For a long time, financial services has been regarded as an industry where professionals can thrive, and the salary structure has been continuously improved on the corporate ladder. Career options that provide personal and financially beneficial experiences include:
However, the three areas of the financial sector provide the best opportunity to maximize pure profitability, thereby attracting the most competition for jobs:
Read on to find out if you have everything you need to succeed in these lucrative financial fields and learn how to make money in the financial field.
The directors, principals, partners, and managing directors of large investment banks can earn more than one million U.S. dollars each year, sometimes as high as tens of millions of U.S. dollars. At the director level and above, he is responsible for leading the analyst and assistant team in one of multiple departments, broken down by product offerings, such as equity and debt financing and mergers and acquisitions (M&A), and department coverage teams.
Why do senior investment bankers make so much money? One sentence (in fact, three words): large transactions. Directors, principals and partners lead the team to deal with high-priced projects and earn huge commissions, because bank fees are usually calculated as a percentage of the transaction involved. For example, large scaffolding banks will reject projects with small transactions; for example, if a company with revenues of less than $250 million has been overwhelmed by other larger transactions, investment banks will not sell the company.
Investment banks are brokers. A real estate agent sold a house for $500,000 and charged a 5% commission, earning $25,000 in this transaction. In contrast, an investment bank office sold a chemical manufacturer for US$1 billion with a commission of 1%, which is equivalent to a considerable expense of US$10 million. Not bad for a team of a few people-for example, two analysts, two assistants, a vice president, a director, and a managing director. If this team completes a $1.8 billion M&A deal this year and distributes bonuses to senior bankers, you can see how the salary numbers add up.
Analyst (pre-MBA), assistant (post-MBA), and vice president levels are proving grounds, and the weekly working hours sometimes exceed one hundred hours. Analyst, assistant, and vice president-level bankers focus on the following tasks:
- Write a brochure
- Research industry trends
- Analyze the company’s operations, finances and forecasts
- Run the model
- Conduct due diligence or coordinate with the investigation team
Directors oversee these tasks and usually communicate with the company’s “C-level” executives when key milestones are reached. Partners and managing directors play a more entrepreneurial role because they must focus on customer development, transaction generation, and office development and staffing. It may take 10 years to reach the director level (assuming two years as an analyst, two years as an MBA degree, two years as an assistant, and four years as a vice president). However, this schedule depends on several factors, including the company involved, the success of the individual at work, and the requirements of the company. Some banks need an MBA, while others can promote outstanding bankers without advanced degrees.
The criteria for success include:
- technical skills
- Ability to meet deadlines
- Communication skills
Those who can’t stand it move on, there is a filtering process before being promoted to senior level. Those who wish to exit the banking industry can move horizontally to corporate finance (for example, working for a Fortune 500 company, which means making less money), private equity, and hedge funds.
The heads and partners of private equity firms can easily pass the $1 million annual salary barrier, and partners usually earn tens of millions of dollars a year. The managing partners of the largest private equity firms can generate hundreds of millions of dollars in revenue because their companies manage billion-dollar companies.
If their investment banking counterparts handle high-priced projects with high commissions, then private equity manages high-priced projects Very High commissions. Most of them follow the “two plus twenty rule”-that is, an annual management fee of 2% of managed assets/capital and 20% of back-end profits.
Take a private equity company that manages 1 billion U.S. dollars as an example; the management fee is equivalent to 20 million U.S. dollars per year, which is used to pay for staffing, operating expenses, transaction costs, etc. Then, the company sold its portfolio of companies that it initially acquired for $100 million for $200 million, resulting in a profit of $100 million, so it required another $20 million in fees. Considering that a private equity company of this size does not have more than one or two dozen employees, this is a lot of money for a few people. Senior private equity professionals also have “game skins”-that is, they are usually investors in their own funds.
Private equity participates in the wealth creation process. Investment bankers charge most of the fees when the transaction is completed, while private equity must complete several stages within a few years, including:
- Carry out a roadshow to raise investment funds
- Ensure transaction flow from investment banks, intermediaries and transaction professionals
- Buy/invest in attractive and robust companies
- Support management’s efforts to achieve company development through organic methods and acquisitions
- Profit from selling portfolio companies (most companies are usually between four and seven years)
Analysts, assistants, and vice presidents provide various support functions at each stage, while leaders and partners ensure that each stage of the process is successful. The level of participation of the heads and partners of each company is different, but they hire the best and brightest junior MBA and post-MBA talents, and delegate most of the tasks.
Most of the initial screening of potential investment opportunities can be carried out at the junior level (colleagues and vice presidents are given a set of investment criteria to judge potential transactions), and senior staff usually intervene in weekly investment reviews to evaluate the results of junior staff.
The client and partner will lead the negotiation between the company and the seller. Once the company is acquired, the person in charge and partners can enter the board of directors and meet with management during the quarterly review (or more frequently if there are questions). Finally, the principals and partners plan and coordinate with the investment committee on asset divestiture and harvesting decisions, and formulate strategies to maximize returns for their investors. If the private equity firm is unsuccessful at a certain stage, you will usually see the principals and partners more involved in the work of that stage.
For example, if there is a lack of transaction flow, senior personnel will take road trips and visit investment banks. In the fundraising roadshow, senior private equity professionals will interact with institutional investors and high-net-worth individuals on a personal level and lead speeches. In the procurement phase of the transaction process, the principal and partner will step in and establish a rapport with the intermediary—especially in the case of new contacts and budding relationships. If the portfolio company performs poorly, you will find leaders and partners on the company site to meet with management more frequently.
Like private equity funds, the purpose of hedge funds to manage pools of funds is to ensure favorable returns for their investor clients. Usually, this money is raised from institutions and high-net-worth investors. Due to the similar salary structure to private equity, hedge fund managers can earn tens of millions of dollars; hedge funds charge annual management fees (usually 2% of assets under management) and performance fees (usually 20% of total return).
Hedge fund teams tend to be more streamlined than private equity (assuming the same amount of capital under management), and they have more leeway in choosing how to deploy and invest client capital. The parameters of the types of strategies that these hedge fund managers can use can be set at the front end.
Private equity usually buys and sells companies within a four to seven-year investment period. The difference is that hedge funds can buy and sell financial securities in a shorter time frame, and even sell securities on the public market within a few days or hours after the purchase. . Due to this compressed investment period, hedge fund managers are more involved in their investments every day (as opposed to private equity clients and partners), paying close attention to market and industry trends and geopolitical and economic developments around the world.
Hedge funds can receive high performance fee compensation and can invest (or trade) various financial instruments, including stocks, bonds, currencies, futures and options.
The competition to enter private equity firms or hedge funds is fierce. It is almost impossible to enter these organizations directly from an undergraduate degree.
Elite standardized test scores as well as academic ancestry and leadership activities are helpful. Quantitative subjects (such as finance, engineering, mathematics, etc.) will be favored. Look at the quality of professional experience cruelly with a cynical, ruthless eye.
Many investment bankers considering exit opportunities usually transition to private equity and hedge funds in the next part of their careers. Those who wish to enter the private equity and hedge fund business should work for a few years (between two to four years) in a large investment bank or elite consulting firm (such as McKinsey, BCG or Bain). Private equity will be optimistic about the work of buyers and sellers. For hedge funds, buying jobs in investment banks or private equity firms will be considered junior positions.