Investment banking involves the creation of capital for companies through issuance of securities and underwriting of debts. Most businesses lack capital to expand their operations and it is at this point that companies that deal with investment banking come in to pump money into the business. They also give financial advice on how the money will be utilized in order to get the best out of the business. Investment banks are not limited in issuance of capital to their clients; some offers other services such as mergers and acquisition, trading of derivatives among others. They also provide advice on private equity, unit trust, insurance, hedge funds among others.
With over 30 years’ experience, James Dondero on nexpointadvisors is considered one of the most respected leaders in the world of investment banking. He co-founded Highland Capital Management in 1993 and became its president to date. He earlier worked as a chief investment officer of Protective Life’s GIC subsidiary before founding Highland Capital Management. The company offers asset management and it boasts being one of largest alternative credit managers. Among its clients include wealthy individuals, financial institutions such as banks, public pension plans among many others. Mr. James Dondero has a bachelor in commerce with specialty in accounting and finance from the University of Virginia. The educational background has aided him in succeeding in the field of investment banking. His first job as an analyst with the Morgan Guaranty training program in 1984 also played a great role in preparing him for other bigger roles.
Many companies and government institutions opt to hire other firms who offer investment banking among other financial services to conduct most of the complex financial jobs such as taxation. In doing this, they avoid the risk of being penalized for not following the due procedures. In most countries such as the United States of America, one must be licensed in order to work as an investment banking adviser. It is for this reason among others that companies seek the services of firms offering these services instead of employing a permanent staff. The concerned institution must have a well detailed investment plan before they engage the services of investment banking firms.
For one to venture into the career of investing banking, one must have great analytical and interpersonal skills. These skills aid the person in analyzing the problems and later offer the financial solution to the client. A company that engages the services of an investment banking firm deals with large sum of money which requires a lot of keenness. One must also be ready to work extra hours as mostly the work deals with timelines and deadlines. Investment banking firms will therefore consider employees who are highly dedicated as the work is usually demanding. The role of investment banks cannot be downplayed especially during these times when financial decisions are paramount to the success of businesses.
Investment banks normally specialize in underwriting securities advanced by investment banking customers. The other critical services offered by investment banks include; provision of professional advice, retail and commercial bank services, raising capital, private wealth management and helping firms and investor undertake mergers and acquisitions. During mergers and acquisitions investment banks advises buyers and sellers on critical issues such as negotiation, pricing, process implementation and business valuation.
In terms of raising capital and underwriting security, investment banks acts as the intermediary between corporations that want to issue new securities and the general public interest in buying shares. Through investment banks, business professionals and entities can find profitable ventures to put their money in both long and short term basis. The main departments of an investment bank include; department of compliance, financing, investment management, human resources, IT, securities and trading, merchant banking and investment research.
Valuation techniques used by investment banks
There are a number of techniques investment banks uses to evaluate the value of a company. Most of these techniques are derived on, based on factors such as the type of industry, the nature of business and circumstances at hand. The main methods of valuation include:
1. Discount Cash Flow Analysis (DCF) – this method of company valuation uses the company’s projected future cash flow. The technique uses instrument known as Net Present Value.
2. Ability to Pay Analysis/Leverage Buyout – under this evaluation technique, a company is valued through a leverage buyout assumption that is normally undertaken using borrowed funds. The method also assumes a required rate-of-return to the buying company.
3. Comparable Company Analysis – this method uses the existing market standards for similar companies to come up with the evaluation. Under such cases, market prices play a critical role in determining the current valuation metrics.
4. Precedent Transaction Analysis – under this valuation technique, the investment bank looks at historical prices for mergers and acquisitions completed by similar entities in the market to obtain a range of valuation multiples.
One of the major players in investment banking around the world is the Dallas TX based Highland Capital Management. The credit management company has over $20 billion in assets under its control. The firm is headed by James Dondero; who is the company President and Portfolio Manager. Over the years Dondero has earned many accolades for his stellar management. In 2014, he was awarded a 5-Star designation for Global Allocation by Morningstar and the Lipper Award for Floating Rate Opportunities. The University of Virginia alumni is an elected board member of NexPoint Residential Trust Inc, which is a REIT company that is publicly traded at the New York Stock Exchange. He is also the Chairman of the Board of Directors at Cornerstone Healthcare and CCS Medical.