This article is part of my series on the investment banking industry and careers within it
Buy-side vs Sell-side
The terms “buy-side” and “sell-side” designate two distinct groups of financial companies and the services these companies offer to the financial industry.
The “buy-side” refers to the firms that invest in securities (e.g. stocks, bonds, etc.), like private equity funds, pension funds, and investment managers.
Conversely, “sell-side” firms sell securities and investment opportunities to the buy-side. In most cases, the sell-side is composed of investment banks, broker dealers, and market makers.
Buy-side and Sell-side Example
To make all this clearer, let’s walk through an example.
Let’s say that Goldman Sachs, a large investment bank (sell-side), is advising a client on how to raise capital.
In this process, Goldman and the client agree that the best course of action would be to raise capital via a debt issuance.
This means that the company (via Goldman) will issue new securities, which will then be purchased and held by debt investors (buyside).
Firms on the Sell-side
As mentioned above, businesses that function on the financial markets as the “sell side” include investment banks, broker-dealers, and market makers.
Examples of “sell-side” firms include:
- Goldman Sachs
- Morgan Stanley
- Bank of America
Roles on the Sell-side
Jobs on the sell-side include: investment bankers, traders, salespeople, and research analysts, to name a few.
In all these roles, you are coordinating financial transactions and the underwriting of new securities. Usually, these transactions are “sold” to firms on the buy-side.
When an investment banker helps a company client do an IPO, they ultimately are helping the client issue new equity securities. As part of the IPO service, the banker will find buy-side investors (e.g. pension funds, hedge funds, etc.) to purchase the securities in the IPO transaction.
One notable gray area is “traders,” who are considered sell-side but they do actively participate in the market’s asset buying and selling. However, it makes sense when you consider that most sell-side traders are doing “market making,” which is ultimately a service for their buy-side clients who are often on the other side of trades.
Here’s a breakdown of roles and career path within investment banks.
Firms on the Buy-side
As discussed above, companies on the “buy-side” invest in or purchase securities, which are held in their portfolios (rather than sold assets to clients, as might occur for sell-side firms).
“Buy-side firms” include asset management companies, hedge funds, mega funds, private equity firms (inc. tech-focused), growth equity firms, and pension funds, among other fund managers.
These companies invest in securities, usually on behalf of their clients or limited partners.
Examples of buy-side firms include:
- The Vanguard Group
- General Atlatnic
Roles on the Buy-side
Buy-side positions vary based on the type of firm we’re talking about. That’s because asset management firms like Blackrock tend to have somewhat different operations and roles than does Blackstone’s private equity fund.
That said, typical roles might include investment analyst, traders, portfolio managers, and managing director.
Buy-side vs. Sell-side in M&A Investment Banking
In investment banking, sometimes there can be confusion regarding the terms “buy-side” and “sell-side.”
Above, we covered that the terms refer to different types of financial firms (e.g. investors vs. security issuers).
However, there can also be a second meaning used in investment banking, in particular as it relates to M&A transactions. In a potential merger or acquisition, an investment bank may act as the “sell-side” advisor or the “buy-side” advisor for a company.
The “buy-side” advisor assists the company that is acquiring the other company.
The “sell-side” advisor assists the company that is being acquired.
Buy-side vs. Sell-side Analyst
Another way the terms “buy-side” and “sell-side” are used is in connection with the “analyst” role.
Usually, this comparison refers to:
- “Equity research analysts” (sellside analyst) who work at investment banks and create research reports to advise clients on which stocks and bonds to purchase.
- “Investment analysts” (buyside analyst) who work at hedge funds and consume the research to help make investment decisions about which securities to buy