Debt Capital Markets have become an important means of raising finance for both the corporate world as well as for sovereign governments around the world. The importance of the debt capital market (DCM) and DCM Investment banking was especially felt during the ongoing pandemic. Due to the intervention of central banks around the world, debt capital markets ensured a steady supply of funds for companies and governments around the world. It has lead to an appreciation of the importance of debt finance, debt finance analysts, as well as employees in debt finance. While investment banks and private equity usually hog the limelight, debt capital deals play an equally crucial role.
For people looking to work in Debt capital markets, it’s necessary to understand both the pros and cons of Debt Capital Markets.
Pros of DCM Investment Banking:
Let us look at the advantages:
Variety of transactions:
Debt Capital markets provide exposure to a variety of transactions and deals to any person or professional working in the field. Debt can be raised by loans from banks, credit lines, bonds as well as other instruments such as debentures as well as commercial papers. Convertible debt, amortizing loans, and non-amortizing loans are some of the options to explore. Thus, the exposure to diverse forms of raising capital enhances the learning curve of a professional in this field.
One of the best perks of working in DCM Investment banking is the opportunity to work with a variety of industries. Regardless of the type of industry, all companies would need finance in one form or the other. Due to the lower cost of finance in the case of debt capital, many companies often prefer to raise debt. This provides an excellent opportunity for professionals to understand a variety of industries such as oil & gas, real estate, or even the consumables industry. The experience of different industries also opens up a variety of options for the professional for the future.
Close Association With Clients:
Debt Capital Markets require the investment banks to work closely with the clients in order to raise finance. Often, junior or entry-level employees may not get to work closely with clients in the world of investment banking, but with debt finance, no such barriers are raised. This allows the professionals to work closely with senior executives and understand the nitty-gritty of the business. Working with the clients in a close manner also boosts confidence and inspires individuals to work harder.
One of the most crucial points for any person working in investment banking is compensation. Professionals working in DCM investment banking get attractive pay packages that include a variety of bonuses and commissions based on the deals closed and concluded. The bonuses based on deals motivate the employees while the high base salary allows them to lead comfortable lives.
Long Working Hours:
Debt finance is a continuous cycle, unlike equity which might not be issued on a regular basis. Debt capital generally is raised during the upcycle of any industry and from time-to-time different industries would be in an upcycle. This means that one industry to another would be raising debt at any given time. Due to the continuous market, professionals working in DCM Investment banking would have long working hours on a regular basis, unlike other departments which may go through a lull period from one period to the other.
Debt finance and debt capital markets would have a higher focus on bonds and different debt types. While the opportunity to work with different industries is an exciting prospect, there is limited scope for professionals if they wish to move on from the debt capital market industry because of the concentrated nature of this industry.
The importance of debt capital and the debt market has been raised amidst the ongoing pandemic. Banks and financial institutions along with the central banks of the countries have stepped up to ensure there remains adequate liquidity in the market to ensure the demand and supply do not come to a grinding halt. Working in the Debt capital market would be very satisfying for any professional in the last year. Due to the nature of the markets, the conveyor belt is always rolling. However, professionals need to consider their long-term objectives in the financial world before making a decision regarding working in DCM investment banking.