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Buy Side vs Sell Side

Updated: Jan 12, 2020

So you have decided you are set on a career in finance. What next? The first step is working out what job sounds the most appealing to you, based on a variety of factors. These may include: working hours, compensation, firm size and reputation, skills required, networking and exit opportunities, and finally exposure to senior management or high-profile deals. To break up the variety of jobs out in the financial world, we can separate these into two categories: the buy-side and sell-side.

Simply put, the sell-side offers services to businesses in order to raise capital, either through equity (issuing new shares) or through debt (providing the business with credit facilities such as a loan or by issuing corporate bonds). The sell-side also offers advisory services such mergers & acquisitions (M&A) and in issuing and selling new stocks (IPO) & bonds (flotation). Within investment banking, these services are split into the following divisions: Equity Capital Management (ECM), Debt Capital Management (DCM) and M&A. Their primary goal here is to generate revenue in the form of commission through these services. Other sell-side industries include corporate, commercial and retail banking, stock-broking, market-making and insurance.

Top investment banks offering ECM, DCM and M&A services, are referred to as 'bulge-brackets'. These include Goldman Sachs, JP Morgan, Morgan Stanley, Bank of America Merrill Lynch, Citi Group, Nomura, UBS, Jefferies, Barclays and Credit Suisse. These banks usually take on the 'bigger' deals with greater market capitalization. Commercial banks with investment banking operations include BNP Paribas, Société Générale, Banco Santander, Deutsche Bank and HSBC. 'Boutique' banks, which are non-full service investment banks that specialize in at least one aspect of investment banking (generally corporate finance), include Rothschild, Lazard, Evercore, Charles Schwab and Allen & Co.

On the other hand, the buy-side will seek the aforementioned services from the sell-side, in an attempt to generate a return (or profit) for their investors. They may purchase stakes in companies, buy companies outright, or invest in a variety of securities (both equity and fixed income). This is notably seen in asset management, private equity and by hedge-funds. The biggest asset managers include Blackrock, The Vanguard Group, Wells Fargo, Aberdeen Standard Investments, BNY Mellon and Fidelity. Notable private equity firms include Blackstone, Carlyle Group, Apollo Global Management and KKR & Company. Top hedge-funds include Bridgewater Associates, AQR Capital Management, Two Sigma, BlueCrest Capital Management and Man Group.

Fundamental differences exist between the buy-side and the the sell-side, although a degree of overlap exists in their interactions with one another and the skills required for their jobs. The first factor worth addressing is working hours: typically in investment banking, the substantial workload expected of you coupled with the client-facing nature of the job usually equates to long working hours (typically 70-100 hours per week). Although tough, the exposure to financial modelling, valuation skills and deal-making is invaluable and results in favourable exit opportunities (job opportunities after investment banking). Moreover, there is usually a clear path to promotion to Associate, Vice President and finally Managing Director. With each progression your responsibility and exposure to clients increases, as well as your compensation of course. As a first-year analyst, you can expect to earn an annual salary between approximately $60,000 to $100,000 depending on the division, bank and bonus (dependent on individual , team or bank performance).

The buy-side on average tends tends to involve a slightly more lax structure in terms of hierarchy and working hours (although not the case when in the height of a transaction). Private equity can be defined as the capital or ownership of shares not publicly traded or listed on an exchange, which tends to operate under a limited partnership. This is where a general partner (the fund manager) is subject to its limited partners (the investors) in generating returns to them while incurring both a profit and management fee. As a rule of thumb, this usually equates to the 'two and twenty rule', a 2% management fee and 20% profit fee. As an analyst or associate, your role is to forecast the return on an investment of a company and also define the best usage of certain investments. These investments are typically achieved through debt, known as leveraged-buyouts (LBOs), where a private equity firm will buy a majority stake in a publicly-listed company through debt and then turn this company private, before paying off this debt through the cash flows (revenue) generated by the business bought. It will then either incentivize or replace managers to maximise returns to the business, so that the private equity firm can reap the rewards from its buyout. As a first-year analyst, you can expect to earn approximately $70,000 to $100,000 without working the same sort of hours as in investment banking on average (60-80 hours a week although expect this to potentially increase as deals come through).

Hedge-funds also seek to generate return to their investors, typically high-net worth individuals, through the sales and trading of securities. Such funds can take on greater levels of risk, traditionally 'hedging' or protecting the assets of extremely wealthy individuals, pension funds, and other high-net-worth institutions. As an analyst it is your job to support senior analysts and portfolio managers to build investments into the fund's portfolio, identifying potential investments and delivering investment ideas. Depending on the fund, the industry average working hours seems to be in the range of 60-70 hours per week. As an analyst, you can expect to earn in the region of $100,000.

Other areas within finance industry such as asset management, stockbroking, retail banking, credit-rating agencies, insurance and consulting among others are also worth considering. More information can be found from a variety of sources (links below). At the end of the day, you will never know which job is for you until you try it. My advice is to keep your options open and take on any relevant experiences, while networking with those who are or have been in the industry to get a better idea for yourself.