Do you ever wonder how buyside analysts and portfolio managers generate investment ideas? While a lot of investing ideas come from proprietary research, sell side equity research can play a large role in generating investment ideas for the buy side.
When you step back and compare buy side and sell side equity research side by side, the similarities are numerous. Both involve researching and analyzing companiesto generate investment recommendations. The only real difference is the end-user of the research.
Given the similarities, I thought I’d go right to the source and get the scoop on sell side equity research – from what it takes to break in to compensation to eventual exit opportunities.
Today’s interview is with a sell-sider who has worked at both an independent boutique research firm and a large Wall Street investment bank, so he can offer a broad perspective.
There’s a lot of valuable information here, so I decided to break the interview into two parts. Part 1 will cover the interviewee’s background as well as an in-depth review of what equity research is and what it’s like being an equity research analyst.
Part 2 will cover the really juicy stuff like recruiting, breaking in, compensation, and exit opportunities.
Let’s dive right in…
Q: OK, first things first: Tell me a little about your background and walk me through your resume.
Pre-resume, my father is a hog futures trader at the CME, so analysis and public markets were a part of my upbringing. I attended a small liberal arts school and earned a BS in Accounting. I chose Accounting because it seemed like a good foundation for anything in business, which was about as far as I had made it career planning at that point.
I quickly discovered that a big drawback at small schools is the lack of alumni network, so job searching was more difficult. A headhunterplaced me in a job as a property accountant for a real estate company that owned warehouses. This was my first job out of undergrad. I worked there for three years until the portfolio was sold to a major industrial REIT.
After the sale of the company, it became immediately clear that my days were numbered. My office was full of graduates from a nearby top real estate MBA program, so I decided to go back to school and make a career out commercial real estate.
I went back to get my MBA with the intent of becoming a developer, but I was quickly neck-deep in finance and loved the challenge. I took part in a REITanalysis program where we, three other smart guys and me, hacked our way through nine months of managing a million dollars invested in REIT securities. We even somehow managed to beat the market during that short time period.
It was Money Management 101 and I was hooked.
Using our alumni network, I landed a job with a top boutique REIT-only sell side research firm and went to work. After a few years on the job I became burned out from the long hours, no weekends, and sh*tty company culture. I needed to get out.
So, after a short work hiatus, I re-joined my former boss at another firm. I was doing the same thing but in a better work environment.
Q: Wow, you left no stone unturned walking me through your resume. Now that we know your background, let’s get started with the basics of the business: What exactly is sell side equity research?
Sell side equity research creates value for the buy side by being the go-to source for detailed and accurate company and industry knowledge, trading ideas, and company management access.
Sell side equity research makes money indirectly, primarily through commissions generated when the buyside trades through the sellside trading desks. You see, research is one (very important, I might add) part of a three-part team that also includes sales and trading.
Basically, research creates value by generating trading ideas (or arranging tours, industry expert discussion panels, company management meetings, etc.) and sales relays those ideas on the phone to buy side clientsand trading talks to their buy side trading counterparts to get the trades that earn the commissions that get us paid.
Sounds simple so far…right? Well, if you decide to take a hack at this business, know that each firm has its own specialty or niche and it might mean the difference between loving your job and hating it.
Here’s what I mean: Some firms are all about getting down to the nitty-gritty details and finding that little nugget of information in the back of an SEC filing that makes a difference in valuation.
Alternatively, the company might put on great investor events, bringing in the top experts to share their outlook, or they might provide meetings with hard-to-access management teams, or any other niche that the buy side will find valuable pay for through increased trading.
Q: That’s a valuable nugget of information for would-be sell side analysts. How would a prospective sell-sider find out in which niche the research firm specializes?
In an interview, it really boils down to asking the right questions to find out if it is a good fit for you. Some example questions to help you out:
What do your buy side clients say you do better than your competitors?
How much have your trading commissions grown over the last few years and how does that compare to the peak over the last decade?
Where do you see the greatest opportunity today to better serve clients and increase trading revenues?
The answers to these questions will help to gauge the firm’s reputation – as well as where you can add value – and if the company is even focused on what interests you.
Q: You’ve managed to work at both a boutique and a bulge bracket firm. What are the differences between bulge bracket and boutique shops from an equity research perspective?
Bulge bracket shops seem to be more focused on maximizing the number of companies under coverage.
Boutique shops, in my experience, dig deeper on specific names, and are more academic, theoretical, and model-focused.
Q: Interesting. What about your daily routine? Take me through a typical dayin the life of a sell side equity research analyst.
As far as daily routine, when it’s not earnings season, I usually get into the office around 7:15 AM and scour for any news stories that might affect my companies while listening to the morning research call. After that, it’s time to jump into longer-term projects, topical reports or initiation reports.
Throughout the day, there are emails and phone calls and news events that will interrupt your work, requiring quick analysis and write-up. I may be on the phone with a client who has a question about my model, or wants to know the risk factors on a company that we cover, or our take on a recent news event.
In addition, when any SEC filings are released or there are company news releases, it may mean a formal note needs to be published and sent out to all clients which means I’ll need to draft that as well. If this happens after the market closes, it could mean a late night. On a normal day, though, I leave at about 6PM.
During earnings season (2-3 weeks every 3 months), the hours get longer, usually from 7AM to 9PM with some time to catch up over the weekend. Each company reports and holds a conference call, and so we update the models and write two published notes on each company.
Q: Earnings season isn’t very fun on the buy side either given the inflow of new information.
[To be continued]
LBS Note:Check outPart 2 of Life on the Sell Side where we discuss breaking in, recruiting, compensation, and exit opportunities.
FAQs
Sell-side reports are the most common type of equity research report. They are typically produced by investment banks for their clients to help guide investment decisions. Sell-side analysts issue the often-heard recommendations of “buy,” “hold,” “neutral,” or “sell” to help clients with their investment decisions.
Why sell-side over buy-side equity research? ›
The Sell Side Explained
A key difference between sell side and buy side is that sell-side individuals go into a lot more depth in their research on a particular sector of an industry. They are narrow in focus and develop strong expertise, and then they provide reports to the public with recommendations and opinions.
What does sell-side mean in equity research? ›
A sell-side analyst is an equity research analyst who works for an investment bank or brokerage firm and produces investment research that is circulated to the firm's clients. The investment research is later used by the client to make a decision on whether to buy or sell stock or another financial instrument.
How many hours do you work in sell-side equity research? ›
You might work an average of 55-60 hours per week, with spikes to 70-80 hours per week in earnings season.
Is Goldman Sachs buy-side or sell-side? ›
Is Goldman Sachs Buy-Side or Sell-Side? As one of the largest investment banks, Goldman Sachs is largely on the sell-side of the market, providing liquidity and execution for institutional investors. However, Goldman Sachs also has some buy-side arms, such as Goldman Sachs Asset Management.
Is it better to be on buy-side or sell-side? ›
The buy-side compensation ceiling is higher, but it takes a long time to reach that ceiling – You won't necessarily see a huge difference on a 3-5-year timeline, but if you stay in the industry for 10-15+ years and your firm performs well, you should earn significantly more at a PE firm or hedge fund.
How do you break into buy-side equity research? ›
How to Become a Buy Side Equity Research Analyst. The primary qualifications for becoming a buy side equity research analyst are a bachelor's or master's degree in a relevant field and industry experience. You can pursue an education in finance, accounting, real estate, or a field related to your specialization.
What is the main difference between the buy-side and the sell-side processes? ›
Buy-side refers to individuals or companies buying securities, including pension funds and hedge funds. Contrarily, sell-side refers to companies that issue, sell, or trade securities. The types of firms on the m&a sell-side typically include investment banks, advisory firms, and corporations.
What are the benefits of buy-side? ›
Benefits of the Buy-Side
Buy-side investors have many advantages over other traders. They can place large-lot transactions that minimize trading costs. They also have access to a very broad array of internal trading resources that helps them to analyze, identify, and act on investment opportunities in real-time.
How does sell-side equity research make money? ›
Sell side firms are paid through commissions charged on the sales price of the stock to its customers because the firm handles all the details of the trade on the customer's behalf. Another source of money would be the idea of a spread.
Example of Sell-Side
The individual takes on the business of the investment bank, paying it commissions and fees for managing his money. The business that the investment bank has offered the wealthy individual is considered the sell-side of the business as it is selling to the client services and financial products.
What is the difference between sell-side and buy side M&A? ›
In terms of M&A, the buy-side means working with the buyers and finding opportunities for them to acquire other businesses. Sell-side M&A, on the other hand, means working with the sellers who are trying to find a counterparty for the sale of a client's business.
What is the average age of an equity research associate? ›
The average age of an employed equity analyst is 39 years old. The most common ethnicity of equity analysts is White (68.0%), followed by Asian (14.1%), Hispanic or Latino (7.7%) and Black or African American (5.6%).
How much does a research analyst at buy side make? ›
BUY Side Analyst salary in India ranges between ₹ 6.2 Lakhs to ₹ 26.7 Lakhs with an average annual salary of ₹ 18.0 Lakhs.
How hard is it to get a job in equity research? ›
Getting a job in equity research can be extremely competitive. Global investment banks and boutique firms only have so many Analysts and Associates, with a limited number of new people they hire each year.
What is an example of a buy-side firm? ›
Buy-side Firms are companies that provide advice on buying stocks and securities for use within their own organizations. Examples of buy-side firms are mutual funds, pension funds and hedge funds. These firms provide recommendations about upgrades, downgrades, target prices and opinions within the company itself.
What are the types of buy-side firms? ›
Buy-side is a term used in investment firms to refer to advising institutions concerned with buying investment services. Private equity funds, mutual funds, life insurance companies, unit trusts, hedge funds, and pension funds are the most common types of buy side entities.
How do I become an equity research analyst? ›
Most equity research analysts have a bachelor's degree in finance, accounting, economics, or business administration. Having a background in statistics and mathematics is beneficial for equity research analysts. Senior equity research analysts often have a master's degree.
What do sell side analysts make? ›
Sell Side Analyst Salary
| Annual Salary | Hourly Wage |
|---|
| Top Earners | $121,000 | $58 |
| 75th Percentile | $101,000 | $49 |
| Average | $88,978 | $43 |
| 25th Percentile | $72,000 | $35 |
There are two types of liquidity; Buy-side and sell-side. Buy-side liquidity represents a level on the chart where short sellers will have their stops positioned. Sell-side liquidity is just the opposite. It represents a level on the chart where long-biased traders will place their stops.
Vault Banking 25: Prestige
| Firm Name | 2023 Rank | 2022 Rank |
|---|
| Goldman Sachs & Co. | 1 | 1 |
| Morgan Stanley | 2 | 2 |
| J.P. Morgan Investment Bank | 3 | 3 |
| Evercore | 4 | 4 |
21 more rowsJan 28, 2023
Cons of Equity Research
If your company is going through a lot of corporate events or a period of turbulence, you may need to spend more time writing updates and liaising with investors. Your life can be unpredictable in equity research as you have to be highly reactive to news.
Is it worth going into equity research? ›
It's a Good “Escape Route” from Other Fields – Especially if you have something like an M.D. or Ph. D. in a highly technical field, equity research might allow you to use your expertise to move into plenty of other roles (though you don't need to reach the Analyst level to do this).
Where can I go after equity research? ›
Equity Research Exit Opportunities
It's far easier to transfer into investment banking first if you want to go that route. It's far more common to move to hedge funds or asset management firms since there's a direct skill set overlap – you analyze public securities and make investment recommendations in each one.
Why are banks called sell-side? ›
Sell side refers primarily to the investment banking industry. It refers to a key function of the investment bank — namely to help companies raise debt and equity capital and then sell those securities to investors such as mutual funds, hedge funds, insurance companies, endowments and pension funds.
What are examples of buy and sell-side? ›
Sell-side includes firms like investment banking, commercial banking, stockbrokers, Market Makers. read more, and other corporates. Buy-side includes asset managers, Hedge Funds. It supports various assets providing high returns in exchange for higher risk through multiple risk management and hedging techniques.
What is the average bonus for equity research? ›
The average bonus for an Equity Research Associate is $26,667 which represents 23% of their salary, with 100% of people reporting that they receive a bonus each year.
Who pays for equity research? ›
Equity research is a key piece of Wall Street analysis, used by investors large and small to make better-informed investment decisions in the stock market. Often research is funded by institutional investors on a fee-basis or using soft dollars.
What is the highest salary of equity research? ›
Highest salary that a Equity Research Analyst can earn is ₹22.9 Lakhs per year (₹1.9L per month).
What is a sell-side engagement? ›
The sell-side of an M&A refers to investment banks working on engagement where the investment bank's client is the seller. There is always going to be an investment bank or firm aiding the transaction. With M&A, sell-side means working with the buyers to find a counterparty for the sale of a client's business.
Sell side advisory services are provided by investment bankers to companies that are in a sale process. In general, these services include the preparation of the marketing documents, the valuation of the company, the identification of and negotiation with potential buyers, and the closing of the transaction.
What is sell-side diligence? ›
Sell-side due diligence is the process by which you review your financials, business model, management team, and processes prior to a transaction.
How long does it take to be a VP at a bank? ›
If you start as an Analyst, it might take 2-3 years to become an Associate, and it might then take another 3-4 years to become a VP. Most banks will promote you to VP only if they believe you're capable of eventually becoming an MD.
How much does an equity research associate earn in the US? ›
The average Equity Research Associate salary in the United States is $99,841 as of May 01, 2023, but the salary range typically falls between $84,961 and $119,591.
What is the average age of Goldman Sachs Associates? ›
None of this should come as a surprise. The average age at Goldman Sachs is 28: youthful promotions are an inevitability.
What is the salary of buy-side analyst in Goldman Sachs? ›
BUY Side Analyst salary at Goldman Sachs India ranges between ₹ 20.0 Lakhs to ₹ 27.0 Lakhs.
What is the salary of a fixed income research analyst? ›
Fixed Income Research Analyst salary in India ranges between ₹ 2.5 Lakhs to ₹ 23.8 Lakhs with an average annual salary of ₹ 10.0 Lakhs. Salary estimates are based on 15 latest salaries received from Fixed Income Research Analysts.
How much does a long only equity analyst make? ›
$138K - $163K (Employer est.) Provide investment recommendations based on earnings projections, valuation and risk assessment.
What GPA do you need for equity research? ›
Assess relative stock valuations and review findings with your team. Build relationships within Sales & Trading and Research. You are pursuing an undergraduate Bachelor's degree with a graduation date of December 2022 or Spring 2023. Minimum 3.0 GPA.
How much does equity research pay at JPMorgan? ›
Average JP Morgan Chase Equity Research Analyst salary in India is ₹ 22.0 Lakhs for less than 1 year of experience to 4 years. Equity Research Analyst salary at JP Morgan Chase India ranges between ₹ 9.0 Lakhs to ₹ 35.0 Lakhs.
Compensation
Both investment banking and equity research are well-paid professions, but over time, investment banking is a much more lucrative career choice.
Who buys equity research? ›
Equity research is a key piece of Wall Street analysis, used by investors large and small to make better-informed investment decisions in the stock market. Often research is funded by institutional investors on a fee-basis or using soft dollars.
How do you get into buy-side equity research? ›
How to Become a Buy Side Equity Research Analyst. The primary qualifications for becoming a buy side equity research analyst are a bachelor's or master's degree in a relevant field and industry experience. You can pursue an education in finance, accounting, real estate, or a field related to your specialization.
How do I access sell-side equity research? ›
To find analyst reports (also known as sell-side, broker, or equity research reports) for a specific company, search for that firm's ticker symbol or name in the top search box. Then, on the News & Research menu, click on Company Research. Use filters to on the left-side menu to refine your search.
Is equity research shrinking? ›
Wall Street's equity research isn't what it used to be. There are signs the longtime cutback in sell-side attention is getting worse. In the last five years, the number of ratings on S&P 500 companies shrank by nearly 800, or 6.5%, according to FactSet data provided to Axios.
What is an example of a buy-side? ›
The buy side refers to those financial institutions that have money to invest. Examples of buy side firms are pension funds and hedge funds.
How much does a research analyst at buy-side make? ›
BUY Side Analyst salary in India ranges between ₹ 6.2 Lakhs to ₹ 26.7 Lakhs with an average annual salary of ₹ 18.0 Lakhs.
Is equity research hard to break into? ›
Getting a job in equity research can be extremely competitive. Global investment banks and boutique firms only have so many Analysts and Associates, with a limited number of new people they hire each year.
What does buy-side equity research consist of? ›
Buy-side equity research analysts, on the other hand, analyze companies in order to make an actual investment in line with their firm's investment strategy and portfolio. Also unlike sell-side research, buy-side research is not published.
How much do you get paid in equity research? ›
Equity Research Salary and Compensation
VP-level professionals earn between $200K and $300K, again with 75%+ from their base salaries. Directors might earn between $300K and $600K, with 50-75%+ of that in base salary. At this level, the year-end bonus starts to make a huge impact on total compensation.
Buy-side jobs have a performance bonus element (a carried interest in private equity or the 2-and-20 structure in hedge funds), which can lead to significant upside potential income if the investments perform well.
