Capital Markets and Investment Banking Process - Essay Example

The different types of capital instruments that constitute an investment portfolio have also been described. Lastly, recommendations have been provided regarding the selection of assets for the construction of an effective and efficient portfolio. Investment Banking Process for an IPO Initial Public Offering (IPO) refers to the process of issuing shares by a company to the public for the first time in its history. It is mainly done to raise capital or funds in the form of share capital to be utilized by the company in its business processes.

An IPO process typically consists of three key steps. They are: a) Preparation; b) Market approaching strategies; and c) Going public. Investment bankers are selected by the company for the purpose of coordinating the whole process of IPO. Hence, investment bankers form an important part of the IPO process and perform various functions during the whole process. The investment bankers give valuable advice to the company regarding how to go about the whole process of IPO. The underwriting functions related to the IPO are also performed by the investment bankers. . The investment bankers are mainly selected by the companies because of their expertise in the field of obtaining the best selling price of the shares to be issued by the companies (O'Rourke, 2007, p. 209). Hence, investment bankers are found to have three tasks to be performed by then in case of IPOs.

They are: a) Given the existing conditions in the market, the investment bankers help the companies to design the securities of the companies to be offered by them in a way that are most attractive to the public; b) The investment bankers buy those securities from the companies; and c) They resell those securities to the investors or the public (Besley & Brigham, 2008, p. 83). Asset Class Selection for an Investment Portfolio Portfolio of an investor consists of combination of assets or asset classes.

An asset class can be defined as a combination of different types of securities such as shares, bonds, mutual funds, etc. which, taken together, serve the purpose of providing specific contribution to the portfolio of the investors. Such contributions are in the form of risks associated with the securities chosen, the return generated from the assets and covariance of return that exists between other classes of assets. The diversification of assets included in a portfolio can be achieved at two levels.

One is while choosing a large number of assets and the other one is while choosing different types of asset classes to form the portfolio. Various factors are needed to be considered while selecting asset classes to form an investment portfolio. They are: a) Expected return of the portfolio; b) Diversification benefits; c) Required scale of investment; and d) Liquidity. The returns that are expected from the asset