Alexander Motola, 2013 1

Buy Side & Sell SideAlexander Motola, CFA

Alexander Motola, 2013 2

Sell SideBrokerageSyndicateCustody & Prime

Brokerage/Lending

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Sell-Side/Brokerage4 Positions

◦Broker◦Sales Trader◦Trader◦Analyst

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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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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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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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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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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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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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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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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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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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Buy-Side/Equity Research4 Positions

◦CIO/Investment Committee◦Portfolio Manager◦Analyst◦Trader

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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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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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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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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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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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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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Buy Side Firm StructuresTeam ApproachSegregated Star DrivenCombinations of the above

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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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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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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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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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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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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

Staying Ahead of the Competition

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Thursday◦UBXN SW, SARIN SP◦CEO (CNOOC ADR)◦KRFT◦MCHP◦WM◦PFE◦CLX◦MCD