While almost everyone has heard of investment banking, few of us understand what it is they do. An investment bank is a financial institution that can help giant corporations or wealthy individuals raise the financial capital they need to continue growing their wealth by underwriting or acting as a client’s agent in issuing securities.
Many investing banks also help firms in mergers and acquisitions (M&A). This area is one of the most vital ways for a company to grow wealth for the future. One of the big differences between a commercial bank, one that everyone uses, and an investment bank is that the investment bank does not take deposits. Instead, they charge for specific activities or for professional advice as to the best path for a company or individual to take.
One of the great lessons learned from the Great Depression was that there must be a separation between commercial and investment banks. These experiences resulted in acts that worked to keep them separate from 1933-1999. In 1999, many of these acts were discarded but with the advent of the Great Recession the Dodd-Frank Act of 2010 once again separated the two types of banks with the Volcker Rule. The rule asserts a full institutional separation of investing banking services from those of a commercial bank.
There are two distinct sides to investment banking, the selling side, and the buying side. In the sell side, you see the trading of securities for cash or other securities. This side also includes the promotion of securities through underwriting, research, and other activities. The buy side provides for the advice given to institutions who are interested in buying investment services from the bank. It also may deal with such things as private equity, mutual funds, life insurance, trust funds and hedge funds.
Persons who wish to work as an investment banker in the US must be licensed broker and subject to the US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) regulations. The area of real estate is also important in investment banking.
James Dondero is one of the most respected investment bankers in the US. He is the co-founder and president of Highland Capital Management. Mr. Dondero has over thirty years of experience in credit and equity markets. He has primarily focused on high-yield investing. Mr. Dondero started his career with Highland Capital when the company first opened its doors in 1993. The company paved new roads in the area of Collateralize Loan Obligation (CLO) markets.
Mr. Dondero is also honored as one of the first to seriously develop oriented credit solutions for institutions and retail investors throughout the world. Today Highland Capital continues to produce award-winning services for their investors.