Portfolio Management vs Investment Banking – Students from finance always get confused what they need to choose. They get confused as they receive mixed information from different sources. Some authorities say you should choose investment banking as its prospect is much better than portfolio or asset management. Some opine that they should decide to do asset management as learning opportunity in investment is much broader.
Now here’s the deal. Everyone has a different opinion. You don’t need to go according to them. Take suggestions but make sure that what you choose is the product of your own conclusion.
In this article, we will bust some myths. We won’t tell you what you should choose and what you shouldn’t opt. Rather we will give you a complete overview of these two professions so that you can decide what to do with your skills and inclinations.
We will discuss about the outlook of both these professions, what sort of education is required to crack them, primary tasks or roles they play, what kind of compensation you can expect and finally we will talk about the pros and cons of each of the profession. Read, think and then make an informed decision. It is your life. You need to choose what will propel you higher in your career.
1) Investment Banking Program 99 Course Bundle, 500+ hours
2) Business and Financial Modeling (University of Pennysylvania)
3) Wharton Business and Financial Modeling Capstone (University of Pennysylvania)
4) Introduction to Finance: Valuation and Investing (University of Michigan)
5) Valuing Projects and Companies (University of Michigan)
Let’s get started.
Portfolio Management vs Investment Banking – Outlook
Let’s understand the basic difference between portfolio management (asset management) and investment banking.
Asset management is all about managing clients’ investments. And investment banking is all about raising the capital for clients.
So, the basic difference between these two is in case of asset management, clients already have the money which you need to manage. Whereas, in case of investment banking, clients don’t have the money and you need to raise capital to support your clients.
Let’s take an example to illustrate that.
We will take two scenarios and will try to understand how this works.
In the first scenario, Client A hires Bank B to help them with investing their money in different areas. Client A tells Bank B – “Take my money and invest in portfolios where you think our money will grow better and will make us wealthier.” Bank B then takes the money and invests to get better returns on the portfolios they rely upon. This is portfolio management. In this case, clients have money; your job as a portfolio manager is to manage the investment ad try to maximize client’s wealth.
In this scenario, Client A wants someone to invest in their business. An investment banker will search for the investor; look for capital raising opportunities in equity market or via debt or run IPOs or advises companies on Merger & Acquisition deals. So, in this case, client doesn’t have money; investment banking professional helps the client get the money via capital raising opportunities.
In finance parlance, asset management is also known as buy side and investment banking is termed as sell side. (also see buy side vs sell side)
So, the outlook for these two should be different. And you know now why investment banking needs more inputs as you need to bring the business. In portfolio management, you will learn more about investment.
Portfolio Management and Investment Banking Differences – Education
To be able to make your mark as a portfolio manager, you need to know a lot. Thus educating yourself with the right qualification is of utmost importance. Even if you have a undergraduate degree in science, technology, computer science or biology, you can become a portfolio manager.
For that, you need to sit for MBA entrance exam and enroll yourself for a top-notch MBA school. Your specialization would definitely be finance. This is the prime requirement. Plus, if you can do a course in portfolio management, then it would be an added advantage.
Now, let’s say you want to reach the top 5% of the portfolio managers in the world. Then, you need to do a course which is not for faint hearted. You need to enroll yourself for CFA (US). If you can clear three levels of this tough exam, with little help from your network, you can reach a level where very few reach. Also, remember, along with upgrading your education, you can look for internship in portfolio management to get some experience. You won’t earn much, but whatever you will learn during your internship days, it would be tremendous. You can learn more about CFA exams here
Let’s come to what you need to do if you want to be investment banking professional. Investment banking profession is more about corporate finance and business. So, you need to have depth of knowledge in financial models and valuation. At the same time, you need to know a lot about business as well. So, what should you do? Simply go for a top-notch MBA in finance. Then use your network to do some internship in investment banking. Generally, get the internship experience before you enroll for MBA or as you prepare to sit for MBA entrance. Internship in any investment bank will add tremendous value to your resume and may hire you for full time gig.
Portfolio Management vs Investment Banking – Primary tasks or Roles to Play
If you want to be a portfolio manager, you need to know which tasks or roles portfolio manager plays on regular basis. First of all, know that you may be the first person who enters the office as your job starts as soon as financial market opens. So, once you get in, you need to look for the status of financial markets. You need to be always at the top of current events. You also need to talk to your analyst on regular basis to get the updates about any market development and to understand and discuss the trends of current events that are relevant to your business. Here, you need to realize that the analyst has to be the person who is thorough with his understanding of the market and can do research simultaneously. Because on the basis of your analyst’s recommendation, you’re going to take a call about whether to buy or sell! Remember your job is to maximize the wealth of your clients and you can’t afford to miss out on any new events or any new information that can affect your portfolio.
You, as portfolio manager, also need to meet your high-value investors or you can connect them over phone. You also need to make sure that during your work, you need to conduct interviews with media. As portfolio managers, normally you will handle large funds. People who handle small funds are usually called fund managers. So, to handle large funds and to leverage it in the market, you need to do some publicity and at the same time, you need to take responsibility to publicize the firm which you work for.
As investment banking professional, you need to do three things – pitch book creation, modeling and administrative support. Investment banking professional first concentrates on pitch book creation. The real meaning of pitch book is creating a presentation with all the data and graphical representation. Your job as investment banking professional, your job is to be able to convince to invest in your client’s business. So, you need to pitch. The second part of your tasks would be to handle modeling. Especially mergers and acquisitions, though you may need to handle other sort of modeling as well. Lastly, you need to take care of some of administration. But that’s often not your primary tasks. So, to summarize, the basic things you need to do in a day is to create pitch-book and to handle modeling.
Portfolio Management and Investment Banking Differences – Culture and lifestyle
Portfolio managers normally handle big funds and not small funds. Normally they handle over a billion dollar of funds and thus earn well. Thus, their lifestyle is often top-notch. They often can afford private jets and a great income. Moreover they have better work-life balance than investment banking professionals. They work hard too. They have a high stress jobs as they need to reach office whenever financial market opens. But they get enough time in weekend to connect with their family.
In case of investment banking professionals, their lifestyle is also above average. They work crazy hours, often 16 hours a day and they often need to spend their nights in the office. Thus, it’s difficult to find time for anything else other than investment banking. They see their colleagues more often than their family members. They earn top bucks, but there is no work-life balance which makes it difficult for many investment banking professionals to stay at the job for long time.
Portfolio Management vs Investment Banking – Compensation
For portfolio managers, earning big bucks is natural as they handle big funds and often appointed as partners in the firm they work. So they earn top bucks, usually in millions. But few of them who handle funds who manage more than US $15 billion funds, often earn in billions as well. But the lifestyle depends on individual choices and preferences. Portfolio managers, who earn in billion, often live a simple life instead of buying big jets or bungalows. And few would go out and live a lavish lifestyle. But if you become a portfolio manager, immediately you can’t expect massive downpour of money. You need to learn the trade and then after few years of experience, you can expect to earn big bucks. Usually, a fresh MBA in finance starts with US $65,000 per annum plus bonus. But every firm has its own rule and own compensation. So, you need to figure out what would you accept as your first time offer.
As investment banking professional, your earning will sky-rocket once you join. No, you will not earn in million immediately. But, you will learn havoc, often far more than anyone in finance domain and that’s the reason investment banking profession has become so popular. But you will have little or no time to enjoy the money you will earn. In ten years down the line, you may expect to earn at least a million in a year on an average.
Choose your career on the basis of what you want. It’s prudent to not base your career decision on the compensation only. You should have an inclination to get prosperity in your career (not only the prosperity in the sense of money). Step back, think and then make an informed decision.
Portfolio Management vs Investment Banking – Pros & Cons
- It’s a job of an investment analysis. You will love every moment of it if your knack is in financial market and how it works.
- Even if there’s stress in the job, you will have a great work-life balance. The reason is you will spend 12-13 hours a day working and the rest of the time, you can invest in your family or in a hobby you like.
- As portfolio manager, you will earn very good money. You won’t earn millions or billions in a year or so, but if you stick to this career, you may become the partner of the firm you work for which is always a good bet.
- Even if you get connected to a lot of high net-worth individuals, you are not really the center of attraction always (except for having money). You do your recommendations on the basis of the researches done by your analyst.
- If you start your career handling low-funds (under a million or similar), you often get stuck in the hole. Though you shouldn’t be called a portfolio manager, if you handle low funds; you should have a growth mind-set and you need to always prepare yourself for handling big funds like US $10 billion and more.
Investment Banking Professional
- It is a profession where you would be the center of attraction for everything. As you will deal with big business men and women and will handle big deals for your clients, you would be the glittering gold in the middle of the crowd.
- You will earn big bucks from the beginning. Only thing you need to have is knowledge of business and corporate finance. If you are good, you will earn in millions in 10 years down the line.
- You will be able to network with a lot of people and most importantly with people who hold very high positions in the organization like CEOs, CFOs and MDs. Having a network with high-net-worth individuals will ensure that you will close bigger deals in future.
- There is no work-life balance in this profession. You need to work 16 hours a day and even in weekend also. Very rarely you would be able to see your family.
- Investment banking is not about investment. It’s about raising funds for your clients. Thus, if you are passionate about investments, it’s better than you go for portfolio management or private equity or hedge fund. Investment banking professional will mostly work to earn the business deal and handle financial modeling to some extent.