In the financial markets, information is by far the most valuable asset. Investors rely on information to know what to put their money into, traders need information to know whether they should enter or exit a position, and corporate financiers (including bankers,firms etc) need information to value companies and participate in transactions. This information has to come from somewhere and as a result, there are entire divisions within financial institutions dedicated to researching the key issues for their firm and this division is called Equity Research.
What Is Equity Research?
Equity Research is a division within either a buy-side or sell-side firm which is responsible for the research used by the firm and its clients. Despite the name, Equity Research can also include commodities, bonds are more along with equities. The purpose of an equity researcher is to provide insight and detailed analysis into a company, entity or sector and this information is then used by investors to decide how to allocate their funds and by Private Equity firms andto value companies for mergers, LBOs, IPOs etc. Buy-side firms will then pay the team for access to their information, and this is why is a revenue-producing group for an .
Typically andepartment is split into different coverage groups. These coverage groups will be small teams and they will focus on a specific sector (i.e. mining, energy & resources, healthcare, consumer etc.). Each team will usually cover 5-20 companies.
What Do You Do In Equity Research?
The work withinis split into research / reporting and projections. The research work is fairly self explanatory; the associate or analyst will spend time investigating both the company in question, competitors and the industry in general and take note of all the relevant issues. This information can either come from people in the industry, online information resources (i.e. Google) or other agencies. Every quarter the research team will compile what it has done into a Research Report which is issued to its clients.
The projection work is similar to that of valuation in banking, the researcher will estimate growth rates and valuations for companies several years into the future. The Investment Banking Division will often usereports as the basis for their models, and this is yet another example of how the front-office departments within a bank are interlinked.
Unlike most other financial institutions, the junior level within Equity Research is called ‘Associate’ level whilst the more senior staff are called ‘Analysts’. The most common way of joining an Equity Research team is either out of education (the same as in banking) or as a lateral hire from industry / another sector in the bank.
Exit opportunities for equity researchers are extremely varied and they can place well into hedge funds, industry sectorfirms and the investment banking division. Due to the fact that an equity researcher has to analyse companies from the point of view of an investor, they already have the mindset and skillset to work well in hedge funds and other buy-side firms. As mentioned, each researcher will be familiar with a certain sector of industry, so their knowledge and insight can prove useful when transitioning into another role focusing on that particular sector.