Investment Management vs. Investment Banking

Investment management provides a relatively stable career when compared to some other financial services jobs, relying on not just the infusion of new cash into funds but the task of managing money already in the system. Institutions such as Spain’s BBVA Asset Management or Scotland's Aberdeen Asset Management are paid a set fee from their clients as a percentage of assets under management, so they will continue to profit simply by managing money.

There’s no doubt that downward cycles in the global economy can disrupt fees that involve performance incentives, especially when the downswing is as severe and systemic as the recent crisis. Plus, when investors get spooked there may be fewer new assets to manage. But generally speaking the asset management business is lesscyclical than its financial cousins like investment banking.

Consider the hallmarks of investment banking: IPOs and mergers and acquisitions. When times are good, there’s a lot of money to be made in these activities. But when the deal pipeline slows down because of economic conditions, transaction fees simply don’t materialise. That means bankers get laid off, or I-banks freeze hiring, or both.

These swings in fortune can happen very quickly, as we saw in 2007. During the first half of the year deals were booming and I-bankers were flush with cash, perks and bonuses. Then the credit crunch hit, and pink slips flew: over 225,000 financial services professionals lost their jobs in 2008, many of them investment bankers.

The I-bankers who remained were faced with significantly smaller paycheques. According to London’s Centre for Economics and Business Research (CEBR), bankers in the City received a total of £8.8 billion in bonuses at the end of 2006. That figure fell to approximately £3.6 billion at the close of 2008, and CEBR predicts it will drop again, to £2.8 billion, for 2009.

By contrast, analysts and associates at investment management firms benefit from the fact that assets are always being invested, even in bad times. Investment management firms also tend to have a diverse client base that includes pension funds, insurance companies, banks, mutual funds and highnet-worth individuals, and portfolio managers can make money for their clients in a number of ways.Obviously, they want to play the market and make returns, by investing in a lucrative IPO, for example.

But even if there are fewer IPOs taking place, managers can still make gains with smart plays in other asset classes, or by investing existing capital in various portfolios. A bear market may force portfolio managers to be extra-cautious in their investments, but they will always have choices. Meanwhile, their I-banker friends will either have capital-raising and advisory assignments ... or they won’t.

Want an advantage over other candidates in your investment banking interview? Check out the most comprehensive interview guide available and help yourself to get a great job in investment banking.

As one staffer in the operational department of a major asset management firm says, “Investment bankers normally only have a single-stream of customers and are doing the same thing day in day out. Also, the sell-side is driven by the requirements of the buy-side.” The link between investment bankers to investment managers might be symbiotic, to some extent, but those managing money have more options to guarantee their survival.

The investment management industry tends to have a work load that varies. Working at a mutual or hedge fund typically means hours dictated by when the market opens and closes, and in many cases balances out to a fairly normal schedule. Land a job at a private equity firm and the story may differ; the salary is bigger, but the work hours are longer. Smaller private equity players still require their staff to work 60 to 70 hours a week.

Still, they don't compare to the hours put in by investment bankers. Investment bankers are known for working extremely long hours—around 90 to 100 per week on average (or about 16 hours per day during a six-day workweek and 14 hours per day during a seven-day work week).

Pay Graduates who join asset managers straight out of university may initially take home less than their investment banking counterparts. The average starting salary of graduates in the asset management industry is around £30,000 to £35,000, according to one HR manager at an investment management firm, whereas graduates in investment banking start on a median of £35,000 to £40,000. However, you move up the pay hierarchy with bigger leaps at asset management firms, and often in less stressful environments.

It’s important to keep in mind that compensation and pay structure may differ from company to company; one investment management insider said that the pay and bonus offered at her firm was exactly the same as what was offered at an investment bank where she’d previously worked.