Buy Side & Sell Side Alexander Motola, CFA Alexander Motola, 20131.
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Transcript of Buy Side & Sell Side Alexander Motola, CFA Alexander Motola, 20131.
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Alexander Motola, 2013 1
Buy Side & Sell SideAlexander Motola, CFA
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Alexander Motola, 2013 2
Sell SideBrokerageSyndicateCustody & Prime
Brokerage/Lending
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Alexander Motola, 2013 3
Sell-Side/Brokerage4 Positions
◦Broker◦Sales Trader◦Trader◦Analyst
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Alexander Motola, 2013 4
Sell Side/BrokerBroker is a Buy Sider’s primary
contact at the investment bankBroker’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
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Alexander Motola, 2013 5
Sell Side/Sales TraderSometimes 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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Alexander Motola, 2013 6
Sell Side/BrokerClients want:
◦Idea generation◦Access to analysts & research◦Access to managements◦IPOs◦Swag & Benes◦Conference Access◦Travel Arrangements (Intl)
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Alexander Motola, 2013 7
Sell Side/TraderEmployee 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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Alexander Motola, 2013 8
Sell Side/AnalystPaid via commissions and trading
volume in stocks under his/her coverage
Usually works in a team oriented around an industry
There are associates and analystsAssociates 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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Alexander Motola, 2013 9
Sell Side/AnalystAnalysts 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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Alexander Motola, 2013 10
Sell Side/SyndicateSyndicate 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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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
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Alexander Motola, 2013 12
Sell Side/I-BankingM&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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Alexander Motola, 2013 13
Buy-Side/Equity Research4 Positions
◦CIO/Investment Committee◦Portfolio Manager◦Analyst◦Trader
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Alexander Motola, 2013 14
Buy-Side/CIOCIO 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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Alexander Motola, 2013 15
Buy-Side/PMPortfolio 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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Alexander Motola, 2013 16
Buy-Side/AnalystAnalyst
◦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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Alexander Motola, 2013 17
Buy-Side/TraderTrader
◦Implements PM decisions Timing Size Price Market action Liquidity supplier or demander Talks all day to sales traders and uses
“the box”
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Alexander Motola, 2013 18
Buy-Side/Fixed IncomePM/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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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 FinanceAssociate (buy or sell side)Promotion to AnalystPossible Promotion to PM
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Alexander Motola, 2013 20
Buy Side Firm StructuresTeam ApproachSegregated Star DrivenCombinations of the above
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Alexander Motola, 2013 21
CompensationSales & Trading
Compensation◦Analyst $ 80K - $ 150K◦Associate $ 180K - $ 250K◦Vice Presidents $ 300K - $ 500K◦Managing Directors/Partners $1MM+
Per “Wall Street Oasis”
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Alexander Motola, 2013 22
CompensationInvestment 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”
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Alexander Motola, 2013 23
CompensationInvestment 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”
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Alexander Motola, 2013 24
CompensationHow 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.
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Alexander Motola, 2013 25
Other Aspects of the JobMentally challenging, with
many new problems to solve; constant learning environment
Very long hoursVery performance driven; you
get a report card every dayThere is nothing additive to
the production of goods; stock market is zero sum game for active investment
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Alexander Motola, 2013 26
Other Aspects of the JobCFA 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
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Alexander Motola, 2013 28
Thursday◦UBXN SW, SARIN SP◦CEO (CNOOC ADR)◦KRFT◦MCHP◦WM◦PFE◦CLX◦MCD