Investment banks usually specialize in giving strategic advice to corporations, providing financing to companies, governments, and other large institutions, and in buying and selling stocks, bonds, and other securities. Common jobs found at investment banks include investment bankers, security salespeople and traders.
Commercial banks usually specialize in taking deposits from individuals and making loans to corporations, individuals, and governments. Many large commercial banks also engage in traditional investment banking endeavors such as capital raising and trading. Common roles at a commercial bank include loan officer or bank teller, as well as investment bankers, security salespeople, and traders.
Note: the lines between investment banks and commercial banks have blurred over the years and there are very few "pure" investment banks or commercial banks. In practice, most firms considered "investment banks" are either commercial banks from a regulatory standpoint or operate as a division of a large commercial bank.
Money management firms usually specialize in managing investments for individuals or institutions. Very large firms might manage a wide variety of asset classes while smaller boutique firms might focus on a particular market niche, such as small-cap stocks or high-yield bonds. Common roles at a money management firm include portfolio manager or security analyst.
Hedge funds are similar to money management firms in that they also manage money for institutions and wealthy individuals. However, they are often known for taking more risk than some "traditional" money management firms and are generally more focused upon providing very high returns. Hedge funds sometimes have a broader mandate than traditional money management firms and have fewer restrictions on how they can invest. Common roles at hedge funds include portfolio manager or security analyst.
Private equity is a source of investment capital from high net worth individuals and institutions for the purpose of investing and acquiring equity ownership in companies. Partners at private-equity firms raise funds and manage these monies to yield favorable returns for their shareholder clients, typically with an investment horizon between four and seven years.
Private equity firms usually manage money for institutions and wealthy individuals. While hedge funds and money management firms usually buy and sell public securities, private equity firms usually purchase entire corporations. When a private equity firm purchases a public company, it "takes it private," which gives the industry its name. Private equity firms usually attempt to profit either by improving the operations of the companies they purchase or by using financial engineering to increase the return on owners' equity. Eventually the private equity firm seeks to either resell the companies they own or take them public again in order to make a profit for themselves and their investors. Most employees at private equity firms are investment bankers, and their functions can include analyzing potential purchases, negotiating deals, raising financing, or attempting to improve portfolio companies' operations and profitability.
Real estate firms attempt to either develop new real estate projects or purchase existing projects in an effort to better manage them and increase the returns. Common finance jobs at a real estate firm include financing specialist, analyst or deal manager. Note: many leading private equity firms also invest in real estate.
Real money institutional investors invest money for an entity such as a pension fund, sovereign wealth fund, or insurance company in an effort to generate returns over time that will allow the organization to meet its financial goals. Common roles at "real money" firms include investment analyst, portfolio manager or trader.
In subsequent chapters this tutorial will examine common finance jobs and what they entail. By combining the type of job you want with the type of organization you want to work for, you will be well on your way to the finance career you are looking for.