Before getting into financial investment, it is important for an investor to fully understand the roles of various players in the financial market as this maps out their path as they navigate these waters which can sometimes become stormy. One of the main people to know is an investment banker.
The investment banker, does not directly engage individual investorsinstead,their job is toadvise their clients who are mostly government or corporate, and ensure that they are doing well in the capital markets. Let’s take a look at their roles.
#They are responsible for arranging finance
When a company or the government is looking to expand certain operations and is looking for a way to finance this expansion through selling stocks or bonds, it will get the services of an investment banker. It will be his/her work to plan the issuance and price of the stocks or bonds, work on creating sufficient demand for the stocks or bonds, ensure all legal requirements for the issuance have been met and most importantly help sell the stocks or bonds.
#They are responsible for underwriting deals
As part of their work of arranging finance for their clients in the capital markets, investment bankers may also underwrite deals. They will essentially take up the risk inherent during the process through directly purchasing securities from the issuer then taking up the task of floating them to the public or to other institutional buyers. They will of course put a markup on the selling price thereby creating an opportunity for profit as compensation for the huge risk they have taken on.
#They are responsible for private placements
Public offerings are an expensive affair therefore, as opposed to taking up this costs a company may seek the services of an investment banker to help them raise the needed capital through private placements where they broker deals with specific institutional buyers.
#They are responsible for mergers and acquisitions
When there is need for a company to strategically expand its operations through buying another company, they will seek the services of an investment banker to guide the process. The investment banker will be responsible for conducting valuation and proposing a price that accurately represents the value of the company being bought. On the same note, companies that are planning to put themselves up for sale will also seek the services of an investment banker to oversee the process.
There are many other roles the investment banker plays but for an investor, it is important to be aware of the above roles because having such insight will ensure you are able to buy into the right deals at the right time and at the right price.
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