Breaking down careers in corporate finance, from hedge funds to mergers and acquisitions

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Corporate finance careers, from hedge funds to mergers and acquisitions

Corporate finance is a key pillar on which modern markets and economies were built. And this complex ecosystem consists of a number of important sectors, which can lead to lucrative career avenues.

From lending to investment banking, private equity to hedge funds, the chart above from Wall Street Prep breaks down the top careers in finance and the paths people can take.

Let’s take a closer look at the unique coins of this financial ecosystem.

Lending activity

Lending groups provide much-needed capital to businesses, often in the form of term loans or revolvers. These can be part of short- and long-term deals or for less anticipated events like the COVID-19 pandemic, which saw companies consolidate $222 billion in revolving lines of credit in the first month. .

investment bank

Next comes investment banking, which can be divided into three main areas:

  1. Mergers and Acquisitions (M&A): There is a lot of preparation and paperwork every time companies merge or make acquisitions. For this reason, it is a crucial service provided by investment banks, and its importance is reflected in the enormous fees recognized. The top five U.S. investment banks earn $10.2 billion in M&A advisory fees, representing 40% of $25 billion in global M&A fees per year.
  2. Loan syndications: Some $16 billion Loan syndication fees are collected annually by investment banks. Loan syndications occur when multiple lenders fund a borrower, which can happen when the loan amount is too large or risky for one party. the loan syndication agent is the financial institution involved that acts as a third party to oversee the transaction.
  3. Capital markets: Capital markets are financial markets that bring together buyers and sellers to engage in transactions in assets. They are divided into Debt Capital Markets (DCM) such as bonds or fixed income securities and Equity Capital Markets (ECM) (i.e. stocks). Some $41 billion is collected globally for services associated with the structuring and distribution of equity and bond offerings.

The major investment banks are generally all from the United States and Western Europe, including Goldman Sachs and Credit Suisse.

Sell ​​side vs buy side

Thousands of corporate finance analysts represent both the buy and sell side of business, but what are the differences between them?

An important difference is in the groups they represent. Buy-side analysts typically work for institutions that buy securities directly, such as hedge funds, while sell-side analysts represent institutions that make money by selling or issuing securities, such as investment banks. investment.

According to Wall Street Prep, here’s how the assets of buy-side institutions compare:

Buy side institution Total assets
Mutual funds, ETFs $21 trillion
Capital investment 5 trillion dollars
Hedge funds $3 trillion
Capital risk $0.5 trillion

Additionally, buy-side jobs seem to be more sought after on financial career forums.

Breaking the buy side

Mutual funds, ETFs and hedge funds all generally invest in public markets.

But between them there are still differentiating factors. For starters, mutual funds are the largest entity and have been around since 1924. Hedge funds only came into existence around 1950 and for ETFs this stretched until the 1990s.

Additionally, hedge funds are strict in the clientele they accept, with a preference for wealthy investors, and they often engage in sophisticated investment strategies such as short selling. In contrast, ETFs and mutual funds are widely available to the public and the vast majority only deploy long strategies, which are those that expect the value of the asset to rise.

Private equity (PE) and venture capital (VC) are groups that invest in private companies. Venture capital is technically a form of private equity, but tends to invest in new start-up companies, while private equity favors more stable, mature companies with predictable cash flows.

Who funds the buy side? The source of capital roughly breaks down as follows:

Origin of capital Capital amount
People $112 trillion
Banks $51 trillion
pension funds $34 trillion
Insurance companies $24 trillion
Endowments $1.4 trillion

Endowment funds are foundations that invest the assets of non-profit institutions like hospitals or universities. Assets are typically accumulated through donations, and withdrawals are made frequently to fund various parts of operations, including critical ones like research.

The largest university endowment belongs to Harvard with some $74 billion in assets under management. However, the largest overall endowment fund belongs to Ensign Peak Advisors. They represent The Church of Jesus Christ of Latter-day Saints (LDS), with some $124 billion in assets.

Primary market vs secondary market

One of the main motivations for a company to enter the public markets is to raise capital, where a slice of the company’s ownership is sold via an allotment of shares to new investors. The capital itself is raised on the primary market, which represents the first and initial transaction.

The secondary market represents transactions subsequent to the first. These are considered as already issued shares and the shares now fluctuate according to market forces.

Tie it all together

As the infographic above shows, corporate finance is highly diverse, manages trillions of dollars, and plays a key role in building modern markets and economies.

For those considering a career in finance, the possibilities and avenues they can take are virtually endless.

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