What is so bad about starting at the buyside?

It has to do with the skill set that you learn in the Sell-Side. It leads to better exit opportunities.

because the majority of posters here are students who want to get into ibd or ibd analysts

Deal reps. On the buyside you get far, far fewer. It is valuable to get the repetitions in early and learn how a deal is executed. That said, obviously you can be fine if you start on the buyside and every situation is different. But to my understanding, that's one of the main reasons that people commonly cite.

A lot of these buy-side analyst programs are relatively new, so if you're searching WSO for answers, you're probably bumping up against older threads that were created when these buy-side shops first started rolling their analyst program out. The sentiment at that time was to take the proven track (IB analyst) over the relatively new track (PE analyst) since we have decades of experience with the former. I think that in 2016, as long as the buy-side analyst program is willing to promote its analysts to associates after two or three years, you should take the buy-side role.

prefteeege

While it's fairly understandable that those just getting into finance see an express route to the buy-side (i.e. going straight there w/o an IBD stint) simply as a quicker and more efficient way to get to an end goal, you should keep in mind the following:

1) Opportunities - Many of the better buy-side shops won't consider you unless you have sell-side experience. You'd be limiting your options in many cases if you went straight over. Just like you could get a full-time job straight out of HS and not go to college, but chances are you won't get as good of a job as if you had a university degree.

2) Competency - Most buy-side places don't have the resources or the inclination to train you. So even if you could jump straight to a name brand firm, chances are you wouldn't know how to do most aspects of your job. Last thing you want is that on the first day of your job that your boss asks you to to do the following XYZ things, and you just stare at him/her with blank look on your face. Needless to say, you probably won't last very long in such a situation.

3) Better at your role - Lastly, even if you could proficiently execute a buy-side position, an IBD analyst stint may potentially help you do it better. During your analyst years, you'll learn a variety of skill-sets. Everything from valuation knowledge to presentation abilities to understanding management styles by working with different supervisors. Think of these as acquired tools in your tool kit. When you go buy-side, you'll be able to apply these to your benefit. In short, it could make the difference between you being an average buy-side associate or a top-notch one.

the premise of this question is ridiculous: most people on this board would take a Silver Lake PE analyst position over BB IBD 9 times out of 10.

I could be wrong, but most people tell me it's because of two reasons: A. There are very few positions on the buy-side for entry level out of undergrad. B. Most PE firms don't have structured training programs like the top banks do, so people have suggested starting out in banking.

Again, this is just what I've heard from reaching out to IB analysts.

Why IB may be better than PE as a upcoming college grad...

1. Prestige: If the PE shop you do an analyst stint at is well known, then there is no problem. This becomes a problem when you're working at a completely unknown fund (regardless of how awesome the team is). If I am an employer, my familiarity with a candidate's current employer gives me better insight to your experience level. In short, prestige will impact future career moves.

2. Type of experience: I cannot say with complete certainty but I am willing to go out on a limb and say that not all PE analysts gigs are created equal. If the PE gig is deal/execution focused then you're solid. If it's anything otherwise, then it's probably not worth starting off in PE; instead you're better off learning the execution of deals from the advisory side.

3. Class size: Some PE shops will take analysts but their analyst pool will be tiny compared to that you get in IB. The ability to start your career with a fairly robust circle of peers can be valuable in the near/mid term future. The better your network now, the better you may be later down the line. For instance, if you start in IB and end up in PE 2 years later, you may have a colleague from IB who left for a PE gig. Now you have a connection across multiple PE shops. On the other hand, if you start in PE, the only folks you get to know on a more personal level are those within your own firm .

Bottom line, as long as the PE firm is relatively well known and the experience there is deal/execution focused, you are solid and are better served starting in PE rather than IB (assuming the buyside is your ultimate goal). There are upsides/downsides to either decision and is really a personal decision more than anything.

Edit

People only say this because buyside jobs usually require sell side experience. If you have the opportunity to start at buyside then almost anyone would take that opportunity in a heartbeat. However, this all depends on what you want to do. If you want to work in "banking" then it makes sense to go to a reputable bank out of college. If you want to do equity research then you would have a VERY hard time trying to find someone who would rather start at a bank as opposed to a hedge fund.

Highly disagree with many of the views in this thread so I'll throw in some thoughts:

1) first off "starting on the buyside" is a huge generalization. A long-only deep value asset manager is nothing like a credit HF which is nothing like PE, etc. So yes, the average entry-level investment analyst job at a random fund probably isn't as good for general career development/opportunities as starting in a solid investment banking role. Which leads into

2) if you were interested in investing and had the opportunity to join a name brand PE shop/HF straight of undergrad (very few slots, but think Blackstone, Warburg, TPG, Silver Lake, Silver Point, Apollo credit, etc) I think overwhelmingly people choose that option when they have it and for good reason. On the other hand

3) I would take BB IBD over an obscure $100mm AUM PE/HF any day. The name brand is important, especially if you're not 100% set on what you want to do longer term. Plus the type of work and investing experience differs dramatically across the buyside spectrum. Which brings me to my next point

4) people often cite lack of structured training at buyside shops. Surely true at smaller, leaner funds, where you have to pick up much more on your own. But do you really think that a megafund or top HF is just going to twiddle its thumbs and neglect to train the handful of analysts they worked so hard to recruit? In a similar vein

5) the widespread notion that the skillset you gain from BB/EB IBD is somehow better than the skillset you gain at a top buyside gig is absurd. While I don't want to short sell the utility of presentation skills and seeing how senior bankers think about transactions and companies, let's face it – unfortunately much of banking is process work where the learning curve flattens out very very quickly. And for someone interested in investing, 2-3 years in an investing role is definitely superior to 2-3 years in an advisory role.

6) the network building that you forgo by starting in, say MF PE over BB IBD should 100% be a top consideration. Reality is even large hedge funds and megafund PE divisions have fewer people in total than, say, BofAML has summer interns in investment banking alone. This is especially true at the junior level where undergrad analyst classes can range from 1-5 people, meaning you do have to work quite a bit harder to meet people (although i'm sure a MF PE analyst will have an easy time making friends with BB IBD analysts haha)

7) if you have no interest whatsoever in investing long term and are doing banking as a broad springboard and/or because you have no idea what you want to do, then yes BB/EB IBD is probably a better idea. But in that case you're probably not facing this decision anyway.

Just my two cents. Remember that very very few of us will even be able to interview for the most well known large cap private equity funds and hedge funds out of undergrad, and typically a junior banker's view on what is "better" will naturally be skewed toward banking.

Wherever you start, buy side or sell side, you're gonna be in the top half of the 1% of the 99th percentile of people on earth. So why so worried? Just do something you enjoy doing and smash it.

It's the preftige, bro. You wouldnt get it.

My reply is a bit more general and isnt just IBD centric (as the rest of the thread seems to be). In general, it depends on the person, both ability wise and their personality. To do well on the buyside straight out of university you really need to be proactive in learning on your own, the teaching side of things just isnt there, both in terms of people willing to teach you and the time you are given to learn. You really need to be hungry to learn yourself and make sure you are aware of where your weaknesses are and proactively try to fill the gaps in your knowledge/skillset.

I did 3 years on the sell side trading before jumping to the buyside, and I dont think I could have done it without that. Just in every sense: product knowledge, general finance savvy, workplace/office confidence/swagger, attention to detail etc. On the sellside you can do 6 months of just being a junior without a trading book, and it gives you a lot of runway to pick up the above, but on the buyside the curve is much faster. So if you are good enough then you should go for it, but if not then the sellside provides good training wheels. And by good enough, ask yourself, are you able to be given a project in the morning and within a couple of hours turn around an argument/thesis to an MD one on one and at no point having the MD thinking you are just a junior but taking you seriously?

Banking provides you with a VERY broad platform to do almost anything During my time in a top group at a top BB (GS/MS/JPM), I felt like I could take almost ANY path (VC, MF PE, MM PE, Growth/Distress/Traditional, fund of funds, corp dev., F500, consulting, top B-School, go work for a banking client). Let me be very clear. I’m not saying you can’t take any of these paths if you start on the buy-side, but people tend to place you into a more specific bucket once you get on the buy-side. For example, if you work for a MM growth equity PE fund, I would expect you to have a hard time recruiting for a top distressed debt hedge fund. From your investment banking seat, you could recruit for both easily.

Branding As a whole, more people are more familiar with the banks than the buy-side firms. Please don’t misinterpret my point. I’m not saying buy-side firms don’t have strong reputable brands, but I am saying that if I went through my non-finance (and even middle/back office finance) contacts they will all likely be familiar with JPM/GS/BofA rather than Warburg, TPG, Millennium and Paulson & Co. This is even further supported if we were to name smaller buy-side shops. This point can be relevant if you decide that the finance industry isn’t for you (like many successful and unsuccessful financial analysts do). There’s a general perception and familiarity the comes with working at a certain place or going to a certain school. If you one day decide to go work in a completely different industry, telling people you worked at Goldman/BofA might resonate more with them than you saying worked at ABRY Partners, despite ABRY being an excellent MM shop.

Deal experience It’s been said many times on this forum before. You are your deal experience. I’ve been doing PE for almost 1 year now and I can’t stress enough how helpful my IB execution experience has been. Reps on reps on reps. You will get more reps closing deals as a banker than you will as a buy-side professional. I’m completely comfortable driving a deal process now to the best of my ability as a junior professional. Managing personalities up and down, getting third parties to work on the right deliverables within the right timeframe, etc. 3 years of banking and close to one year of PE has given me enough experience to know when we should start certain work streams and also which work streams are truly critical versus nice to have.

Network My PE class was drastically smaller than my IB class. I made global contacts during my IB analyst training. These guys/girls are now on the buy-side, law school, b school, entrepreneurship, MM IB, tech, still at my old IB as associates, etc. At some point they will be VPs, then they will become directors and so on. I’ve seen first-hand that major success at the top level in IB and PE is very relationship driven. It’s definitely not the smartest/most-technical guys who take home the biggest check. It’s the guy who found the sweet proprietary deal because his old post-MBA IB associate buddy from years ago gave him the look at the asset before anyone else.

You have more time to grow up with IB first As a junior professional, you need more poise on the buy-side. More gravitas. Deal teams are leaner so you constantly work directly (in a meaningful way) with senior people internally. There is more autonomy so you receive less guidance. There is no associate above me to check my model. I am expected to know and understand what I’m doing. You’re also in your 20’s and you have to go meet with management teams and manage third parties where people are much older than you. During one of my first projects on the buy-side I worked very closely with the target CFO to come up with a weekly forecast. Cell calls and texts even. Most people aren’t ready for that as soon as they step off campus. Then again, any buy-side shop who hires an analyst wouldn’t have you do this anyway. I’d expect the experience to be much more like an IB analyst roll. You would be more reactionary vs. proactive as it relates to getting a deal to the finish line. There would be an associate above you to delegate several analyst type tasks.

It isn’t a bad look to start on the buy-side. You can be just as successful (however you measure success), starting off at a PE shop rather than doing banking. I’m just a big fan of IB first. In my view, IB first has a more long-term connotation to it.

This thread is so WSO it hurts

a mentor of mine started at buy-side. he is very good at as an investor = know what is a good value, what investors like, how to make money for clients. but then he moved to sell-side for a bigger title. the problem starts there:

most people on buy-side, in my personal opinion, are not so smooth talking. they are so used to grill company owners to tell them why i should invest in your company. when they move to sell-side, u need to be extra nice to the company owners because they decide whether they want your firm to advise them on a particular deal. in a way, the company owners are the kings in sell-side, compared to buy-side, where the investment director decides whether he would put money or not.

net net. sell-side more smooth talking = do anything to make a deal happen = make clients (CEOs) happy. buy-side = make money for the investors = used to grilling CEOs to extract value. it is not an easy switch in mentality.

hope this answers your question.

So many people mention training and how you would look like an idiot at a buyside firm out of undergrad because you didn't have "product knowledge, general finance savvy, workplace/office confidence/swagger, attention to detail etc" (lifting a few items mentioned by derivstrading above). If you're getting recruited to a buyside firm out of undergrad, you owe it to yourself to understand what the manager's expectations are of you -- make sure they're willing to mentor you or provide extra guidance. If the manager is expecting you to turn a project around in 2 hours on the first week of your job, the manager is an idiot. If a buyside manager expects a new employee to have the equivalent of 3yrs of sell-side experience they should have hired someone with 3yrs of sell-side experience instead of an analyst out of undergrad. There should be some runway room at many buyside firms; otherwise you need to create some for yourself by asking questions and getting feedback. There is also a possibility your sellside manager expects you to turn a project around in a few hours on your first week. The answer is it depends. Overall I agree with the sentiment, go with the prestige. Go with a top name PE firm, else go with a top IBD.