As there are questions about the SellSide and BuySide on a daily basis, I wanted to give assistance with the segmentation for the BuySide. The aim is to show what the BuySide does and which different areas it has. So let me start with a general BuySide description.
The name says it; the BuySide buys equities and so on for their clients of for themselves. The main job is to buy and sell stock to seek alpha or to meet the client’s expectations. They use the service of IB’s and are not creating any Buy or Sell recommendations, they execute.
BuySide analysts research for internal use only and try to gain a competitive advantage. You often hear that there is a “Chinese Wall” between the both analysts, in my option this is a wrong statement. It is not difficult to imagine that a buy side trader who wants to exit a position at a favorable price would ask a sell side analyst to issue a report to buy the stock. You often see SellSide analysts working together is Prop traders.
So why are they doing this? There are two different client classes. Private Clients and Institutional Clients seek security or profit. They give their assets to the BuySide companies and expect them to manage their money. As the BuySide Company offers the professional financial service, the Private or Institutional Client relies on their ability to manage the assets. The BuySide creates value for their clients by purchasing assets that are under-priced. They often use sophisticated, complicated and highly secretive strategies (like algos) they believe will give them the edge over other investors.
So what is the best segmentation for the BuySide?
Banks (AM arms) Banks usually have a separate buy-side department which just focuses on AM. They are using a different technology than the sell-side. AM is a team within a financial firm that is dedicated to managing the assets of clients. (Deutsche Bank AM, UBS AM, BNY Mellon AM…)
Asset Managers Pure AM firms focus on investing private or institutional client assets. The company is purely buy-side and uses sell-side services form other BB's. (Wisdom Tree, Franklin Templeton, Wellington…)
Family Offices A family office is a private company that manages investments and trusts for a single family. (Soro’s, Pictet, Bessemer Trust…)
Prop Trading Prop Traders operate with their own money to generate alpha. (Fortress, Jane Street, Jump…)
Hedge Funds Hedge funds are alternative investments using pooled funds that may use a number of different strategies in order to earn active return for their investors. (Bridgewater, Caxton, Appaloosa…)
Mutual Funds An investment vehicle that is made up of a pool of funds collected from any investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. (American Funds Investment, PIMCO Funds, Oppenheimer Funds…)
Pension Funds A fund established by an employer or government to facilitate and organize the investment of employees' retirement funds contributed by the employer and employees. (TIAA-Cref, OPPT, CALPers…)
You can of course go deeper and mention PE Funds and Life Insurances but I just wanted to give a broad overview.
