Investment Banking & Asset Management: What’s the Difference?

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To avoid the common confusion that lies between investment banking and asset management, let’s first look at what each of these fields truly is.

1)     What is investment banking?

a.     Say you’re a business owner. You’ve owned a company for 10 years. You’re ready to take the business public. How do you do that? Talk to an investment banker. You’re thinking of setting up a merger with another company. How do you do that? Talk to an investment banker.

2)     What is asset management?

a.     Say you’re a business owner. You’ve owned a company for 10 years. In this scenario, it doesn’t matter if your business is public or private. You need to use the assets you have & grow them. How do you do that? Talk to an asset manager.

Okay, sounds simple enough right? Well, not really. Investment banking transfers capital. Asset management grows capital. Once again, what does that mean? Let’s look at investment banks in greater detail. What is an investment bank? What is investment banking? And how is it different from asset management? First of all, investment banks underwrite upcoming/new debt & equity securities for big businesses. They assist the movement of mergers and acquisitions. They broker trades between institutions and private investors. And they also advise businesses, like mentioned in the example above, on the issuance of company stock. There is one simple correlation between all of these “things” that investment banks take part in: creation & transfer of capital. Whether they’re simply giving advice or creating new company stock (IPO), investment bankers are working toward the exchange of ownership in a business. This exchange can be small scale or large scale, but at the end of the day that puts a simplified definition on the answer to, “What is investment banking?”

But what about asset management? What does it mean that asset management grows capital? And how is it different from investment banking? Believe it or not, asset management often takes place at investment banks. However, asset management involves the intention of growing capital, whereas investment banking involves the intention of transferring capital.  An asset manager may sit down with a client (could be an individual, government entity, corporation, etc.) and discuss a plan to utilize the current assets of the company toward gaining further assets. Often times this takes place by understanding the client’s need for growth and/or protection. They will likely invest the funds into a diversified portfolio made up of a variety of asset classes. The intention is that the portfolio will grow at a rate overtime in order to reach a capital appreciation goal. Then those funds will either continue to be invested with the asset manager or the funds will be pulled out of the portfolio by the client for alternative use.

At the end of the day, there is one main difference between investment banking and asset management. Asset managers intend to grow. Investment bankers intend to transfer. It’s as simple as that. For more information, click below to learn how to contact an advisor and learn more.

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