I feel like I've not taken enough time to elaborate on the merits of corporate finance and M&A (i-banking proper). Most of my posts have been about sales and trading (clearly because of my love of trading). There are significant reasons to enter corporate finance, though. I considered it for a while and decided I wasn't ready to make the necessary sacrifices, but there is a good reason to give it a shot.
Corporate finance and M&A are the best way to understand the workings of corporate america. Nowhere else will you learn more about how companies are structured, financed and operated. Once you've seen how a company keeps its books and understand what every line means, you can go operate your own company with a good bit of confidence that you know what you're doing. You may not know a thing about the daily operations, but you will know what makes a company tick. You will know how profits are built up, and you will know how to fund the company.
Why is all this that cool? Well, corporate finance folks can pretty much jump to any company and be useful (not true at all for traders, and moderately true for sales people). With the corporate finance background and a little bit of experience "on the ground" running a company, you make the perfect private equity person (you know a good bit of finance and a good bit of how to run the company. I, personally, think being in private equity would be a blast (hell, where else can you be the chairman of multiple companies?). Of course, you'd have to be one of the top guys in a private equity firm. I think being one of the analysts in a PE firm would be about as interesting as being in i-banking.
For all those of you who have decided i-banking is for you and you are willing to put in the hours, congratulations. You're in for a rough ride, but if you come out the other end still loving it I'm sure I'll see you at the top of the food chain.
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A good bit of inspirational advice there. So experience in corpfin and some 'on the ground' experience. Roughly how many years of experience are we looking at?
Another question comes to mind since u have mentioned PE, what distinguishes PE from a HF?
Thanks
Although being an analyst at a PE firm may be as interesting as banking, you get to learn even more of how companies work without the direct risk of decision making...(therefore you get to learn from others mistakes rather than making them yourself)...
With regards to the PE vs HF thing. Recently the two have become less and less distinct. Originally the idea was that HFs just invest money into different asset classes in fancy ways. PE buys up entire companies, makes them more profitable and sells them away.
HFs make returns on the appreciation of securities. PE firms actually buy companies, run the companies "better" than they originally were, and then sell them off at higher valuation to either the public (through an IPO) or to an acquiring company. Hedge funds tended to hire traders and structurers (the people who knew how to play in the markets). Private Equity tended to hire operations specialists and M&A specialists (the people who knew how to value entire companies, successfully acquire them and turn a company around).
Recently, however, we have seen hedge funds (such as Cerberus) buy up entire companies a-la private equity, which is the source of a lot of the confusion between the two. Private equity guys are also sometimes known as a "corporate raiders" from back in the 80s when hostile leveraged buyouts of public companies was so very common.
Another similar category is the activist investor (like Carl Icahn) who may not buy the entire company but will buy a significant stake and lobby via shareholder rights for operational or managerial changes. They often run hedge funds as well, but they don't make their money via market wisdom and macro moves as much as via direct intervention in corporations.
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