Author: Rajul Raman

An investment bank recruits people in a number of ways. Undergrads are hired onto internships; graduates are hired straight from University, MBAs straight from Graduate School, and experienced staff who have spent some time working in the industry already join when a position becomes available.

Internships

Investment banks offer different types of internships, depending on which one you are exploring. Summer internships, Easter programmes (aimed at first-year undergraduate students) even winter internships in some regions. If you are at a top tier university, the likelihood is that the banks will come to your campus and so you will have easy access to some of the people that work there. They will attend presentations, careers fairs that your University holds and/or tailored events such as case studies. Staff from the bank’s HR or recruitment department and bankers, traders, and other staff will attend these events so that they can talk to you about their roles. From here, you can decide which area you are best suited to and apply accordingly.

If you don’t attend a top tier university, then do your research online. Each bank has a recruitment page with a plethora of information at your fingertips. Can your career advisor help you gain access to people in the industry or events? Either way, ensure you know when the recruitment deadlines are, as you will not want to miss out.

Easter or Insight programmes are usually four days in length for first-year students of a three-year course or second-year students of a four-year course. These are very educational and don’t require any actual work at a desk. The programs are usually split into information areas, so for example, day one may be an introduction to the whole bank and explain what they do and what areas they have within them. Day two could concentrate on investment banking, day three equities, and fixed income, day four support areas such as compliance or IT. For those who get chosen to go onto these types of programs, you have a real chance to make a good impression as several will be fast-tracked through the recruitment process for the summer internship.

Summer internships for penultimate year students are usually 10 weeks, with the first week being training and introductions and the rest being on the job learning. You will be treated like one of the team of the desk you are working on. The hours can be tough and the work challenging, but it is the best way for the banks to test you out and for you to see if the culture of the bank suits you. Ideally, you will have done so much research before applying that the work and the environment doesn’t shock you, and you will feel ready to accept a full-time position at the end of the internship if you are offered one. The job offer would be for a full-time position once you graduate. An extremely high percentage of full-time graduate program positions are taken from the summer internships, so this is your very best way of getting in.

Graduates

Fresh graduates are hired onto graduate programs, with the vast majority of these positions being filled through summer internships. The few places that are left on this program are ones that weren’t filled with the interns, or from a desk that put in a late recruitment request. Nevertheless, it’s incredibly competitive to get in this way as available positions are not very high.

If you don’t manage to get a role in a graduate program then you might want to see what other finance roles are around. Not all finance roles are in top tier investment banks. You might find something that ticks many of your boxes in a smaller company or in a slightly different role than you imagined. If you decide that an investment bank is still where you want to be, then keep networking, researching, and looking on the recruitment pages of the bank’s websites to see if any junior positions have become available. You may have picked up some valuable experience in your current role that would appeal to the bank you are applying for.

Alternatively, you could study for a master’s in finance, which means you get another stab at applying for the graduate programme the year after your original application. You will have learned more along the way, possibly been through the application process, and so now know what to expect. You can rebrand yourself and impress this time around.

MBAs

Maybe you became interested in investment banking later, or the industry that you found yourself working in no longer suited you and so you wanted to make the switch. Doing an MBA enables you to apply for the bank’s MBA programs, but they will be looking for people who have expertise and experience in one of the areas they deal with so consumer/retail, energy, technology, for example. If your prior experience has no bearing on the business areas that they are hiring into, then they won’t be interested, no matter how intelligent you are. As with the above internship information, if you are at a top tier university, then banks will come to your campus for events so you can speak to them. If not, then all the banks have recruitment information about their MBA programs on their websites. The best way is through the MBA summer program, which you apply for in your penultimate year and take part in during the summer before you graduate. The idea is that you secure a full-time role in the MBA program upon graduation.

At the MBA level, you will have to know your stuff. MBAs are usually not hired into support roles but front office positions, and so you will be tested at interview and asked some very technical questions. Hiring numbers are not usually high, and so this is a very competitive program.

Experienced hires

People with several years of experience in an industry that can be useful to investment banking can transition into a VP type role. There are several roles open in the banks, but they are looking for specific skills, so you will need to read the job spec and see if you are suitable and how your skills match. If you have the experience or transferable skills that they are looking for, then you have a reasonable shot as there won’t be as many people applying as at the internship and graduate levels.

Whichever route you end up trying, to get into an investment bank, you will need to have the following things:

  • A demonstrable interest and passion for the job.
  • Work experience of some kind – even at the summer internship level, you will impress if you have traded stocks online or started up a student club or society.
  • A clear reason or story to illustrate how you became interested in the industry and the particular area of the bank.
  • A hobby to show you have an interest outside of finance and that you are a well-rounded individual.
What was my pathway into working for an Investment Bank?

Approaching the end of my undergraduate course (B.A. (hons) Classics, from King’s College, London), only a few of my peers, even those studying more vocational subjects, really knew which career they wanted. After graduation, many of us had false starts in all sorts of different jobs. This was demoralizing. I spent a few months trying to be a recruitment consultant (not a success), and then about a year in the Marketing Department of a recruitment company (not much better).

At the recommendation of a friend, I signed up to a temporary employment agency which specialized in financial services. I had no idea what to expect, and without a financial or even mathematical background, I suspected I might find myself out of my depth.

My first assignment was for one month with Morgan Stanley Dean Witter (now Morgan Stanley) in Canary Wharf in London as an Administrator reporting to the Manager responsible for the “European Monetary Union (EMU) Project”. This project was preparing all Business Units in the Firm for the transition to the Euro from Europe’s several legacy currencies. Despite not knowing a bond from an equity product, my manager and colleagues allowed me the space and time to learn the ropes to do my job, and the first month went well. My contract was extended to six months.

After this, I applied for and was successful in gaining a permanent position on a business process re-engineering project, working with several Business Units to renovate the process by which client accounts were created and maintained. I then became a Manager in the Operations group responsible for managing client account data. Two years later I moved into the Compliance Department providing Anti Money Laundering advice and oversight to several Business Units. A couple of years after that, I moved again to Equity Sales and Trading Compliance, focusing on automated algorithmic ‘black box’ trading systems. In this role, I was promoted to Vice President and then given the opportunity to transfer from London to Hong Kong.

Why choose a career working for an Investment Bank?

This is a fair question. I spent 11 enjoyable and successful years working for Morgan Stanley in London and in Hong Kong, and my answer to this is based on my experience at this one Firm.

From day one, I was impressed by the professionalism of the people I met. When people spoke, or wrote emails, they were clear and purposeful. When I spoke, people really listened and I found my opinion was weighed and valued. This was unexpected and refreshing. I was after all just the ‘temp’! This level of professionalism and courtesy turned out to be a constant during my time at Morgan Stanley, and made me proud to work there.

Morgan Stanley was also a great place to grow and develop a career. Whenever I wanted to achieve something, I knew that I had to explain the business case and articulate my thoughts to my direct manager, and other relevant colleagues from various Business Units. If I did this well, I would be given the necessary support and sponsorship from senior management. If I then delivered on what I had set out to do, I could count on being recognized for this and eventually considered for promotion. This gave me a strong sense of control over my career.

What do Investment Banks look for?

Depending on the position, there could be specific qualification requirements. However, in my experience the most important quality is Integrity. This means doing the right thing, even when no-one else was looking. Sure, strong academics, communication skills, a proven track record of achievement, and other positive business attributes are clearly desirable too, but Integrity is paramount.

So, if you are interested in working for an Investment Bank, my advice would be to choose the best entry route available to you, whether that is an internship, a graduate program, or the ‘back door’ of temporary work like me. During the application process, pay attention to detail and never make anything up. In interviews, make eye contact, listen carefully, and take the time to say what you really think clearly and simply. Prepare thoroughly for each stage, and treat each person you communicate with as the most important person in the room, which they are. During my time at Morgan Stanley, some candidates looked great on paper, interviewed well and impressed senior managers, but were ultimately rejected because they were careless or even dismissive with people they considered to be junior or merely administrative. Don’t make this mistake.

Compliance roles are vital in a modern financial institution. As you can see from the Risk chapter from FMI’s Introduction to Asset Management below, roles in compliance mean managing and mitigating some of the most critical issues faced by banks and asset managers today.

Roles in Compliance

If you work in a compliance role for a bank or asset manager, you will be responsible for ensuring your financial institution follows applicable governmental regulations and laws. Working in compliance will not only see you work closely with senior management you will also work with a  range of internal colleagues to support them to follow relevant policies and procedures.

Skills required for compliance roles

While compliance used to focus on hiring people with a law background, the changing operating environment means the framework around compliance roles has shifted. Compliance roles are more quantitative due to the greater emphasis on data analytics. This means more demand for candidates with experience in analysing data, so  degress in mathematics, economics, or business management is a sort after profile.

For graduates, the minimum requirement is an undergrad degree to get in at entry-level, usually in one of the previously mentioned areas. For lateral hires, back-office support roles, operations, IT, controls, or HR also offers great routes into compliance.

Whilst technical knowledge will always be important for people moving into a compliance role, compliance professionals with a well-rounded people skills set bring the real added value to financial institutions.

Top 5 people skills for compliance professionals

Ccomplaince demands attention to detail. Understanding and sometimes implementing minor regulatory changes is a significant aspect of a compliance role. Attention to detail can ensure an organisation remains out of the ppotlight for regulators and the public.

Working in compliance needs strong relationship management. This is especially true as you build a career in compliance, as this will see you engage a wider variety of people, at an increasingly higher level.  

Another compliance fundamental, integrity underpins compliance. Compliance professionals need to be trusted figures to hold influence, and you can not build trust without demonstrating integrity consistently. Combining relartionship management skills and integrity will help people in compliance roles to drive a culture of compliance.

In reading this, it might have become apparent that both written and verbal communication is a necessity. Compliance roles require working across desks, seniority levels, and departments. This diverse set of relationships means when delivering feedback, honest, straightforward and sensitive communication is required.

Finally, as it becomes less siloed and more embedded across organizations, compliance requires people with the confidence to debate on challenging issues, communicate both positive and negative news, and to lead conversations.

Where can compliance take you?

Due to the must-have nature of the role, compliance jobs are in healthy supply globally. The three main global financial hubs of the UK, the US, and Hong Kong/Singapore always are active in hiring people into compliance roles each year.

In the UK, uncertainty around Brexit and the recently introduced GDPR directive means that compliance remains one of the areas within financial services that continue to increase hiring. According to www.careersincompliance.co.uk, this is true at all levels, from junior, mid and senior levels.

US banks and asset managers are particularly interested in people that well-versed in Anti-Money Laundering (AML), cybersecurity, and data analysis, not to mention financial crime experts. This is due to the recent trend of US regulators being amongst the most aggressive in policing and fining the financial services industry.

According to www.efinancialcareers.com, Asia is a region where people looking to build a career in compliance might focus. Banks in Hong Kong are some of the largest employers of compliance professionals. This isn’t only restricted to investment banks and asset managers; hedge funds, private equity and brokerage firms also offer exciting roles to build successful careers in compliance.

Sell-side roles in an investment bank

Success in the finance industry requires learning a lot of jargon. In finance, you will often hear roles described as either “sell side” or “buy side.” This article aims to demystify the language around these terms and explain specific roles on the sell-side.

The sell-side refers primarily to roles within an investment bank or the investment banking division of a universal bank. The primary function of an investment bank is to help institutions raise debt and equity capital to institutional investors such as investment funds, hedge funds, insurance companies, sovereign wealth funds, and pension funds.

The buy-side are the institutional investors who are buying these securities in the primary market. Another function provided by sell-side investment banks is to facilitate the buying and selling of these securities once they have started trading on the secondary market.

Here is a fuller description of the primary and secondary markets.

In primary capital markets, investment banks work with clients to help them raise debt and equity capital. These equity and fixed income securities are sold directly to institutional investors through either the equity capital markets (ECM) or their debt capital markets (DCM) desks.

In secondary capital markets, the investment bank’s global markets division executes trades on behalf of buy-side and other institutional investors. This means the global markets divisions finds and matches buyers and sellers of securities.

Sell-side roles

Roles in a sell-side investment bank include several essential functions that enable it to meet the needs of its institutional clients. Those roles include:

  • Investment banking (M&A and corporate finance) – These roles are the primary relationship management roles that interact with clients.  The investment banker’s role is to understand its clients’ financing requirements needs fully and to win business for the bank
  • Equity capital markets – The ECM desk takes over once their investment banking colleagues have identified a client needing to raise equity capital. The responsibility of the ECM desk job is to take corporations through the initial public offering (IPO) process
  • Debt capital markets – The DCM desk does the same roles as the ECM desk but in the debt capital markets
  • Sales and trading – Roles in sales and trading work with their ECM and DCM counterparts to sell securities from primary issuance to investors and be an intermediary in the secondary markets. Being an intermediary involves buying and selling already issued securities on behalf of clients, either as members of exchanges themselves or through their inter-broker dealer network
  • Research – Sell-side research analysts help both the ECM and DCM desks, along with sales and trading, by providing value-adding insights on the companies and other organizations they cover. Sell-side research is communicated to clients by people is a sales role, sometimes referred to as Research Sales.

The following diagram is a useful overview of how sales, trading, and research roles between the sell-side and buy-side help clients execute trades in the secondary market (from the FMI Introduction to Global Markets course)

Buy-side clients

The buy-side broadly refers to investment managers, also referred to as institutional investors. They invest money on behalf of their investors across various asset classes using multiple investment strategies. Here is a simple overview of institutional buy-side clients (from the FMI Introduction to Global Markets course).

Institutional investors are sophisticated and knowledgeable investors that trade large blocks of assets such as equities and bonds that can lead to significant price movements.

Global markets desks will execute trades on behalf of their institutional clients, as global markets desks are members of exchanges while institutional investors are not. Traders will use their skills to execute these large trades for the best price possible.

Because of their size, institutional investors can often negotiate better execution fees from global markets desks.

Working on the structuring desk

People in investment banking, or wanting to get into investment banking, often understand roles in mergers and acquisitions or sales and trading. What the structuring desk does is less known and harder to understand.

Structuring desks typically create bespoke solutions for large clients with complex problems when the ‘off-the-shelf’ product does not exist. People who enjoy solving complex problems that require collaboration with a wide variety of internal desks may find a career in structuring suits them.

What do structurers in banks do?

Corporate and institutional clients of an investment bank have a range of needs. These needs typically can be classified as either:

  • Hedging risk,
  • Gaining exposure to an asset, or
  • Raising capital.

At the most basic level, structuring desks try to figure out solutions to these needs and design bespoke products or exposures. Sometimes a structuring deal will involve more than one of these needs. Structures need to ask themselves three questions.

The ‘what’ and ‘why’ are the simpler of the three questions. The client wants to hedge. The client wants a yield enhanced exposure to an asset. The client needs to raise capital for an infrastructure project.  The ‘how’ is the most complicated question to answer. Answering the ‘how’ is where the structuring desk will spend most of their time.

The ‘how’ question typically needs to address tax, accounting, or cross-border considerations. There could be competitive or regulatory considerations. For example, the client requirement could involve building a mining operation in Africa. This requirement would create a range of currency, legal, regulatory, and tax issues when designing a financing or hedging solution.

How is the structuring desk organized?

Because of the bespoke nature of structuring solutions, bank organizes their structuring desks in different ways, aligned to their strengths and coverage capabilities. No desk in any investment bank can offer all the solutions structuring clients require.

Large global investment banks, however, will typically cover all asset classes such as credit, rates, FX, and emerging markets. They will also cover most regions.

Working on the Delta One Desk

Clients of the desk are both corporate and institutional, so people on the desk could be working with some of the best-known companies in the world or the largest asset managers and pension funds. People that are adept at thinking about problems and issues in a practical, logical, and mathematical manner will often have the skills needed to problem-solve for these clients.

While problem-solving skills are essential, the unique nature of the structuring desk means a certain mindset is equally, if not more, important. As this diagram for the Fmi Global Markets course illustrates, versatility and adaptability are vital requirements for people looking at a structuring role.

Structuring desks work to find solutions to problems that evolve as markets change through various financial and economic cycles. This means a desk may face a challenge not seen before, giving people on structuring desks an excellent opportunity to add value and gain valuable experience that could be used in other roles later in their career.

People in a structuring role may be involved in creating pricing models or working with quantitative research colleagues and the models they have made. This means people on structuring desks often have a background in mathematics, computer science, engineering, or economics.

They could equally be involved with presenting to internal colleagues (to describe their client’s needs to other desks and teams within the bank) or external clients (to propose suggested solutions. They may also be involved with creating term sheets to explain their proposed solutions further. Structuring desks by necessity, collaborate with other teams within the bank, such as front office roles like sales and trading, and other teams such as marketing, legal, risk, and compliance. This means working on the structuring desk requires not only strong quantitative skills but also outstanding written and oral communication skills.

Structuring prepares people for any role in financial services due to its diversity. The experience gained on the structuring desk is invaluable and the skills gained are very transferable across businesses and asset class.   

‘Delta one’ sounds like a military command straight from a movie. Delta one desks are a core division within the global markets division of many investment banks. Despite the focus of banks to reduce exposure to derivative products, there are signs that the Delta One desks are playing a more prominent role than ever before amid the heavy regulatory environment.

In this white paper, we will explore the background of delta one desks, who their clients are, the products offered, why clients need these products, and finally, the recent market developments in this space.

Background

The delta one desk isn’t categorized traditionally like other divisions within global markets. Most trading desks are classified by the products they cover, such as ‘cash equities’ or ‘the options desk.’ However, the delta one desk covers products that range from total return swaps, ETFs, futures, forwards, and certificates. They may even trade combinations of warrants and options. The takeaway here is that they sell products that describe the type of exposure the client will receive.

To understand what the ‘type of exposure’ means, we must recognize the difference between delta one and non-delta one products.

Non-Delta One products

The word ‘delta’ comes from the language of risk measurement for derivatives. Derivatives derive (or base) their prices from some underlying asset (such as a stock, bond, or commodity).  As the price of these underlying assets changes (for example, FaceBook stock), the derivative’s price will also move. The proportion in relation to the other will depend on what type of derivative product this is.

A non-delta one product, such as an option contract, has a non-linear pay-off, which means price changes are disproportionate to the underlying asset due to its asymmetric pay-off. For example, if the FaceBook stock goes up by 1%, the call option premium might change by 0.5% in value.

The delta-one desk does not trade derivatives with optionality.

Delta One products

Total return swaps, forwards, futures, ETFs, and certificates (such as contracts for difference) aim to replicate the underlying asset’s movements as closely as possible. Hence, they have a delta (or very close) of one. The pay-offs are linear, unlike an option. Here’s a quick rundown of the major products in this space:

  • A total return swap: Replicates the exposure of an underlying asset through a swap structure. For example, you receive the dividend and capital gains from a Microsoft stock while paying out interest (i.e., LIBOR + spread). Another way to look at this is you are essentially taking out a loan to finance your position in the stock.
  • Forwards and futures: Allows you to lock in a price now for delivery or settlement sometime in the future. The difference between the two products are that forwards are traded OTC, and futures are traded on an exchange.
  • ETFs: A passive fund that replicates the returns of a benchmark, index, or asset.

Having the context of these products should give you a better idea of why clients require these products.

Clients of Delta One Desks

Now that we recognize the type of products delta one desk offer, we will need to ask ourselves: 1. why is there demand these products? 2. Why don’t they buy the underlying in the cash markets? 3. Who are these clients?

Expensive

To answer the first question, we need to recognize that trading in the cash markets can be expensive; commissions and spreads can be much higher when transacting an equivalent amount than a future, for example. Your initial cash outflow can also be much higher, as you have to purchase the entire lot in cash. In contrast, derivatives such as a future are leveraged, which only require a margin to be posted.

Hard to replicate

On the second question, entering into the cash markets can prove to be complicated. Such as trading indices or a basket of securities, which is hard to replicate. Imagine equity index products, and say you wanted to create a sub-set of the S&P 500 index. You will have to buy all the underlying securities of the index you want to create, in their respective weights, while making sure the composition is up to date over time due to changes in corporate actions. Or you can enter into a total return swap that replicates this position without much hassle and for lower transaction costs.

Another note here is that sometimes participants can’t enter into specific regional markets. In these cases, they may utilize delta one products to gain exposure to these markets.

Cumbersome

A process such as shorting can also be cumbersome. Investors need to finance the position (maybe post collateral), find the available stock to borrow, sell the stock today, repurchase it in the future, and return it to the lender. In contrast, you can short a delta one derivative that has the same exposure without much pain in having to execute all the steps above.

Who are these clients?

Clients of delta one desks are diverse, ranging from asset managers, hedge funds, insurance companies, family offices, and even sovereign wealth funds. These clients come to the delta one desk for precisely the reasons above, the products are convenient for hedging, gaining exposure to specific markets, or for leveraged speculation in particular assets. Easy access and cheaper execution costs are also one of the main selling points.

Working on the Delta One Desk

Working as a trader on the delta one desk is a role that interests many people. What skills are necessary?

Proficiency in mathematics or financial engineering is a basic expectation, with any Excel and VBA highly regarded. Roles on this desk are very heavily geared towards being quantitative, so statistical and portfolio optimization knowledge is often required.

Like any trading role, any past trading experience will certainly get you noticed. However, if you’ve also had experience in the pricing of derivatives or risk management, you probably have transferrable skills highly regarded by recruiters into the delta one desk.

An exciting aspect of working on the delta one desk is that while it is very quantitative, you will still need strong written and verbal communication skills to convey ideas behind complex research clearly and precisely to internal stakeholders and external clients.