Investment Management vs. Investment Banking
Updated 8 October 2020
On a basic level, investment management and investment banking both oversee funds being channelled from investors to companies.
In investment management (also known as asset management, fund management and portfolio management), the process of channelling money to companies who need capital is one that involves coming up with different investment strategies.
Investment bankers, on the other hand, are deal-makers; they focus on raising funds or capital for companies and the process is more black-and-white.
Investment Management vs Investment Banking
Investment bankers work in corporate finance; companies (or sometimes governments) hire them to help with capital raising strategies.
Working on a consultant/analyst basis, they facilitate things like:
- Mergers and acquisitions
- New debt issuance (like a bond offering)
- New securities underwriting
- IPOs (Initial Public Offerings)
They operate on both the ‘sell’ side (selling stock and other funds to raise capital) and the ‘buy’ side (advising clients to buy into things like insurance and private equity etc).
Investment management is a lot broader. The client base is much wider and isn’t limited to the corporate world. Clients can include:
- Pension funds
- Insurance companies
- Mutual funds
- High net-worth individuals
In addition, investment managers have far more flexibility for moving money around than investment bankers do, plus they can make money for clients in a variety of different ways.
They work with a range of funds, including commodities like gold and silver, and can direct funds to areas like:
- Hedge funds
- Debt securities
Due to the lack of flexibility in investment banking, it is open to more risk when a financial crisis hits.
A bear market (where the price of securities fall) may force portfolio managers (working in investment management) to be extra-cautious in their investments, but they will always have choices.
Investment bankers, on the other hand, will either have capital-raising and advisory assignments or they won’t.
How to Start a Career in These Fields
Investment banking and investment management are both very difficult careers to break into; both demand a high level of networking in order to get noticed.
Often, getting onto an internship programme with a top firm is more difficult than later securing your first analyst role.
If you haven't yet started university, you should ensure your undergraduate degree is in a relevant subject – like finance, accounting, economics, etc. An MBA is looked upon favourably by many firms.
If you have your mind set on a specific bank, it pays to find out exactly what they look for when recruiting, as some require analytical expertise in specific sectors.
Attributes firms look for (for both roles) include:
- The ability to problem solve
- Good negotiation skills
- Effective client management skills
- Knowledge of the industry
- A responsible and independent nature
- Good analytical skills
- Strong written and verbal communication skills
- Excellent mathematical skills
- Proficiency in technical disciplines
Investment bankers should have strong sales skills, whereas asset managers need to be more proficient in analytical and quantitative aspects.
Typical Career Paths and Salaries
An average annual starting salary for an investment banker is likely to be between £30,000 and £40,000, rising to around £90,000 after a few years.
A base salary for an experienced corporate investment banker can be upwards of £140,000 per year.
It should be noted that, in this industry, performance-related bonuses can be more than four times an individual’s base salary.
It’s also important to keep in mind that compensation and pay structure may differ drastically from company to company.
The average starting salary for graduates in the investment management industry is around £30,000. An investment management salary for an experienced individual is likely to be in the region of £70,000.
Investment managers tend to move up the pay hierarchy with bigger leaps than investment bankers, as there are more opportunities for career progression.
Over the last decade, the salary gap between investment banker and asset management roles has reduced dramatically (bankers used to earn much the higher salary) and the gap continues to reduce.
Jobs in investment banking and investment management are concentrated in the world’s major cities – specifically London, New York and Tokyo. Therefore, a geographical move might be necessary to have a chance of breaking into the industry.
Investment bankers usually start out as associates or analysts, and work towards becoming a vice president or managing director.
It could be argued that progression for investment managers is getting more difficult, as technical skills become more key.
What Is It Like to Work in Investment Banking or Investment Management?
Investment bankers are known for working extremely long hours – around 90 to 100 per week on average.
That's equivalent to 16 hours per day during a six-day work week, or 14 hours per day during a seven-day work week.
The investment management industry is more flexible where workload is concerned. Working at a mutual or hedge fund typically means hours dictated by when the market opens and closes, and, in many cases, this balances out to a fairly normal schedule.
Land a job at a private equity firm and the story may differ: the salary is larger but the work hours are longer. Smaller private equity players still require their staff to work 60 to 70 hours a week.
Investment managers have more freedom when it comes to decision making; take this into account when you are choosing which career path to take.
In investment banking, you need to convince investors to make the decision you are recommending – you are essentially an advisor.
Asset managers are almost the investor themselves, because they can make the investment decisions on their own without having to consult anyone else.
- Operate in a fiercely competitive, pressurised environment.
- Are often seen as glamorous (given the interaction with high-profile clients).
- Are eligible for high financial rewards.
- Enjoy a less intense working environment with fewer hours.
- Currently trail behind investment bankers where salaries and bonuses are concerned.
As previously mentioned, it should be noted that a shift appears to be occurring where these two careers are concerned. Some believe that investment management will eventually outpace investment banking in terms of monetary perks and growth opportunities.
Hopefully this article has helped give a clearer picture of investment management vs investment banking but, if you’re still undecided, consider the following:
- If you are committed to putting your social life firmly to one side, determined to succeed, ambitious and driven by reward, investment banking could be for you.
- If you love solving puzzles, coming up with strategies, acting on your own conviction and want to work in finance but are not willing to work 12–16 hours a day, investment management might be the best route to go down.