One IPO, dozens of jobs. Who does what?
The story so far The bike chain that bought your shops (Lesson 15.3) is growing fast. Now it wants to go public with an IPO (Lesson 13.1) and raise $100 million. Over the next few months, its money passes through bankers, traders, analysts, fund managers and advisors, and each one earns a fee. Follow the deal and you'll see almost every job on Wall Street, including the one you might want.
Wall Street is shorthand for the finance industry: the firms that help companies raise money and the firms that invest it.
To get hired, you need to know which job you want and what it really does all day. Interviewers expect you to explain the difference.
Split the industry in two: the sell side sells deals and services; the buy side invests money. Then learn how each one gets paid.
Everyone in this lesson. Investment bankers, traders, research analysts, portfolio managers, private equity investors and wealth managers.
What you're looking at: how money moves in an IPO. The company (blue) gives new shares to an investment bank (the sell side), which sells them to funds and investors (green, the buy side). The investors' money (orange) flows back to the company, and the bank keeps a fee.
The sell side and the buy side.
Almost every finance job sits on one of two sides. Learn the split, and every job title starts to make sense.
Two sides
The sell side creates and sells financial products and services: advice, new stocks and bonds, trading. The buy side invests money, its own or its clients'. The sell side's customers are mostly the buy side.
- Sell side
- The bank that runs the chain's $100 million IPO.
- Buy side
- The funds that buy the new shares.
Investment banks
An investment bank is the heart of the sell side. Its main groups:
- Investment banking, the advisors: M&A advice (Lesson 15.3) and underwriting, selling a company's new stocks or bonds to investors.
- Sales and trading: salespeople pitch ideas to fund clients, and traders buy and sell stocks, bonds and more for them.
- Equity research: analysts study companies and publish buy, hold or sell ratings (Lesson 15.1).
- Underwriting fee
- For a mid-size IPO, banks usually take about 7%: 7% × $100 million = $7 million.
- The chain keeps
- $100 million − $7 million = $93 million.
A commercial bank is different: it takes deposits and makes loans, like the bank in Lesson 13.1 that lent you $40,000. Big firms like JPMorgan Chase do both.
The buy side
- Asset management: mutual funds and index funds (Lesson 5.3) managing money for millions of savers. A portfolio manager picks what to buy.
- Pension funds and endowments: huge pools saved for retirees or universities. They hire the other firms on this list.
- Hedge funds: funds for wealthy investors and institutions that can borrow, bet against stocks and trade almost anything.
- Private equity: buying whole companies, often with LBOs (Lesson 15.3).
- Wealth management: financial advisors who plan and invest for individuals and families.
- Who buys the IPO shares
- A mutual fund buys $10 million of shares, a hedge fund $5 million, and a pension fund $8 million. A wealth manager buys some for clients' accounts.
How each one gets paid
Banks earn fees on deals: about 7% of a mid-size IPO, often 1% to 2% for advising on a mid-size acquisition. Asset managers and wealth managers charge a yearly percent of the money they manage. Hedge funds and private equity usually charge "2 and 20": 2% of the money each year plus 20% of the profits.
- Wealth manager, 1% fee
- A family with $500,000 pays 1% × $500,000 = $5,000 a year.
- Hedge fund, $100 million, earns 10%
- Fee: 2% × $100 million = $2 million, plus 20% × the $10 million profit = $2 million. Total $4 million, so investors keep $6 million: 6%, not 10%.
What you're looking at: a $100 million hedge fund charging "2 and 20." The blue bar is what the fund earned before fees. The green bar is what investors keep after fees. The gap between them is the managers' pay.
Front, middle and back office
Inside each firm, the front office brings in the money: bankers, traders, portfolio managers. The middle office manages risk and checks the rules are followed (compliance). The back office settles trades and keeps the records. All three hire finance majors, and the middle office is often a strong way in.
The career ladder
At an investment bank, most people start right out of college as an analyst, building models and slides for 2 to 3 years, often 70 or more hours a week. Then comes associate (often after an MBA), vice president, director and managing director, who wins clients and runs deals. Most analyst jobs are offered to students after a summer internship the year before they graduate.
- On the IPO
- An analyst builds the chain's valuation (Lessons 15.1 and 15.2); an associate checks it; a vice president runs the day-to-day; a managing director won the client and sets the IPO price.
Two minutes. Just listen.
Tap any line to jump to it.
Who does it?
Eight tasks from a real week on Wall Street. Pick who does each one, or work out the fee. One try each.
What you're looking at: made-up tasks. Each describes the work, then asks one question.
The logic, step by step.
To place any finance job, ask three questions.
Step 1: Does it sell or invest?
- The IPO
- The bank sells the shares; the funds buy them.
Step 2: Whose money, and whose problem?
- The chain
- A company, so it hires investment bankers.
Step 3: How does it get paid?
- The bank
- $7 million on the IPO.
Worked example: which job fits you?
Say you're a finance major who likes building models, and you're choosing where to apply. Here are the facts:
- Investment banking: deals and models, long hours, analysts start around $110,000 base salary at big banks, plus a bonus.
- Wealth management: working with people, steadier hours, pay grows with the clients you bring in.
- Private equity: usually hires people after 2 years as banking analysts.
- Sell or invest? Banking is sell side; wealth management and private equity are buy side.
- What's the daily work? Banking: models and slides for companies. Wealth management: plans and conversations with families.
- What's the path? Private equity rarely hires straight from college, so many people start in banking first.
- What's the timeline? Banks fill most analyst jobs from summer interns, and they recruit for those internships early, often more than a year ahead.
- The answer. If you want private equity someday, aim for a banking internship the summer before senior year. If you love working with people, wealth management is a strong path on its own.
Leafcutter ants split the work.
A leafcutter ant colony can hold millions of ants, and they don't all do the same job. Big soldiers guard the nest. Medium workers cut and carry leaves. The tiniest ants tend the fungus garden the colony eats, and some ride on the leaves to fight off flies. Each size fits its job.
What you're looking at: an illustration, not data. Three sizes of leafcutter ants doing three jobs: a big soldier on guard, a medium worker carrying a leaf, and a tiny gardener tending the fungus the colony eats.
Why this sticks. Wall Street is a colony. Bankers bring in deals, traders move shares, analysts study, fund managers invest, risk teams guard. No one does it all; your job is to find the role that fits you.
The page you'd copy down.
- Sell side sells deals and services (investment banks). Buy side invests money (funds).
- Investment bank: M&A advice, underwriting (about 7% of a mid-size IPO: $7 million on $100 million), sales and trading, equity research.
- Commercial bank: takes deposits, makes loans.
- Buy side: asset management, pension funds, hedge funds, private equity, wealth management.
- Pay: deal fees; a yearly percent (wealth manager 1%: $5,000 on $500,000); "2 and 20": $100 million fund earning 10% pays $2 million + $2 million.
- Front office brings in money; middle office handles risk and compliance; back office settles trades.
- Ladder: analyst → associate → vice president → director → managing director. Analyst jobs mostly come from summer internships.
Fill in the blanks
Grab a friend or a study group.
Sell side or buy side?
One person names a firm, like Goldman Sachs, Vanguard or Blackstone. The others call out which side it's on and what it mostly does.
Coffee chat practice
Take turns playing a banker and a student. The student asks three good questions about the job in five minutes.
Map your school
Look up where recent graduates of your business school work. Sort the firms into sell side and buy side.
Just you and your money.
These stay on this device. Nobody else sees them.
Exam-style questions.
Written the way a college exam would ask them. Each right answer on the first try is worth 10 xp.
On the job: you're an investment banking analyst
You're on the team running the bike chain's IPO. Your vice president asks for quick numbers. Here's the situation:
- Money to raise: $100 million.
- Price per share: $20.
- Underwriting fee: 7% of the money raised.
- First day of trading: the stock closes at $26.
Your task: how many shares are sold? What's the bank's fee, and what does the chain keep? How much did the price jump on day one? Was $20 the right price? What would you tell the vice president?
See a model answer
Shares: $100 million$20 = 5 million shares.
Fee: 7% × $100 million = $7 million. The chain keeps $100 million − $7 million = $93 million.
Day-one jump: $26 − $20$20 = 30%. Investors who bought at $20 gained $6 a share: 5 million × $6 = $30 million in one day.
To the vice president: the IPO sold well, and the buy-side clients are happy. But the chain could have raised about $30 million more at a higher price. Next time we should test a higher range with investors before setting the price. The chain will remember that, so we should be ready to explain it.
Every job moves money somewhere.
What you're looking at: a map of where this lesson fits in the course. Read it left to right: the lessons it builds on, this lesson in the middle, and the lesson that comes next.
- Back · Unit 13Raising money
- Back · Unit 15Valuing a company with DCF
- Back · Unit 15Mergers and buyouts
- You are hereWho does what on Wall Street
- Next · Unit 16How trading works