Sections in this article
The last two decades of the India Economy have seen the advent of a set of important functions in the area of Finance. Corporate Structures today, realize the importance of consolidation, risk assessment, credit management etc. The Result: The topic of 'Financial Management' in leading B-schools is no longer the same. We have moved from the age of 'Generalization' to the age of 'Specialization'. MBA Graduates now seek to work in specialized areas like investment banking, portfolio management, sales and trading, credit management, equity research etc.
The above areas are confusing to most MBA aspirants. However, all the above areas differ in terms of the knowledge, skill sets and acumen required for the job. Let us try and understand the differences:
Investment Banking ↑ Top ↑
A typical investment banker plays a critical role in advising companies about mergers, takeovers or buyouts. In other words investment bankers provide advisory services to corporate for their long term investment decisions. Besides M&A, investment baking also includes helping companies plan their IPOs i.e. when companies issue their stocks and shares to the public for the first time, strategic alliances, diversification of assets and sales and trading of securities.
In the last 5 years, India Inc played a major role in various M&As: Hindalco acquired Canada based Novelis for USD 5982 mn, Tata Steel acquired Corus Group plc for USD 12,000 million,. Videocon acquired Daewoo Electronics Corp. for $729 million. Among the many people who worked relentlessly behind these deals were a crop of experienced investment bankers.
The entry position for most fresh MBA graduates is that of an 'Associate. As an Associate you are part of the team that attends client meetings and makes the actual deals. For this position you need extreme dedication, good spreadsheet and analytical skills. In mid-career, you can look forward to rise to the position of a project manager, thereafter a Vice President and finally a Director. Having a good client rapport, understanding of the political and macro-economic environment and sticking to your guts to get things done will determine your success in this field. If you can manage these, then Barclays, Goldman Sachs or Blackstone Group may be one of your employment destinations in I-banking.
Portfolio Management ↑ Top ↑
According to 'finance terms' dictionary, portfolio management is all about strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and many other tradeoffs encountered in the attempt to maximize return at a given appetite for risk.
In other words, a portfolio manager invests funds in those securities that match the investors risk taking ability. He also goes further on and systematically manages the securities in order to optimize the investor's profits and does a regular follow up on the market.
In a corporate scenario, portfolio managers seek to maximize the profitability or value of the company's portfolio through investment in financial instruments that support the corporate strategy of the organization. Thus portfolio managers make investment decisions which are in line with the short and long term goals of the company.
BNP Paribas Asset Management, Enam Asset Management, Motilal Oswal Securities are some examples of Portfolio Management companies.
Fixed Income Management is a part of Portfolio Management which deals in the investment of those financial instruments that have a fixed return viz. bonds and debentures.
Investment Management ↑ Top ↑
Investment management refers to the systematic management of securities and assets to fulfill the investment objectives of the investor/ client. Investment managers manage investments; selecting stocks, bonds, or other investments that will appreciate in value for their investors.
Most insurance and pension fund companies are investment management companies. Thus in India LIC is a good example of an investment management company.
The terms 'Asset Management', 'Portfolio Management' and 'Investment Management' are used interchangeably with one another. While all three seek to maximize an investor's profits, Asset management differs from the other two in the sense, that Asset Management is considered a further specialization wherein, the asset manager manages the real estate assets for a company.
Equity Research ↑ Top ↑
Equity Research involves research, review and analysis of various stocks and equities traded on in world stock markets. An equity research firm will have research analysts who have the expertise of a particular industry.
Equity analysts closely monitor the movement of stocks for a particular industry/company. They also keep a tab on the news that will affect the financial strength of the company and also assimilate information to predict the financial health of the company. Inarguably equity research is an important aspect of investment banking and portfolio/ investment management.
Emkay Research, India Infoline, JP Morgan Equity, Morgan Stanley, Citigroup, IL&FS Investments are some of the prominent equity research firms that are hot seats for employment.
Sales and Trading ↑ Top ↑
Securities sales and trading are high-pressure jobs which deal with the actual buy and sale of debt, futures, options, stocks, and other financial instruments. In most cases securities salespersons and traders are independent brokers who work on a contract. They work on commission basis for the transactions that they make.
Securities Sales people are usually referred to as brokers or dealers. Most work takes place over the phone: attending to client calls or selling a particular bond or issue. Sales People use analyst research and use every sales trick to push stocks to the investors.
As a trader you will make money by trading securities. In other words, if an investor wants to buy or sell a sock he places an order with the sales person. The trader is the one who does the transaction for the brokers and clients. Thus they are responsible for buying and selling large amount of stocks for the employer with the employers or at times their own capital.
For both the sales people and traders if you win, you win big and if you lose, you lose big.
Credit Management ↑ Top ↑
A credit manager is in charge of the credit a company may issue to its clients. Credit Managers formulate criteria for rating risk and credit. They determine the maximum amount of credit to offer and supervise past due-account collections.
Thus Credit management refers to fund and working capital management. In the short term, it relates to working capital management. In the long term it relates to fund management.
Actually Credit management is more of an inside company job and related to the Accounts and Finance Dept. I thought it would do good for the students to understand this term in context of the above terms and thus included it here. I couldn't really find prominent credit management companies as such. They might be good companies bt it was difficult to assess their worth online. Internet search throws up a lot of search results related to CRISIL, but that is a credit rating agency rather than a management company.
Skills required for the above specializations ↑ Top ↑
Besides the knowledge of basic financial concepts, you would require the following skill sets:
Finance careers in the time of Recession ↑ Top ↑
The recent US recession has had its trickle down effect on all world economies. At times such as these, the financial services sector has borne the major brunt of the recession. Once a hot favourite, students take up the finance specialization with some apprehension.
However, what MBA aspirants should not forget is that every economic phase is cyclical in nature. If we are at a 'down' today, the 'up' is about it come. It is better to ride the wave when it is gaining its height rather than when it is about to collapse.
The best example that the recession is bad but not as bad as it seems, is the recent takeover of the pharmaceutical company Wyeth by Pfizer for USD 68bn in Jan 09. What is interesting about this takeover is that Pfizer could raise capital from ailing US banks to finance this takeover. This wouldn't have been possible without an equally interesting team of investment bankers, equity research analysts and the company's portfolio managers.
After all, every cloud does have a silver lining.