Investment banking is a business model which began many years ago as a form of partnership focused on the underwriting of security issuances, mergers and acquisitions, brokerage, and secondary market offerings. Today it has evolved into a full service business involving investment management, proprietary trading, and securities research. This has given rise to investment banks which are financial institutions that work to help governments, corporations, and individuals raise financial capital through the issuance of securities and by underwriting.
Investment banking now includes the trading of equity securities, derivatives, FICC services, and mergers and acquisitions. Investment banks are not involved in taking deposits. That is left to retail banks and commercial banks. In the United States, the Volker Rule enacted in 2010, forbids investment banks from participating in commercial banking activities. Instead, investment banking focuses on the promotion and trading of securities for other securities or cash and providing advice to entities involved in buying investment services. Those entities include hedge funds, mutual funds, private equity funds, unit trusts, and life insurance companies.
Many investment banks are split between providing public and private functions and use an information barrier to separate the two. Private investment banking handles private insider information to which the general public does not have access. The public side of investment banking deals with stock analysis and other types of services and information to which the general public does have access. In the United States, investment banking advisors must be licensed by and subject to the regulation of the Financial Industry Regulatory Authority and the Securities and Exchange Commission.
One prominent investment banking advisor is Highland Capital Management’s co-founder and president James Dondero. A graduate of the University of Virginia with a Bachelor of Science in Accounting and Finance, Dondero has been working in credit markets for more than 30 years. He is a certified managerial accountant that completed JP Morgan’s financial training program. Between 1985 and 1989 Dondero worked for American Express managing fixed income funds in excess of $1 billion. He then worked as chief investment officer growing Protective Life from its beginning until they had over $2 billion in assets.
He currently serves on the board of directors of Metro-Goldwyn-Meyer and American Banknote Corporation. Dondero is also the chairman of NexBank, CCS Medical, and the Cornerstone Healthcare Group. He has experience managing mortgage-backed securities, leveraged bank loans, common and preferred stocks, emerging market debt, investment grade corporates, and derivatives. He has also earned the designation of Chartered Financial Analyst.
Experienced investment banking advisors assist government agencies and companies large and small with investment advice. Dondero and other well-respected investment banking advisors have helped what was a fledgling field not long ago, grow into a behemoth.