In many roles in investment banking, thinking about the business needs and aims of clients is a crucial part of the job. Buy-side firms, including asset managers and hedge funds, are some of the most important clients of investment banks.
These organisations manage the long-term investment of multimillion-pound pools of money, predominantly made up of pension, insurance or savings funds. As such, many are significant users of the advisory and trading services that investment banks provide.
Here we explain what asset managers look for from their relationships with investment banks, and how junior bankers can start building relationships with clients.
Why is focusing on the clients important in investment banking?
In short, the more clients and investment bank has, the more money it makes. Investment banking is ultimately a customer-driven business, in which revenues derive largely from selling financial services and products to a range of market participants.
As a junior team member you might not be leading the bank's relationship with a client, but it's important that when you're working on something for them you understand exactly what they want, otherwise you won't be able to effectively deliver the advice or service the bank is selling.
How do asset managers work with investment banks?
Asset management and buy-side firms collaborate with investment banks in a variety of ways.
One of the biggest challenges for banks is sourcing buyers for the vast range of financial products they market day-to-day. This includes selling assets they have bought and packaged themselves, such as syndicated loans or, alternatively, peddling products on behalf of other organisations.
For example, an investment bank might be tasked with helping to raise capital for a youngish company in return for divesting stocks or bonds – in which case they’ll look to drum up interest from different market participants.
With stashes of client money at their disposal, the larger buy-side firms are usually the go-to people for these kinds of deals – so it’s in the interest of investment banks to build relationships with these deep-pocketed investors.
Large asset managers also work closely with investment banks on restructuring the debt of businesses they’ve lent to, and have since found themselves in financial distress.
A significant lender like M&G or Fidelity will often sit on the steering committees running the restructuring. As part of this process, there'll be lots of interaction with investment banks as both the lender group and the corporate borrower will often have investment banks advising them.
How do asset managers choose which investment banks to work with?
Buy-side firms often have longstanding relationships with key people at many of the major investment banks, and will be in regular contact with them about what's going on in the market.
The relationship tends to work both ways – an investment banker hoping to find an investor might call up a fund manager at a buy-side firm to test their interest a particular product.
In this scenario, being on first-name terms with key decision makers and having prior knowledge of their investment strategy can be extremely advantageous.
Alternatively, the asset manager will take notice in the press that a deal is happening and will have an idea of which banks are working on it. If the opportunity on offer looks as though it might be attractive, they’ll contact the bank leading the transaction to try and get in on the deal.
What skills and qualities do clients value in the investment bankers they work with?
Buy-side clients work with people across all levels of the investment bank, and they tend to interact most with junior people when they’re weighing up whether or not to invest in a deal. Analysts at investment banks will do a lot of the evaluation work required before a financing package is set up.
A junior employee at a bank will need to be capable of undertaking thorough technical analysis at the drop of a hat, so having a good head for figures and strong financial modelling skills is essential.
Strong communication skills and qualities like integrity and honesty are also very important. Asset managers rely on investment bankers to provide them with accurate information on the business they're lending to. Their trust in the banks they work with is often built up through a number of transactions over many years – and graduates will be expected to keep these relationships ticking over.
How can I build good client relationships as a junior banker?
We asked a senior employee at a leading asset management firm for advice on how junior bankers can develop the essential client relationships they need to be successful. This is what they said.
*Make the most of every opportunity to get to know clients: *See if you can go along to the client meetings where the project you've been working on will be discussed. If you've been asked to respond to a client's questions, answer them well, be helpful, and follow up your conversation or email. Even phoning a client just to organise the practicalities of a meeting is an opportunity – you'll get to interact with them and, if you do a good job, they'll remember you when they come across your name again.
Always put your best foot forward: Whenever you have contact with clients make sure you come across as well-prepared, knowledgeable, and helpful.
Get to know people at your level: Try to build relationships with people at client organisations of a similar level of seniority to you – you're likely to have more in common with a recent graduate working on the buy-side than a senior director and will therefore find it easier to build up a rapport with them. You should also build good relationships with the other graduates who start with you at your bank – many of these people will move to different organisations in the finance sector at some point, and you'll then have an amazing network in the industry.
Learn from senior people: Watch how they interact with clients. Think about how they find a professional balance between the extremes of being too reserved and being too over-familiar. But remember that everyone has their own style – and you'll succeed best with clients if you work in a way that's close to how you naturally interact with people.