PRIVATE-WEALTH MANAGEMENT
WHAT IS PRIVATE-WEALTH MANAGEMENT?
Private-wealth management is a kind of asset-management that offers high net-worth investors an individualized, comprehensive and actively managed financial advisory service. As with any kind of asset-management, private-wealth management involves the construction of a portfolio of assets, including, e.g., securities, real estate and insurance instruments. The complex financial situations of high net-worth individuals mean that the portfolios under private-wealth management tend to be quite a bit more complicated than those managed for less affluent investors.
Commonly, a money manager conducts private-wealth management, as money managers are in a position to offer the level of asset-management service required by higher net-worth individuals’ complex financial situations. Additionally, because they are fee-based, use of a money manager for private-wealth management provides the high net-worth individual with protection against conflicts of interest not afforded by commission based financial advisors, such as Wall Street’s best known kind of financial advisor, the stockbroker. It is well known that commission based stockbrokers have, in some cases, suggested frequent sales or purchases of securities in order to “churn” the portfolios of investors to increase commissions, which are based on purchases and sales rather than portfolio performance.
WHAT SKILLS ARE REQUIRED TO PERFORM PRIVATE-WEALTH MANAGEMENT?
Private-wealth management involves a comprehensive approach to asset-management, including estate and tax planning, while also thoroughly addressing the risk aversion and financial goals of the investor. Equity research has a crucial part in private-wealth management. Because of the long-term role that private-wealth management plays for the high net-worth client, fundamental analysis is central to the selection of appropriate securities to be included in the investor’s portfolio. This means that private-wealth management requires knowledge of valuation and financial modeling, as well as diversification theory. Additionally, private-wealth management entails knowledge of tax law and estate planning, as well as familiarity with the specialized Wall Street institutions that may be of use to a high net-worth investor, such as private equity funds, hedge funds and investment banking in general.
HOW IS PRIVATE-WEALTH MANAGEMENT RELATED TO OTHER FACETS OF THE FINANCE INDUSTRY?
Private-wealth management may require direct involvement with private equity and hedge funds because individuals with high net-worth may benefit from holding a position in a private equity fund or hedge fund as a portion of their investment portfolio. Additionally, because of the close relation between these Wall Street institutions and investment banking in general, knowledge of investment banking practice is also important for the private-wealth manager. In order to conduct private-wealth management for an investor, cooperation with asset-managers of different types working for the same investor may be required. For example, a stock broker may have access to institutional offerings, such as insurance, mutual funds and other institution-specific investment vehicles, which can fill a role in the portfolio an investor has under private-wealth management.
HOW IS THE TRAINING PROVIDED BY THE INVESTMENT BANKING INSTITUTE RELEVANT TO PRIVATE-WEALTH MANAGEMENT?
The Investment Banking Institute’s Wall Street Bootcamp provides a unique opportunity to acquire a thorough-going knowledge of equity research as well as in-depth knowledge of the structure of the Wall Street institutions most relevant to the activities of private-wealth management. The fundamental skills of financial analysis, such as valuation and financial modeling, are taught by the Investment Banking Institute in accordance with high standards required of investment bankers. There is a need for exceptional rigor in the financial modeling required for investment banking activities due amount of capital at risk. What is more, the inherent complexities in constructing accurate financial models for the companies under financial analysis—which may be highly distressed, young start-ups with no positive cash-flow (particularly in cases of venture capital investment) or businesses novel enough to be difficult to compare—make the valuation of companies for investment banking purposes particularly difficult. The student of the Investment Banking Bootcamp will learn comparable company analysis, how to assess the capital structure of a company, as well as other advanced valuation methodologies. As a result, the graduate of the Investment Banking Institute’s course will be able to build full-blown financial models and conduct such crucial and advanced financial modeling techniques as stress-testing a company’s capital structure with relevant sensitivities. The Investment Banking Bootcamp culminates in the construction of leveraged buyout (LBO) and merger and acquisition (M&A) models, which is the ultimate test of the students’ knowledge of valuation and financial modeling. Furthermore, the Investment Banking Institute’s Wall Street Bootcamp provides a rigorous overview of the structure of Wall Street and the finance industry more broadly.
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