors, and participating in conference calls where companies discuss their annual results and future expecta-tions for performance. Researchers also analyze interest rates, economies, and other areas that could provide insight into the proper valuation of different financial instruments.

Researchers have had some bad press in recent years. In 2002, Eliot Spitzer, the New York State Attorney General, imposed fines totalling $1.4 billion on 10 U.S. banks following accusations that they produced biased research in favor of their corporate finance clients. Two well-known researchers, Henry Blodget of Mer-rill Lynch and Jack Grubman of Citigroup, were barred from the securities industry for life.

Following the Spitzer investigation, the linking of research to use of banks’ other services has been banned and research houses independent of the banks have sprung up as a result.

As researchers are no longer involved with bringing in lucrative business to the corporate finance department, they are paid less and fewer of them are employed. One researcher who recently lost his job said the sector was likely to remain down for at least five years. He says research was being battered by a combina-tion of falling commissions and rising compliance costs. “For the moment, it’s the end of equity research as we knew it. But, at some stage, fund managers will realize that performance is under pressure without specialist research. At that point, they will start paying again,” he says.

Roles and Career PathsTraders, salespeople and researchers can be categorized according to the products they trade, by the types of clients they sell to, or by the sector they specialize in. For example, a trader might trade for-eign exchange derivatives or corporate bonds, a salesperson might sell equities to pension fund investors, and a researcher might specialize in analyzing the stock price of oil and gas companies.

In addition, there are two fundamental types of trader: proprietary traders and flow traders. Most traders are flow traders who buy and sell financial products on behalf of the bank’s clients. Sales-

EFC_CIFM_090605.indd 10 9/6/05 8:53:04 PM


11

people tell flow traders what clients want to buy and sell; flow traders tell salespeople whether a particular trade is possible at a particular price.

Once a client agrees to buy at a price quoted to them by the sales-person, flow traders are obliged to make the trade at that price. If they don’t act quickly, and the price rises, they will have to sell the products to the client at a loss. If traders buy at a price lower than that quoted to the client, the firm makes a profit.

While flow traders trade on behalf of clients, a handful of elite traders trade on behalf of the bank. These are the proprietary trad-ers. Proprietary traders can make huge profits but can also make considerable losses. Advancement in sales and trading is all about performance.

Skills and QualitiesSales

• Outgoing and self-confident

• Ability to grow and maintain client relationships

• Excellent communication skills

• Ability to understand complex products

Trading

• Passionate about financial markets

• Work well under pressure

• Think on your toes

• Math aptitude

Research

• Innovative and decisive

• Ability to assimilate information and take an original view

• Excellent communication and relationship skills

• Analytical ability and statistical aptitude

Pay: Sales, Trading and Research


Sales associate 55k – 75k + BonusJunior trader 55k – 65k + BonusResearch analyst 55k – 75k + Bonus



2003 Leading U.S. Institutional Sales Firms

2002 2003

Source: The Institutional Investor Research Group

4 1 Bear Stearns

6 2 Lehman Brothers

2 3 Smith BarneyCitigroup

3 4 Goldman Sachs

5 5 Merrill Lynch

7 6 Morgan Stanley

8 7 UBS

1 8 Credit SuisseFirst Boston

10 9 JPMorganSecurities

11 10 Sanford C. Bernstein

12 11 Prudential EquityGroup

9 12 Deutsche BankSecurities

13 13 Banc of AmericaSecurities

15 14* Robert W. Baird

20 16 Legg Mason

11.44%9.35% 10.89%9.20%

9.46% 10.62%

9.09% 9.91%9.08% 9.23%

8.47% 8.57%

7.56%4.65%

6.52% 11.56%

4.15% 4.20%

4.04%3.82%

2.90%2.61%2.82% 4.45%

2.17%2.03%

1.08%0.92%

1.05%0.56%

EFC_CIFM_090605.indd 11 9/6/05 8:53:05 PM

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Alternative InvestmentsAlso known as the mysterious – and megabucks – world of hedge funds

Definition and TrendsConsidered the ‘maverick’ outsiders in the financial services world, most hedge fund managers are highly successful former traders or fund managers who’ve decided to go it alone.

The name ‘hedge fund’ comes from the idea that money manag-ers can hedge their bets to ensure they make money no matter whether the market goes up or down. For example, a fund that invests in shares of company X risks losing out if the share price falls. To offset this risk, it might buy an ‘option’ giving it the right to purchase a particular quantity of company X shares for a particular price at a particular point in the future.

If the option to buy is set at a low enough price, the fund will profit even if the share price itself has fallen: it can buy the shares at a price below the market price and sell them on again, thereby recovering the losses on its initial investment.

In reality, hedge funds aren’t the only financial institutions to employ hedging – banks do it every day. What really distinguishes a hedge fund from a traditional fund manager is its willingness to push the boundaries of normal investment techniques to achieve unusually high returns.

Most hedge funds follow a particular investment strategy. The most popular strategies are:

• Short selling: Short sellers borrow assets that they believe are overvalued and sell them. When the price falls, they buy the instrument at a lower price and deliver it to the lender.

• Global macro: Instead of focusing on movements in particu-lar stocks, global macro funds focus on worldwide trends.

• Event-driven: Managers using this strategy aim to profit from one-off events, such as mergers and acquisitions or bankruptcies.

Because hedge funds are considered risky, investors can also put their money into ‘funds of hedge funds.’ These invest money across several different hedge funds, with the intention of spread-ing the risk.

During the past few years, the hedge fund industry has enjoyed a period of impressive growth. But despite strong year-on-year growth, more recently, hedge funds have been declining. Accord-ing to Tremont Capital Management, a provider of information about the hedge fund industry, new money invested in hedge funds fell 35% in the first three months of 2005, to $24.6 billion globally.

Roles and Career PathsJobs in hedge funds tend to fall into four categories:

• Analysis: Analyzing the companies, markets and financial products a hedge fund invests in

• Sales and marketing: Liaising with investors and helping sell the strengths of the fund

• Trading: Executing the investment strategy, buying and selling financial products according to analysts’ recommendations

• Risk management and back office: Settling trades, working out a hedge fund’s risk exposure and making sure everything flows smoothly; in many small funds this is outsourced to prime brokerage divisions in investment banks

Most roles are quite distinct – if you join as a risk manager the chances of graduating to become an analyst are slim. However, it’s not unknown for analysts to become traders.

The bad news is that hedge funds rarely take graduates fresh out of school. Most are small organizations without the time or resources to train graduates themselves. Instead, they prefer to hire them away from investment banks.

Skills and Qualities• Math aptitude

• Adaptability

• Creativity


13

Pay: Alternative Investments

Role 0 – 2 years 2 – 4 years 4 – 8 years ($)

Fund manager 70k + B 100k + B 150k – 200k + B (%)Research analyst 70k + B 120k + B 150k + BMarketing executive 70k + B 75k + B 125k + B


Hedge Funds (%) A percentage of the buy side trading profits are paid to the hedge fund portfolio manager who is responsible overall for a trading strategy. The percentage in terms of dollars can range from nothing to six, seven or eight figures. The majority of hedge funds charge customers a 2% management fee and about 20% of profits. “B” equals Bonus.

Top 10 U.S. Hedge Funds Ranked By 2004 Return

Fund Name Return (%) Assets $mMagnet Fund 245.34 8.90Tradewinds Russia Partners 90.75 69.00Westcliff Energy Strategy 88.17 12.30JK Navigator Fund 80.25 229.10Accessturkey Fund 79.82 37.60Tradewinds Fund 76.39 27.00Firebird Global Fund 68.66 234.60Park Place Columbia 68.03 N/ALake Street Fund 61.10 13.97Schultze Partners 59.84 39.00

Source: CISDM database/MarHedge

EFC_CIFM_090605.indd 13 9/6/05 8:53:05 PM



14

Foreign ExchangePlacing bets on the course of currency markets is not for the faint-hearted

Definition and TrendsThe foreign exchange (Forex or FX) market involves converting one currency into another and predicting changes in exchange rates based on global events. FX salespeople and traders aim to profit from currency-price fluctuations.

Anyone who has lost money by buying a foreign currency before going on vacation, only to find its value falls before they arrive and spend it, will appreciate the need to keep an eye on the value of currencies. Banks and their clients face a similar problem but to a much greater degree. If you’re a U.S.-based company that owns hundreds of millions, or even billions, of euros, you stand to lose hugely if the euro drops even minutely against the dollar.

Working in foreign exchange means predicting whether one currency will fall (depreciate) or rise (appreciate) against another. If depreciation is forecast, salespeople and traders will advise clients to sell that currency and buy the one that’s appreciating instead. It’s a simple variant of the “buy low, sell high” maxim of financial markets.

The trading of currencies themselves is known as the spot market. However, a lot of the products bought and sold in foreign ex-change markets are not actual currencies themselves but bets on the future direction of foreign exchange price movements known as futures. Futures fall into a class of assets called derivatives: contracts whose value is based on the performance of an underly-ing financial asset, index, or other investment.

The big story in FX markets over the last few years has been the weakness of the dollar, which lost ground consistently against the euro from mid-2002 to March 2005. Since then, the dollar has been regaining lost ground as the U.S. Federal Reserve raised interest rates, making it more attractive for international investors to hold dollars, but it’s uncertain whether or not this trend will continue, especially during the seasonal year-end dollar weakness.

Roles and Career PathsRoles in the world of foreign exchange are much the same as in the sales, trading and research area, with the qualification that you will be trading currencies and their derivatives instead of corporate and government bonds and equity products.

FX trading jobs are usually split between vanilla trading, where products are simple and trades are easy to execute, and more complex, exotic derivatives trading. Sales jobs in foreign exchange (as in other product areas) are usually divided between different client types, with some salespeople specializing in hedge funds and others selling only to companies.

Researchers produce written reports used by the salespeople to keep clients informed of what’s happening in the FX markets. If

you work with FX derivatives, you could also become a structurer, assembling complex exotic derivative products for clients.

Skills and Qualities• Understanding of geopolitical events and macroeconomics

• Quick thinking with a good awareness of how markets work

• For FX derivatives: reasonably strong math aptitude

• For structurers: patience and communications skills

Pay: Foreign Exchange

Role FX Trading Salary Range ($)

Associate 1–3 years 75k – 100k + Bonus VP 3–5 years 100k – 125k + BonusDirector/Head of desk 150k – 200k + Bonus


FX trading (sell side) pay is based on product sold (commissions generated). A discretionary bonus is paid out at year end based on sales performance.

EFC_CIFM_090605.indd 14 9/6/05 8:53:06 PM


15

Corporate BankingJobs may be folding as more consolidation is in the cards

Definition and TrendsCorporate banking is a broad term given to the different banking services that large companies, governments, or other big institu-tions need in order to function from day to day. It spans the rela-tively simple business of issuing loans, to more complex matters such as helping to minimize taxes paid by overseas subsidiaries, managing changes in foreign exchange rates, or working out how to finance the construction of a brand new theme park.

If an organization is exporting overseas, corporate bankers might also arrange a process of international payment or put together ‘trade finance’ packages to ensure the company is paid by its foreign customers.

In many cases, there’s an overlap between corporate banking and capital markets. Bankers working in capital markets help compa-nies raise money by issuing equities or debt. Corporate bankers typically help clients raise money through loans. But corporate bankers will bring in the expertise of their capital markets col-leagues if necessary.

Increasingly, corporate banking also requires an understanding of complex financing methods, such as securitization, in which a company sells bonds based on the money it will in earn in future from assets like rented shop space or a back catalogue of 1970s disco music.

Longer term, the big news in the corporate banking sector is con-solidation. In the past five years the sector has changed consider-ably as participants look to become bigger to better compete.

Roles and Career PathsDifferent banks do things differently, but if you opt for a career in corporate banking, you may start out as a credit analyst. Credit analysts spend their time looking at companies’ balance sheets and working out whether it’s a wise idea to issue loans to them, just in case they can’t pay them back.

From being a credit analyst you could progress to being a relation-ship manager responsible for lending money to a handful of the bank’s customers. It’s a job that requires an intimate understand-ing of the company’s strategy and a strong appreciation of the risks of default.

If you aren’t interested in the relationship management side of corporate banking, you could always go into treasury manage-ment. Treasury managers help companies cope with their cash flow. They ensure that companies have enough money to pay for whatever they need to buy and help them deal with fluctuations in the value of their foreign currency holdings.

As well as frontline client-facing jobs, corporate banking also has a variety of operational positions, including technology and human

resources. Various banks offer training in corporate banking, including Citigroup, Goldman Sachs, UBS, and HSBC.


• Strong communication skills


• Demonstrable drive

Pay: Corporate Banking


Credit analyst 75k + B 85k + B 100k – 150k + B Relationship manager 75k + B 85k + B 125k + BTreasury/Cash manager 75k + B 85k + B 90k – 120k + B


“B” equals Bonus


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17


Private BankingFor financial markets diplomats with in-depth product knowledge

Definition and TrendsAs their name suggests, private bankers help very rich people manage their money in private, far away from the prying eyes of paparazzi and other interested parties.

The clients of private bankers can be anyone from chief executives to property tycoons, investment bankers, professional athletes, pop stars, or members of privately run family businesses. They all have one thing in common: they are extremely wealthy. Private banks typically look for clients with at least $1 million to invest, but many only deal with clients whose financial assets are worth more than $30 million.

The main role of a private banker is to help clients manage their money by helping them invest wisely while avoiding risks that might reduce the value of their assets. They also offer tax and pension advice, help clients develop a strategy for philanthropy, and advise them on estate planning.

As the array of potential investment products widens, the job of a private banker is becoming increasingly complex. Private bankers need an understanding of financial products from basic stocks and bonds to complex financial derivatives. An increasing proportion of their clients’ wealth is now also invested in hedge funds.

At the same time, rich people are getting richer, and business is booming. A study by the Scorpio Partnership, a wealth manage-ment consulting firm, found assets managed by private banks rose 13.1% in 2004 to more than $6 trillion worldwide. Profits rose by an average of 24% over the same period. Not surprisingly, this has been mirrored by a surge in hiring.

Roles and Career PathsIf you work as a private banker, you can expect to work in one of three areas: investing money for existing clients, building relation-ships, or managing back office functions such as human resources and accounting.

People working on the investment side of private banking either in-vest their clients’ money themselves or offer their clients detailed advice to help them invest their own money. They are typically product specialists who are expert in a particular asset class.

People working on the relationship side are essentially sales-people who spend their time building connections with clients and selling the bank’s services. This can involve a lot of traveling and close contact with interesting, unusual, and demanding people. When a relationship private banker has established a client’s needs, investment specialists are brought in to put a more detailed solution together.

A decade ago, most private bankers combined the investor and relationship role. In some organizations, they still do. But in most

banks, investors and relationship managers are now separate – another sign of the industry’s growing complexity.

Firms such as Goldman Sachs, HSBC, and UBS run graduate training programs for private bankers. If you don’t find a place on a graduate training program, it’s often possible to move into private banking with a background in corporate finance or, more particularly, fund management.

Skills and Qualities• Discretion and trustworthiness

• Excellent customer service skills

• Knowledge and understanding of financial markets

Global Private Banking Managed Assets 2004

Institution Under management $bn

UBS 1295.53Merrill Lynch Global Private Client Group 1030.00Credit Suisse 528.73JPMorgan Private Bank 304.00Deutsche Bank 195.11Citigroup Private Bank 182.00HSBC Private Bank 178.20Dresdner Private Banking 158.27ABN Amro Private Banking 156.91Wachovia Wealth Management 147.00

Source: Scorpio Partnership

Pay: Private Banking


Relationship officer 125k – 150k + BonusInvestment analyst/advisor 65k – 85k + Bonus


EFC_CIFM_090605.indd 17 9/6/05 8:53:07 PM


OperationsThe unsung, and largely hidden, heroes of investment banking

Definition and Trends The operations division is also known as the back office. Unlike the traders, salespeople, bankers, and corporate financiers of the front office, people working in operations don’t work with custom-ers to generate revenues and profits for the bank. Instead, the operations division is a support function. Operations professionals support people in the front office to make sure everything works smoothly and the firm gets paid.

The business of operations covers everything from information technology to human resources, accounting, and risk management. Its functions are so broad that operations specialists typically specialize in only one of these areas. At its core is the function of clearing and settling trades.

Clearing trades involves looking at the records made by the bank’s traders when they buy and sell financial products and checking that they match the records kept by people from whom, or to whom, the shares were bought or sold (the counterparties).

People who work in settlements ‘settle’ trades, or ensure the stocks or shares bought and sold by the bank’s traders are exchanged for the correct amount of money. Settlements cover everything from preparing the documentation required for a sale to making sure the bank has been paid for all the shares it has sold and has paid for all the shares it has bought.

The operations division may not be where banks make their prof-its, but it is certainly where they can lose them. The more efficient a bank is at conducting its business, the greater the percentage of revenue that will be fed into the bottom line.

Banks have realized this and are now looking for a higher caliber of employee to work in operations. At the same time, banks are shifting simple elements of the operations function to lower-cost locations like India, China, Russia and even Scotland.

The move offshore has been paralleled by increased use of technology. Twenty years ago, clearing and settle-ments were labor-intensive businesses involving a lot of forms and enormous filing systems. Today, they are largely processes dominated by computerized settlements facilities that transfer financial products electronically. Settlement systems such as CHIPS, Fed-wire, and Depository Trust and Clearing Corporation (DTCC) hold securities in electronic format and transfer them from one owner to another automatically.

None of this bodes particularly well for jobs in opera-tions, which are taking a hit as processes are elec-tronically streamlined and business moves overseas. The good news, however, is that the jobs left behind tend to be more interesting and higher paid.

One area of operations is hedge fund operations, or ‘prime broker-age.’ Prime brokers are the back office for hedge funds, offering everything from clearing, settlement and custody facilities to help in managing relationships with investors and raising new funds. Prime brokers are a lucrative role in large investment banks.

Roles and Career PathsToday, roles in clearing and settlements are typically for exception managers. Exception managers deal with occasions when data on the electronic systems don’t match up and try to work out the rea-sons for the discrepancy. If you work as an exception manager you might find yourself talking to traders who claim to have sold shares for $3 each when the buyer says the agreed price was only $2. You could also find yourself chasing payment from a recalcitrant overseas buyer for a trade that he or she denies ever took place.

Electronic systems have vastly increased the speed with which simple trades are processed. But derivative trades are often too complex to be settled electronically and tasks are still done manu-ally. Trades are often confirmed still by fax, for example. The large number of documents required for derivatives transactions creates roles for documentation specialists.

Whether you work with derivatives or not, most operations jobs also have a strategic element. Banks use operations staff to analyze ways of making processes more efficient, and project managers implement their suggestions. The more senior you become, the more likely you will work in this kind of strategic or project management role.

Skills and Qualities• Deal with conflicts firmly and efficiently

• Strong analytical and problem-solving skills

• Attention to detail

• Good organization and time-management skills


18

Pay: Operations


Associate 85k – 100k + Bonus Manager 125k – 200k + BonusDirector 150k – 300k + Bonus


EFC_CIFM_090605.indd 18 9/6/05 8:53:08 PM


19

Fund ManagementA game of patience, profits, and pension funds

Definition and Trends Fund managers are professional investors. They invest money on behalf of their clients, which can include pension funds, insur-ance companies, unit trusts (institutional investors), and other repositories of cash, with a view to making it grow. They take a long view, buying financial products in the hope their value will rise over time.

There are two basic kinds of funds. Passive funds, which are also called ‘index trackers,’ track a financial index. The investment deci-sions of passive funds are typically made using computers.

While passive fund managers let computer programs do the leg-work, active fund managers actively buy and sell financial products. Active fund managers correspond to most people’s idea of what fund management is. They invest in products which they hope will rise in price over time in order to sell them later at a profit.

Funds invest in everything from stocks, bonds, or real estate, to commodities such as oil, wheat or aluminium. Different types of clients can tolerate different amounts of risk, so fund management companies usually run several different funds at a time. Some offer fast growth but big risks; others offer slower growth and aim for less risk.

Most large investment banks have their own fund management divisions and, in many cases, they are not doing particularly well. Citigroup is selling its fund management division after it gener-ated just 1.5% of its profits. Deutsche Bank sold a major part of its U.K.- and Philadelphia-based Deutsche Asset Management busi-ness to Aberdeen Asset Management in June 2005 after senior staff left and clients started withdrawing money.

Roles and Career PathsFund managers focus on the business of managing. If you aren’t interested in being a fund manager, you could work as a fund management marketer, research analyst, or an operations expert.

Fund management marketers wine and dine potential clients in an effort to persuade them to invest money in their fund and manage relationships with existing clients. They also meet investment consultants and play a role in the development of new products.

Analysts working in fund management help steer fund managers in the right direction when it comes to choosing assets to invest in. They spend their time analyzing companies’ results and meet-ing with companies’ senior management to discuss strategy. They then write lengthy reports communicating their conclusions.

Like their counterparts in investment banks, operations staff work-ing for fund managers do everything from working in information technology to settling and reporting trades, project management and customer services. However, many funds have outsourced the

administrative aspects of their operations to global custodians.

Skills and Qualities• Understanding of how the financial world operates

• Ability to assimilate information and pick out key points

• For researchers, an inquiring mind

• For marketing experts, excellent communication skills

Pay: Fund Management


Fund manager 75k + B 85k + B 150k + BResearch analyst 75k + B 85k + B 125k + BMarketing executive 75k + B 85k + B 90k – 150k + B




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Investment ConsultingStrategic advisors to fund managers and scrutinizers of them

Definition and TrendsInvestment consultants advise pension fund trustees on what to do with their money. They help trustees decide the proper asset allocation and with which fund management firms they should invest their money. In the process, they look at fund manager track records and try to predict how they will perform in the future, knowing that strong returns over the past decade are no guarantee that the same fund won’t fall in value in the next twelve months.

To avoid turbulent stock markets, many investment consultants have advised clients to switch money away from equities into bonds and higher risk alternatives such as hedge funds. Hedge funds aim to produce positive returns in both falling and rising markets.

Some of the larger investment consulting firms include Watson Wyatt, Mercer, Wilshire Associates, Frank Russell Co., Callan Associates, BARRA RogersCasey, Evaluation Associates and Capital Resource Advisors. Each hires an average of six to 12 new graduates per year.

Roles and Career PathsJobs in investment consulting usually fall into one of two main categories: asset allocation and fund selection.

Asset allocation specialists advise clients whether to invest in equities, bonds, private equity funds, or alternative asset classes in order to generate the returns they require to pay pensions over the next thirty years or more. It is a complex role that involves examin-ing economic factors such as interest rate changes, as well as the timing of the pension fund’s liabilities, or pay-outs, and the likely risks and returns associated with each type of asset. To help them, asset allocation specialists create mathematical models that fore-cast how a client’s money should be divided among asset classes.

Fund selection specialists spend much of their time analyzing indi-vidual fund managers and asking questions about their investment strategy. They scrutinize particular funds and author reports on their strengths and weaknesses. Most investment consulting firms produce confidential lists ranking each fund manager according to their likely success going forward.

Within fund selection and asset allocation, there are also roles for relationship specialists, who are the true consultants of the investment consulting world. While many asset allocation and fund selection specialists work in research, and specialize in a particular type of fund or investment product, relationship special-ists are usually generalists. They are often more senior – staff in investment consultancies typically begin their careers in research and move into client facing roles as they gain more experience.

Most large investment consulting firms take on graduates. After

entering investment consulting you will typically go on to gain a pro-fessional qualification, such as a Chartered Financial Analyst (CFA).




• Powerful reasoning skills


Pay: Investment Consulting

Experience Salary Range ($)

1 – 2 years 75k – 85k3 – 4 years 85k – 100k5 – 7 years 100k – 150k


EFC_CIFM_090605.indd 21 9/6/05 8:53:09 PM



22

Private EquityYou’ll need a few years’ experience or an MBA to make it into this sector

Definition and TrendsLike the capital markets divisions of investment banks, private equity funds raise money for companies in need of cash. But while capital markets bankers do this by selling a company’s stocks or bonds, private equity funds do it by offering cash to companies in exchange for an ownership stake. As a result, they become co-own-ers, or even sole owners, of the companies in which they invest.

In the ideal situation they invest in an underperforming company, turn it around, and sell their stake at a profit some years later. Sometimes private equity companies engage in ‘asset stripping,’ or breaking a company up and selling its assets separately to make a profit.

The money invested by private equity funds is frequently used for management buyouts (MBOs), where a company, or a division of a company, is bought by its managers. Alternatively, it may be used for a management buy-in (MBI), where managers from outside take over a company.

Venture capital and private equity are often used interchangeably. But strictly speaking, venture capital refers to the funding of new and developing businesses, while private equity is more usually associated with MBOs and MBIs.

The private equity industry is booming due to the lack of trade buyers, and the relative ease with which private equity companies can sell their investments at a profit. Trade buyers usually bid against private equity funds to buy underperforming rivals, but recently have been doing that less.

Roles and Career PathsPeople who work in private equity can make huge amounts of money. They also benefit from the kind of job security most invest-ment bankers can only dream of. But don’t count on finding a job in the industry easily: private equity funds hire very few juniors, and

they hire almost no one straight out of college (See The Global Private Equity Club and How to Get In article on page 46).

There are two main entry points to a career in private equity: two to three years after graduation and after spending time working in an investment bank or management consulting firm, or immedi-ately after graduation from an MBA program.

Junior staff at private equity funds are typically number-crunchers who analyze the companies in which the fund is thinking of invest-ing. The next rung in the hierarchy is made up of principals, who determine whether an investment deal is worth pursuing and, if it is, doing anything from arranging the right legal documentation to negotiating the right price to ensure the deal takes place.

Originators are at the top of the private equity tree. They are usu-ally the fund’s partners, who, as the title suggests, originate deals. They then oversee the deals, and make the most money if one of the fund’s investments is sold at a profit.



• Confident and outgoing


Pay: Private Equity


Analyst 55k – 75k + BonusAssociate 75k – 85k + BonusVP 100k – 125k + Bonus


PE Firms Ranked by Capital under Management 2004 – Excludes Funds of Funds

Rank Firm Name Size ($m) No. of Funds

1 The Carlyle Group 26,492.3 342 Goldman Sachs 25,637.2 153 Blackstone Group 19,066.5 114 Kohlberg, Kravis, Roberts 15,066.7 35 Oaktree Capital Management 14,284.2 156 Bain Capital 14,164.2 177 Warburg Pincus 13,810.0 58 Apax Partners Worldwide 13,056.6 119 DLJ Merchant Banking Partners 12,498.2 1110 PAI Partners 12,473.9 5

Source: Thomson Financial Venture Economics/NVCA

EFC_CIFM_090605.indd 22 9/6/05 8:53:09 PM


23

Global CustodyThe guardians of the world’s financial markets

Definition and TrendsBefore computers existed, global custodians had gigantic filing systems for their core work – storing certificates of stock and bond ownership for their clients. Today, certificates related to asset ownership are stored electronically, making the business of custody much less space-intensive.

Custodians look after these assets, charging a fee of typically up to 0.08% of the assets they’re managing for the service. Global cus-tody is a big business. The total value of worldwide custody assets is $65 trillion according to globalcustody.net, a specialist website.

The bad news is that custody fees are under pressure as everyone competes for the same business. Custodians are increasingly branching out into more lucrative businesses, such as securities lending and risk measurement.

Small custodians lack the manpower and technological wizardry for these higher margin activities and are gradually being sub-sumed into bigger players as a result. In October 2004, Citigroup purchased ABN Amro’s direct custody, securities clearing, and fund services businesses in some European and Asian markets for an undisclosed sum. This followed numerous other instances of consolidation, such as Deutsche Bank’s sale of its large global custody business to State Street in 2003.

Roles and Career PathsMuch of the work is administrative and repetitive, but the role of custodian has widened to include a range of other services. These include income collection (e.g. collecting dividends from clients’ investments); performance measurement (calculating the returns clients’ investments have made over a period of time); and proxy voting on behalf of clients at shareholder meetings. However, custodians typically specialize in a particular area, so what you do exactly will depend on where you work.

Corporate action professionals normalize and consolidate cor-porate announcement information – generally referred to in the industry as scrubbing – to inform clients about important events at companies which could impact the value of the shares they hold.

If you work in fund operations, you might for example, be asked to record and monitor the investments made by fund management clients, or to work on clearing and settlements. Staff in clearing and settlements ensure the contracts and payments are in place following a trade made by a client. Similar to operations staff working in investment banks, fund operations staff in custody houses look out for so-called ‘exceptions’ when trades have not been settled properly, and try to resolve any problems.

Custodians also offer more client-focused and technical jobs. Relationship managers, for example, work with clients to reassure

them that their assets are safely maintained. Graduates may start out in corporate actions or settlements and move into other positions after a few years. Few global custodians offer structured graduate training programs.

Skills and Qualities• Strong communication, presentation, and selling skills

• Organized and process-driven

• Work well under pressure

Banks by Global Custody Assets Worldwide 2004

Provider Total assets $bn

JPMorgan 10,154The Bank of New York 9,859Citigroup 6,640BNP Paribas Securities Services 3,397Mellon Group 3,259Northern Trust 2,700UBS 2,652Société Générale 1,518Investors Bank & Trust 1,470RBC Global Services 1,355

Source: globalcustody.net

Pay: Global Custody


Corporate actions 75k + B 85k + B 85k – 125k + BFund operations 75k + B 85k + B 85k – 125k + B




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24

Risk ManagementRisk managers act as a brake on a bank’s risky activities

Definition and TrendsRisk managers make sure that investment banks are not overex-posed to plummeting stock markets and prevent huge loans from being made to companies on the verge of bankruptcy. Risk manag-ers also ensure that business continues as normal in the event of computer system failure or a terrorist attack.

Market risk, also known as systemic risk, is the risk that a whole group of traded financial products (e.g. stocks, bonds, or commodi-ties) will fall in value simultaneously. Market risk is caused by out-side events, such as rising oil prices, terrorist bombs, earthquakes, or sudden hikes in interest rates.

Credit risk is the risk that a particular company or an individual will default on its obligation to repay its debts. Credit risk is becoming increasingly more complex as new credit derivative products mean that banks can trade the risk that a company will fail to repay a loan. If the customer defaults on the loan repayments, whoever bought the credit default swap has to repay the remainder to the bank.

Operational risk is the risk that something might go wrong in the day-to-day running of the bank, while reputational risk, sometimes considered a sub-sector of operational risk, is the risk that some-thing will happen to damage a firm’s reputation. Following a succes-sion of financial scandals in the collapse of Enron and Worldcom, banks are increasingly sensitive to reputation management.

Roles and Career PathsPeople who work in market risk are typically situated on, or close to, the trading floor. Market risk specialists use mathematical value-at-risk (VaR) models to work out the maximum amount of money the bank would lose in the case of a particular event. They also work closely with traders to calculate the risk associated with specific trading transactions.

The people in credit risk analyze company balance sheets and meet with company directors to determine the organization’s financial health. By comparison, operational risk experts review the likelihood of particular risky events taking place and formulate plans in case they do.

Reputational risk specialists attempt to present the bank’s best side in public. Few banks employ reputational risk specialists per se; the role is typically dealt with by the public relations depart-ment, the human resources department, or by the legal team.

If you want a career in risk management, it’s a good idea to join a bank’s graduate training program. At some banks, risk manage-ment training is covered by the IT or operations department. However, Deutsche Bank and UBS are among the banks offering risk-specific training to graduates in 2005.


• Strong skills in mathematics and finance

• Good problem-solving and decision-making abilities

• An understanding of the bigger picture

Pay: Risk Management


Operational risk 65k – 75k + B 75k – 85k + B 100k – 125k + BMarket risk 65k – 75k + B 75k – 85k + B 100k – 125k + BCredit risk 65k – 75k + B 75k – 85k + B 100k – 125k + BReputational risk 65k – 75k + B 75k – 85k + B 100k – 125k + B



EFC_CIFM_090605.indd 24 9/6/05 8:53:10 PM

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26

ComplianceThe internal watchdogs of the banking world

Definition and TrendsIf you want to work in the compliance area of an investment bank, you’ll need a healthy respect for rules and regulations. Compliance professionals ensure banks operate within the rules set by govern-ment regulators.

As well as interpreting the complicated and ever-changing exter-nal rules that regulators lay down, the compliance function creates a system of rules to apply those regulations internally. Compliance then communicates those internal rules to the bank’s employees and works to enforce them.

In the U.S., the primary regulatory body for financial markets is the Securities and Exchange Commission, or SEC. The SEC’s main goal is to protect investors and maintain the integrity of the U.S. financial markets.

At an investment bank, the compliance function is usually split into teams. These include money laundering specialists, training specialists, monitoring specialists, and advisory and product specialists.

Money laundering regulations have been tightened considerably in the aftermath of the terrorist attacks of September 11, 2001. The U.S. passed the Patriot Act to impose new anti-money laundering requirements on financial institutions. The European Union broad-ened its existing money laundering regulations in June 2003.

Roles and Career Paths Jobs in compliance vary depending on the area in which you work. If you opt for money laundering, you’ll spend your time on the lookout for suspicious transactions. For example, if someone pays cash for a very large quantity of bonds, it’s likely to warrant your attention, particularly if that person or organization has never dealt with the bank before. In the U.S., money laundering officers report to the Financial Crimes Enforcement Network (FINCEN) of the Department of the Treasury.

The job of compliance training specialists focuses on internal control. While money laundering teams are identifying financial fraudsters, training specialists preach the compliance message to the bank’s employees. They create and present training courses explaining what the rules and regulations are, and why it is that bankers need to follow them.

Monitoring specialists look out for infringements of rules and regulations that suggest employees are up to no good. Tradition-ally, in the realm of junior compliance staff, much of this role has been taken over by computers. Computers can monitor billions of email messages per day and can spot unusual activities such as dormant trading accounts that suddenly come back to life.

Compliance advisors interpret regulations and apply them to particular business areas and products. An increasing number are product specialists who offer advice on particular types of finan-cial products. Product specialists sit on or near the trading floor. They tell traders whether or not a particular trade can go ahead, and suggest alternatives that will still be satisfactory to the client. Compliance advisors need to know a lot about trading and about the products they’re advising on. Some are ex-traders.

Compliance-specific graduate training programs used to be rare, as were entry-level jobs. The good news is that some banks now offer dedicated compliance training, and more are likely to follow.

If you don’t get onto an investment bank’s compliance training program, there are a few other options. One is to train with the SEC, which has training programs. Another is to work for the compliance consulting arm of a Big Four accounting firm, such as PricewaterhouseCoopers or KPMG.

Skills and Qualities• Self-confident and assertive

• Competent understanding of legal issues

• Methodical

Pay: Compliance


Monitoring specialist 55k – 70k + B 70k – 80k + B 80k – 125k + B Money laundering 55k – 70k + B 70k – 80k + B 80k – 125k + B Training specialist 55k – 70k + B 70k – 80k + B 80k – 125k + B Advisor 55k – 70k + B 70k – 80k + B 80k – 125k + B



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27


Human ResourcesThe ‘people people’ of investment banks

Definition and TrendsThe human resources (HR) department is responsible for the peo-ple issues that arise in an investment bank. This means everything from hiring, firing and paying people to implementing workplace policies on diversity, discrimination, and employee monitoring, as well as managing disciplinary cases.

The mantra of HR professionals? “People are an organization’s best asset.” This is particularly relevant in investment banks, where the difference between a good employee and a bad employee can mean millions of dollars. Hiring trends at invest-ment banks also tend to reflect the markets: The industry has a reputation for bulking up when times are good and laying off large numbers when times get tough.

Most banks have changed the structure of their HR departments in rec

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