If you ever get asked ‘What type of company do you want to work for? Buy side or sell side?’, this breakdown will give you an idea of what is suitable for you.
In financial services, firms are divided into buy-side and sell-side. These two sides together make up the main activities in the financial market.
This segment includes firms/individuals that purchase stocks, bonds or other financial instruments for their own or for investors with the goal of generating returns. The buy-side can include financial institutions such as trusts, equity funds , foundations, endowments, hedge funds, mutual funds, private equity and so on (refer to the previous blog for definitions of these funds). High net worth individual investors are also included in this category.
The goal of the buy-side is to identify and make investments that they believe will appreciate in value over time in order to gain return on investment. The investment firms typically seek to raise capital from investors, then the investment manager or portfolio managers will use that fund to make investments in different types of assets, depending on the fund’s strategy. These assets can include stocks, bonds, derivatives, private equity, real estate, etc.
So what does the work look like on the buy side?
Since you are managing assets and investments of your investors, your work involves performing financial modeling and valuation, conducting research on potential investment, managing a portfolio and identifying investors to raise capital.
Examples of firms on the buy-side: Blackrock, The Vanguard Group, PIMCO, BNY Mellon Investment Management.
This side of the financial market is responsible for the issuance, selling and trading of securities such as stocks, bonds, and other financial instruments to both the public market and the private market. These are the products that are then purchased by the buy-side.
The sell-side typically consists of investment banks, advisory firms and any firms that facilitate the buying and selling of financial instruments on behalf of their clients. The sell-side firms are considered ‘market-makers’, and they provide liquidity for the capital market.
The main functions of the sell-side is to advertise and sell securities, raising capital through debt or equity for their clients, advise corporate clients on major transactions and mergers & acquisitions, and providing equity research on companies that can be used by investors or the buy-side.
If you ever consider working on the sell-side, your work will involve financial modeling, conducting industry research, creating research reports and pitch books, managing client relationships, making sales and closing deals. This is not a comprehensive list.
So which companies you know might be buy-sides? Major banks like JP Morgan, Goldman Sachs, Morgan Stanley are good examples.
In case you see some unexplained concepts in here, check out part 1 of this series for clarification. And if you find this helpful, stay tuned for more!