What is the difference between Buy-side and Sell-side Research?

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Read this blog post to find out the difference between buy-side and sell-side

Do you know the difference between buy-side and sell-side? When discussing about investment banking, it is critical to know the difference between the sell-side and the buy-side. Buy-side refers to firms that buy securities and includes pension funds, hedge funds and investment managers. It is that side of the financial market that buys and invests large portions of securities for fund management or the purpose of money.

The sell-side on the other hand refers to firms that sell, trade or issue securities and includes corporations, advisory firms and investment banks. The sell-side of the financial market takes into account the creation, promotion and the retailing of traded securities to customers. Both these sides make up the full picture and include the ins and outs of the financial market. The buy-side and the sell-side are indispensable to each other.

Understanding the sell-side

The sell side consists of professionals who need to raise money by selling securities. This is why the name sell-side exists. Banks, advisory firms and other such firms make up the sell-side that enables the selling of securities on the behalf of their customers. For instance, if there is a corporation that wants to raise money to set up a new factory, they will have to call their investment banker and request them to issue the debt or the equity required to finance the building of the factory. Next, the bankers will draft the analysis, with the assistance of financial modeling, to evaluate what they believe investors will think the enterprise is worth. In the next step, a variety of marketing material will be prepared to be distributed to prospective investors. This is where the buy-side comes in.

Understanding the buy side

The buy-side has investors and professionals that have capital, money or wish to buy securities. These securities can contain preferred shares, common shares, bonds, derivatives or any other variety of products that are issued by the sell-side. For instance, an asset management firm starts a fund that invests the net worth of customers’ money into alternative energy companies. The portfolio manager of the firm will look for opportunities to put the money to work by making investments in securities of what she/he thinks are the most attractive enterprises in the industry. It will be the portfolio manager who will decide to invest and buy the securities, which makes the money flow from the buy-side to the sell-side.

The difference

Sell-side

The main skills required on the sell-side are industry research, financial modeling, skills in excel, research report generation, Pitchbook presentations, client relationship management, winning new businesses and selling/closing deals. The sell-side deals with the following:

  • Providing advise to corporate clients on major transactions
  • Offering advise on mergers and acquisitions
  • Facilitating raising capital, which includes debt and equity
  • Winning new businesses and build solid relationships with corporates
  • Marketing and sell securities
  • Developing liquidity for listed securities
  • Helping customers get in and out of positions
  • Offering equity research coverage of listed companies
  • Carrying out financial modeling and valuation

Buy-side

The main skills needed on the buy-side include industry research, financial modeling, skills in excel, generation of research reports, raising capital and achieving the targeted rates of risk-adjusted returns. The buy-side deals with the following:

  • Managing the money of their clients
  • Making investment decisions about buying, holding or selling
  • Getting the best risk-adjusted return on capital
  • Achieving in-house research on investment opportunities
  • Achieving financial modeling and valuation
  • Searching for investors and recruiting the capital to manage it
  • Starting to grow assets under the management

The buy-side focuses on buying low and selling high trade activities. They have to create value by identifying and buying underpriced securities. On the other hand, the sell-side earns their way through commissions and fees. Their primary goal will be to make as many deals as possible.

Are you interested in buy-side equity research or maybe in sell-side research? We, at Outsource2india can help you. We have a team of skilled resources who can assist you from start to finish and offer you with a customized solution. Get in touch with us today and we will be happy to help you.

Has this article been helpful in helping you understand the similarities and the differences between the buy-side and the sell-side? Do you have more questions? Let us know what you think by leaving a comment in the box below. We, at Outsource2india love to hear from you!

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