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Buy Side & Sell Side

Buy Side & Sell Side

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Buy Side & Sell Side

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  1. Buy Side & Sell Side Alexander Motola, CFA Alexander Motola, 2013

  2. Sell Side • Brokerage • Syndicate • Custody & Prime Brokerage/Lending Alexander Motola, 2013

  3. Sell-Side/Brokerage • 4 Positions • Broker • Sales Trader • Trader • Analyst Alexander Motola, 2013

  4. Sell Side/Broker • Broker is a Buy Sider’s primary contact at the investment bank • Broker’s job is to: • Understand client needs, what services they need/want, what kind of stocks and ideas they are interested in, provide information & ideas; bring analysts and management to buy sider clients • Generate commissions for his firm Alexander Motola, 2013

  5. Sell Side/Sales Trader • Sometimes called “trader”, the real title is “sales trader”; sales traders don’t trade stocks but act as intermediaries between buy side traders and sell side traders (either floor or electronic traders) • Job is more relationship based than technically based Alexander Motola, 2013

  6. Sell Side/Broker • Clients want: • Idea generation • Access to analysts & research • Access to managements • IPOs • Swag & Benes • Conference Access • Travel Arrangements (Intl) Alexander Motola, 2013

  7. Sell Side/Trader • Employee of investment bank who either matches trades between clients, runs a book (P&L), or works on a floor or pad • Does not talk with clients, just other sell side traders and prop traders • Paid based on profits as agent but mostly as principal Alexander Motola, 2013

  8. Sell Side/Analyst • Paid via commissions and trading volume in stocks under his/her coverage • Usually works in a team oriented around an industry • There are associates and analysts • Associates build models, listen to calls, field marketing calls, talk to management/companies, attend industry conferences, etc.; basically they are apprentice analysts Alexander Motola, 2013

  9. Sell Side/Analyst • Analysts manage 1 or more associates, control their product, perform higher level analysis, meet with management • Analysts build their own “brand” (Johnson, Blodget, Cohen, Meeker); their franchise is often more important than their employer • Analysts meet with clients, build relationships, and make “calls” Alexander Motola, 2013

  10. Sell Side/Syndicate • Syndicate is the investment bank’s new issue pipeline • They handle IPOs, secondaries, follow-ons, bond issuance, etc. • They market to the issuing companies, often using their analysts’ reputations • They dictate pricing, distribution, and road show (in conjunction with management) • Track distribution post offering and provide stabilization as necessary Alexander Motola, 2013

  11. Sell Side/Custody, etc. • A broker will also sell other services to buy siders, including: • Custody • Currency trading • Derivatives and hedging • Lending • Borrowing • Leverage • Prime Brokerage Alexander Motola, 2013

  12. Sell Side/I-Banking • M&A and Syndicate • They have their own Analysts and Associates (Associates are higher scale jobs than Analysts in I-banking) • Little actual direct investing Alexander Motola, 2013

  13. Buy-Side/Equity Research • 4 Positions • CIO/Investment Committee • Portfolio Manager • Analyst • Trader Alexander Motola, 2013

  14. Buy-Side/CIO • CIO or IC • Sets standards of research; might also oversee analyst staff • Can make investment decisions • Sometimes there is a “buylist” • Approves research • Sets economic direction or investment style direction • Manages or oversees portfolio risk Alexander Motola, 2013

  15. Buy-Side/PM • Portfolio Manager • Might oversee analysts (team approach) • Makes investment decisions for their strategy • Provides marketing for their strategy; client communication • Likely to be involved in the design of their strategy or evolution of their strategy Alexander Motola, 2013

  16. Buy-Side/Analyst • Analyst • Various levels of Analyst • Key function is company and/or industry research • Modeling, company contact, visits, industry evaluation, news, etc.; whatever is demanded by the strategy • Possibly some marketing support Alexander Motola, 2013

  17. Buy-Side/Trader • Trader • Implements PM decisions • Timing • Size • Price • Market action • Liquidity supplier or demander • Talks all day to sales traders and uses “the box” Alexander Motola, 2013

  18. Buy-Side/Fixed Income • PM/Analyst/Trader • Most FI is specific, unlike stocks; with a stock, you can always go out and buy what you want, with FI you can usually only buy what’s available • This usually means that the Trading role is integrated into the PM and Analyst role Alexander Motola, 2013

  19. Typical Path (Analyst) • Undergrad in a Technical Field (Computer Science, Finance, Engineering, Marketing) • Work in the field, gaining industry expertise • MBA, emphasis in Finance • Associate (buy or sell side) • Promotion to Analyst • Possible Promotion to PM Alexander Motola, 2013

  20. Buy Side Firm Structures • Team Approach • Segregated • Star Driven • Combinations of the above Alexander Motola, 2013

  21. Compensation • Sales & Trading Compensation • Analyst $ 80K - $ 150K • Associate $ 180K - $ 250K • Vice Presidents $ 300K - $ 500K • Managing Directors/Partners $1MM+ • Per “Wall Street Oasis” Alexander Motola, 2013

  22. Compensation • Investment Banking Compensation • Summer interns/associate: $71,300 (+$9,400)First year analyst: $85,300 (+$28,700)Third year analyst: $111,400 (+$51,600)First year associate: $120,000 (+$39,900)Third year associate: $149,000 ($60,700)Vice President: $255,700 (+$116,800)Managing Director: $273,400 (+$135,600) • Per “Wall Street Oasis” Alexander Motola, 2013

  23. Compensation • Investment Banking Compensation • Summer interns: $58,000 (+$3,100)First year analyst: $67,000 (+$21,000)Senior analyst: $82,100 (+$21,100)First year associate: $71,500 (+$33,000)Senior associate: $99,200 ($36,200)Vice President: $140,000 (+$100,700)Principal: $145,600 (+$157,500) • Per “Wall Street Oasis” Alexander Motola, 2013

  24. Compensation • How much you make is very dependent on: • What type of firm you work at (who owns it) • Where the firm is located • Size of firm • Bonus philosophy • This is in addition to the usual: your position, experience, etc. Alexander Motola, 2013

  25. Other Aspects of the Job • Mentally challenging, with many new problems to solve; constant learning environment • Very long hours • Very performance driven; you get a report card every day • There is nothing additive to the production of goods; stock market is zero sum game for active investment Alexander Motola, 2013

  26. Other Aspects of the Job • CFA and/or MBA virtually required for many positions, just to get to the interview • Can be a highly competitive environment (both within your firm and outside it) • It’s difficult to get a definitive performance advantage Alexander Motola, 2013

  27. Staying Ahead of the Competition

  28. Thursday • UBXN SW, SARIN SP • CEO (CNOOC ADR) • KRFT • MCHP • WM • PFE • CLX • MCD Alexander Motola, 2013