Investment Management And Chartered Financial Analyst (CFA®) Option (checksheet)
The Investment Management Option focuses on coursework that teaches students how to analyze and value investments, including stocks, bonds and derivatives. The skills acquired through this option can be used for careers managing investments at large financial institutions (mutual funds, insurance companies, etc.), selling investments on behalf of financial institutions, and working for Wall Street firms in jobs such as sales, trading, capital markets and investment banking. At Virginia Tech, students who enroll in the Investment Management Option have the ability to prepare for and take Level I of the Chartered Financial Analyst (CFA) exam after they graduate. The CFA designation is recognized globally throughout the investment management profession. To obtain the CFA designation, one must pass three-level series of exams (you are limited to taking one level per year).
Investment Management (Asset Management)
One of the most important roles for finance majors is managing investments and investment portfolios on behalf of individuals, corporations, governments and other institutions. In this career path, finance professionals evaluate potential investments, analyzing them to determine whether or not they should be bought. They also manage existing investment portfolios, deciding which investments in the portfolio to buy more of and which ones to sell.
Institutions that manage large investment portfolios include mutual funds, pension funds, insurance companies, hedge funds, and institutional money managers. Many of these manage billions of dollars of investments on behalf of a large number of investors. That money is usually invested in hundreds of different investments that must constantly be monitored and managed to ensure that the investors receive sufficiently high returns on their invested dollars.
The Finance Department’s Investment Management/CFA Track provides excellent preparation for a career in investment management (also frequently called asset management). Students take coursework that covers stocks, bonds and derivatives, three of the most common asset classes for asset managers, as well as international finance. This track also prepares students to take Level 1 of the Chartered Financial Analyst examination upon graduation. Chartered Financial Analyst is a professional certification that asset management firms encourage their finance professionals to obtain. The CFA certification process requires applicants to study for and pass three rigorous exams over the course of three years. Virginia Tech is a CFA Program Partner of the CFA Institute, the professional organization that oversees the CFA exam process.
Students interested in the Investment Management career path should also try to join either SEED or BASIS, the Finance Department’s two student-run investment funds. Each fund manages approximately $5 million of the university’s endowment funds, which are invested in the stock and bond markets, respectively. Another student organization that introduces students to investing in the stock market is the Society of Individual Investors.
The major types of institutional entities that manage large investment funds include the following:
Within each of the institutions above, there are a number of roles for finance professionals. These include the following:
Knowledge of investments and markets is also useful for a number of career paths in the public sector. There are a number of entities affiliated with the federal and state governments that participate in the capital markets and manage billions of dollars of investments. In addition, many government agencies regulate financial markets and financial institutions. Finance professionals often start at a government agency, gain significant experience, and then transition to the private sector. The following are career paths in the government sector for which the Investment Management Option is appropriate:
Knowledge of investments and markets is also useful for a number of career paths in the public sector:
The term “Wall Street” is used by many people as a collective nickname for the nation’s investment banks. Most of the largest investment banks are located in New York, but are actually not physically located on Wall Street anymore, because they outgrew their original buildings that had been previously located in that part of Manhattan. However, there are also many investment banks that are located outside New York, including Wells Fargo in Charlotte, BB&T in Richmond, Robinson-Humphrey in Atlanta, and UBS in Connecticut.
Most investment banks have a variety of finance jobs and career paths. These can be grouped into four broad categories: Investment banking, sales and trading, research, and operations. All contain opportunities for finance majors, but have varying levels of compensation, workload and pressure.
Venture Capital is the area of finance that involves providing funding for new businesses. New businesses generally aren’t profitable right away and therefore often have significant up-front needs for funds to purchase equipment, hire employees, and fund the business’ initial operating losses. These funds are usually provided by three groups of investors: the entrepreneur’s friends and family, wealthy individuals (nicknamed “angel investors”), and venture capital funds. Venture capital funds are pools of money raised from individuals and institutions that are willing to take significant financial risks in order to obtain high rates of return. The venture capital funds invest money into young companies that have recently started up. Venture capitalists are the finance professionals who manage these venture capital funds. A key part of their job is analyzing potential investments – determining if the business makes sense, looking at its cash requirements and projected financial performance, and the potential threats to it, and then determining how much the business could eventually be worth. They also must negotiate the terms of each investment and then monitor the investments once they have been made, frequently serving on the boards of directors of companies in which their funds have invested. Although most startup companies fail, some successful venture capital investments can be highly profitable, such as Facebook, Google and Twitter. Venture capital jobs are very hard to get, especially straight out of an undergraduate finance program. Many professionals who work in venture capital have a technical degree (engineering, computer science, biochemistry, etc.) or experience in addition to their finance skills.
Real Estate Investing
There are numerous financial institutions, companies and wealthy individuals that invest in existing real estate. Their goal is to buy buildings and land, earn income from them, and then sell them at a profit in the future. Institutions which do this include real estate investment trusts (REITs), corporations, pension funds, and hedge funds. They all employ finance professionals to evaluate properties that are potential investments and choose the ones that can provide attractive returns. Finance professionals also assist in the acquisition process and then monitor real estate assets after they have been acquired.
In evaluating real estate investments, finance professionals must perform valuation analyses, including forecasting the projects’ revenues, costs and cash flows. Once a decision has been made to proceed with a property acquisition, they must also often deal with financial institutions from which they are borrowing money to finance the purchase. They must understand how loans and other forms of financing work, and must be able to negotiate them with banks and other financial institutions and work with lawyers on the necessary documentation required for the financing. Once real estate projects have been bought, the real estate finance professionals must monitor and evaluate their ongoing financial performance (revenues, costs and cash flows), interact with the financial institutions that provided the financing, and periodically update the projects’ valuations in case opportunities arise to sell at a profit.