The Business of Investment Banking

By K. Thomas Liaw | Go to book overview

14
Money Management

Money management is an important segment of the capital markets and is becoming an integral part of the investment banking business. Wall Street firms are buying into fund management because it is one of the most attractive segments of the financial services industry. It expands the menu of products and services investment banks offer to clients. Furthermore, the income stream is less volatile than trading, underwriting, or merger and acquisition activities. The affiliated funds also provide synergy to the bank's underwriting business. This chapter explains the rationale behind Wall Street's push into investment management and the issue of interdealing between underwriting and money management. In mutual funds, the chapter describes the structure and organization of a mutual fund, the regulatory environment, and the growing importance of the institutional players. In hedge funds, this chapter explains the structure of a hedge fund and the typical ranges of management fees and incentive fees. Where relevant, the discussion points out the regulatory changes contained in the National Securities Markets Improvement Act of 1996 and the Investment Advisers Supervision Coordination Act of 1997.


INVESTMENT BANKS ENTER MONEY MANAGEMENT BUSINESS

Banking, stockbroking, and fund management are converging. For investment banking houses, money management business is not a question of whether to enter, but rather to “buy” or to “build.” In 1970, only 7 of top 15 underwriters had affiliations with units that ran money. By 1998, nearly all major investment banks had drifted into fund management.1 Several factors have contributed to the growing importance of money management operations within investment banking business umbrella. First, it is to keep up with competition by providing a one-stop financial store. Running affiliated funds expands the range of products and services investment banks offer to clients. Second, it helps balance out banks' volatile income streams with a relatively stable source of income. Affiliated funds provide support for Wall Street parents' underwriting business as well. Investment bankers take in revenues to underwrite securities issues and fee income with the help of fund management oper-

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The Business of Investment Banking
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Preface vii
  • Acknowledgments ix
  • 1: Investment Banking in Global Capital Markets 1
  • 2: Venture Capital Markets 9
  • 3: Mergers and Acquisitions 27
  • 4: Stock Underwriting 47
  • 5: Underwriting Fixed-Income Securities 72
  • 6: Asset Securitization 94
  • 7: Foreign Listing on Wall Street 111
  • 8: Euromarkets and European Markets 125
  • 9: Japanese Securities Markets 148
  • 10: Emerging Markets 167
  • 11: Trading and Trading Techniques 185
  • 12: Repurchase Transactions 203
  • 13: Financial Engineering 222
  • 14: Money Management 241
  • 15: Clearing and Settlement 261
  • 16: Securities Regulation and Ethics 275
  • 17: Investment Banking Trends and Section 20 296
  • Chapter Notes 309
  • Glossary 315
  • Index 325
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