Difference between Investment Bank, Hedge Fund and Bank
The purpose of the following article is to provide a comparison of banks, investment banks and hedge funds. While all are in business of finance, each has very different offerings. The following comparison may give the impression ofthe apples and oranges analogy, but knowing about each business, what it is, the services itprovides, and the different investment options available can help you decide which financial service you need.
Definitions
Technically, the term "Investment bank"is a misnomer because it is not a bank at all. Investment Banks help large companies and governments track down capital to help meet the needs of the organization involved. A "bank" is what one traditionally thinks of, the place where you deposit your paycheck, and get a home loan. A Hedge Fund is a type of private investment pool, which was originally designed as a hedge against losses, but now refers to any such private pool. There are a small number of investors who hire a manager to make the investment decisions, in return for a commission.
Services
Traditional banks accept customer deposits into personal or business accounts such as checking or savings. Additionally, they provide personal and business loans, and other services such as safety deposit boxes, online and telephone banking services, and credit cards, and overdraft protection. Today some banks also offer some investment services.
Investment banks services involve helping their clients issue and find buyers for company stock and or bonds. In addition, they may offer help with such matters as mergers and acquisitions. The only service hedge funds provide is a means to invest large sums of money, while maximizing the return and minimizing the risk.
Investments
Traditional banks offer little in investment opportunities unless one considers savings accounts, money market accounts, and Certificates of Deposits investments, although today, due to changes in banking regulations traditional banks may have investment management services. As a means to provide capitol for their clients and investment banker might persuade other clients to invest in a particular bond or stock option. Additionally investment banks may invest their own funds in certain activities or products they believe to be lucrative. However, this practice is partially responsible for the financial crisis in this decade. Wealthy investors who meet the qualifications set forth by the group use hedge funds.
Similarities and Differences
- For traditional bank accounts, and accompanying features, you need a bank.
- Only banks provide personal and small business loans.
- If you have small investments or need some portfolio management help, a traditional bank can meet your needs.
- If your business is in need of working or expansion capitol, an Investment bank is the way to go.
- If you need help with a merger or acquisition, an Investment bank can meet your needs.
- If you have large investment capital, want to have someone else make the investment choices, and can get in, choose a hedge fund.
Obviously, Investment Banks, Hedge Funds and Banks are very different entities. You choice in the matter is totally dependent on what kind of financial services you need.
