Buy Side Sell Side UNM Lecture 11-19

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Buy Side & Sell Side
Alexander Motola, CFA
Alexander Motola, 2013
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Sell Side
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Brokerage
Syndicate
Custody & Prime Brokerage/Lending
Alexander Motola, 2013
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Sell-Side/Brokerage
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4 Positions
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Broker
Sales Trader
Trader
Analyst
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Sell Side/Broker
Broker is a Buy Sider’s primary contact at
the investment bank
 Broker’s job is to:
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◦ 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
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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
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Sell Side/Broker
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Clients want:
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Idea generation
Access to analysts & research
Access to managements
IPOs
Swag & Benes
Conference Access
Travel Arrangements (Intl)
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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
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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
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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”
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Sell Side/Syndicate
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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
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Sell Side/Custody, etc.
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A broker will also sell other services to
buy siders, including:
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Custody
Currency trading
Derivatives and hedging
Lending
Borrowing
Leverage
Prime Brokerage
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Sell Side/I-Banking
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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
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Buy-Side/Equity Research
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4 Positions
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CIO/Investment Committee
Portfolio Manager
Analyst
Trader
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Buy-Side/CIO
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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
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Buy-Side/PM
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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
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Buy-Side/Analyst
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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
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Buy-Side/Trader
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Trader
◦ Implements PM decisions
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Timing
Size
Price
Market action
Liquidity supplier or demander
Talks all day to sales traders and uses “the box”
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Buy-Side/Fixed Income
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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
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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
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Buy Side Firm Structures
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Team Approach
Segregated
Star Driven
Combinations of the above
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Compensation
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Sales & Trading Compensation
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Analyst $ 80K - $ 150K
Associate $ 180K - $ 250K
Vice Presidents $ 300K - $ 500K
Managing Directors/Partners $1MM+
Per “Wall Street Oasis”
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Compensation
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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)
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Per “Wall Street Oasis”
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Compensation
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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)
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Per “Wall Street Oasis”
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Compensation
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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
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This is in addition to the usual: your
position, experience, etc.
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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
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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
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Staying Ahead of the Competition
Thursday
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UBXN SW, SARIN SP
CEO (CNOOC ADR)
KRFT
MCHP
WM
PFE
CLX
MCD
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