Why the buyside?

Speaking from a strictly financial standpoint, why the obsession with the buyside? It seems like even middle-tier MDs are able to rake in at least as much if not significantly more than your average PE partner at a MM/LMM firm (though I could be wrong). Additionally, with the best IB talent going to the buyside year after year, that makes competition much fiercer than for those who stay in IB.

Anyone have thoughts on this?

Comments (55)

 
Nov 17, 2020 - 12:38am

I think it's a thing where everyone believes they will get into an MF or wants to think that about themselves but not everyone does. I feel it's more about the potential upside than the average, and they assume they will be the lucky star person who gets into one. Sure, if you do you will likely have better pay and better hours, but that's a minority of PE.

TLDR: People believe they are the chosen one and will get an MF and don't think about LMM/MM or the average case.

 
Most Helpful
Nov 17, 2020 - 1:18am

Because people are under the impression that PE is the promise land of the elite that will make you richer beyond your wildest dreams and IB is for people who didn't have what it takes to make it to the buyside. Honestly I think people just need to decide what they actually enjoy doing. You have to ask yourself, did grinding at Apollo and getting a 90 million dollar net worth make you happier than let's say being an MD on the ECM team with a 20-30 million dollar net worth? Especially looking back at your life by the time you are in your 50s and retiring? The point I am trying to make is that you will make good money either way (way more than you or your kids will ever need) and you have to see what is important to you. You have to truly see which career you see yourself enjoying more and will help you realize your goals better. Because you will never be happy in life by just chasing the bigger pay check. Final advice to people that are blindly chasing PE is that finance is not a career you plan 10–20 years ahead. It's a career where you decide what your next 2-5 years will look like at a time. You may think you want to be a MF partner now (if you can even get there), and in 2 years you become the biggest IB hardo. I mean who's to say really.

 
Nov 18, 2020 - 4:57am

This this this. So much this. I will add a lot of junior bankers believe it's more intellectually stimulating than the process-driven nature of the sell-side but often times, at least a a big fund, the experience for the PE associate ends up being quite similar to banker work with regards to being an excel/ppt jock

 
Nov 18, 2020 - 6:57am

Don't think ECM MDs have $20-30m of net worth. Not at the level of run-rate comp in the industry. If average MD makes $1-3m per year (gross), that leaves them with $600-1.5m net per year. $1-3m is what I heard as reasonable mid of the pack MD.

After expenses of $300-400k ($100k mortgage, $20k real estate taxes, $50k private school x2, full time nanny, club membership, etc.) they are probably saving anywhere between a couple of hundred k per year up to $1m. Assuming wife doesn't work.

So yeah, after 20 years as MD, they may be 55-60 years old and have $10m in the bank and a house. Maybe more if invested wisely. Maybe less if got share-based comp and stock didn't perform.

Can't really retire with that, and that's why folks keep working a little bit more.

The "average" MDs that are uber rich today made their money over the last 30 years.

 
  • Analyst 1 in IB - Gen
Nov 18, 2020 - 8:33am

Investment returns...? investing a couple hundred k to 1mil a year into an index fund for 20 years will get you anywhere from ~$12mil to ~$40mil.

Average MD tenure is about 8-12 years more realistically so about half of those figures. And most bankers will have saved and invested at least 1mil by the time they hit MD which bumps up the numbers even more. Realistic estimate is something like $5m to $20m+ for investing between ~$300k to $1mil+ a year for 8-12 years as an MD and with $1m from pre-MD years.

Additionally, if you can't retire on $5-20m.. when you don't have kids at home anymore and aren't incurring work related expenses you need to reassess your spending habits lol.

 
  • Managing Director in IB-M&A
Nov 17, 2020 - 12:05pm

Ultimately a "sales job" at senior levels but I would also point out intellectual stimulation. Very different level of knowledge/"digging in" across banking vs. buyside. Yes both jobs people do for the money but the buyside/"working with companies" throughout the investment horizon makes it feel a lot less transactional compared to banking / contributing something back to society.

 
Nov 17, 2020 - 12:41pm

It's about wanting to compete in the toughest game out there against the best competition. You want to go down in the history books as the guy who beat the S&P 500 for over a decade and have people admire you for it. People who last on the buy-side don't do it for the money, they do it because they love markets and would do this job even it if didn't pay well and there was no prestige.

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Nov 18, 2020 - 5:57am

I'm talking about the history books of our industry which I would think is pretty obvious on a finance forum. There is that allure of becoming the next Ken Griffen, Izzy Englander, Bill Gross or Howard Marks (however unlikely). Even household mutual fund names like Peter Lynch, John Templeton or the infamous Bill Miller transcended the industry to become known outside of the business world.

Now I agree if we are talking about some LMM PE partner it's a different story.    

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Nov 17, 2020 - 1:52pm

If I had to guess based on my time in the business I would say it's a combination of the following:

1) IB analysts look at their seniors (VP's/D's/MD's) and decide "I don't want to end up like that guy."

2) The grass is always greener mentality.....especially true after long nights on pointless pitches that go nowhere.

3) The optionality on comp. As the old saying goes, "banks were set up to make a lot of people millionaires but HF's were set up to make a few people billionaires."

4) The intellectual stimulation of finding an edge or competing against "the market."

5) Banks are incredibly political and promotions/comp are not as "eat what you kill" as you may think. All the hot shots in FICC trading who are expecting massive bonuses after FICC delivered huge profits for banks this year will discover this come communication day in early 2021.

6) Prestige factor....all the top people are going to the buy side so I should too...

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  • Intern in IB - Gen
Nov 18, 2020 - 2:05pm

Even though I'm an intern I have some experience hearing about #5. Networked with the head of a division at MM bank and got to know him well over the course of my UG. After knowing him for 2-3 years when I mentioned a certain bank he said never to work there and I asked why. Turns out he was owed a bonus somewhere in the range of $5-10 million per his contract that the bank never paid out. They went to court and it turned into an ugly battle. It was 20+ years ago so things may be different now but there was a WSJ/ Bloomberg stories about it at the time. 

Not trying to use this as justification to go to the buy side just thought it was an interesting anecdote. 

 
Nov 17, 2020 - 1:55pm

Because these prospects and interns don't know shit, just like the analyst prior to them who didn't know shit and followed a well-trodded path. IB naturally attracts people risk averse but want to make above average money. It lends itself to having this herd mentality of recruiting for the next best thing, not realizing the wave is not nearly as attractive as it used to be and that they are in all liklihood not going to be the next henry kravis lmfao

 

 

 
Nov 17, 2020 - 4:06pm

I think IB attracts very driven students who for the most part, have no idea what they really want in life. So they fall in love with the idea of IB because it's the highest paying job with the most optionality. Then reality hits them and they're spending their 20s in the office as someone else's bitch, making good money, but never enough to truly feel rich because COL is so high. Prospects should put a lot more thought into what they actually want to do before signing away 2 years of their life for the slim chance of making it to a MF (and then singing away the rest of their 20s and most of their 30s grinding there). There's a million ways to make money that don't require you to work 100 weeks doing grunt work

 
Nov 17, 2020 - 5:16pm

Being successful on the buy side makes you think that you know which companies will succeed/fail and you put your money where your mouth is, something the sell side doesn't do. At the end of the day, do you want to be the person who suggests good ideas? Or the person who bets on those ideas and makes the big money. I think that superficial logic is what makes college kids and recent grads favor the buy side so much. So many people think they're an amazing judge of talent, so they naturally want to be the person calling the shots and maing the investments.

 
Nov 17, 2020 - 6:17pm

a lot of stuff ppl tell u is bs but one thing is that you're not someone's bitch in the same way you are in banking. in banking your fundamental existence is to serve clients that don't give a fck about your life and will offload work to you whenever. in pe you're still the lp's bitch but you still have more freedom to operate.

if you're on a deal it still sucks though

 
Nov 18, 2020 - 3:21am

Doesn't the buyside mainly draw people who are more entrepreneurial in spirit? How many people can stay in investment banking and then start their own investment bank? How many are leaving IB to start their own VC/PE/HF? Not many.

Going to the buyside gives you the experience you need to ultimately start your own gig and be your own boss within finance. IB+buyside experiences gives you the tools to launch your own fund.

Or am I totally off?

 
Nov 18, 2020 - 5:12am

Simply put here are the main reasons people feel it's better:

  • Perceived comp is higher: this is true at the associate level depending on the fund but unless you're going to a top UMM/MF, you will generally be paid more as a banking associate assuming you are a BB/MM/EB with street comp structure
  • The "scintillating" aspect: many people enter the buyside under the impression they'll have their voice heard or have a big impact on investment decisions / portco direction. This is generally not true unless you're at theoretically super hands-on fund which is young, lean, and ops focused. But in this case you'll likely not meet the above criteria
  • Prestige: People love the idea of working at a PE shop given the weight it holds in conversations with peers, family, friends etc. Trust me, the effect swiftly wears off when you realize the striking similarities between your banking job and your PE associate role
  • Inertia: since everyone in banking for the most part feel that they're in it for a stepping stone role to get into PE given class after class has done so, why would they stop and not maintain their "forward trajectory"? Which, theoretically, if they did stay in IB would make them feel that they weren't "cut out" for PE but were relegated to an associate role at a bank
  • Work/life balance (again, perceived): the amount of people I know who go into PE thinking they'll suddenly have total control over their schedules etc is quite sad. I say sad in the sense that they are generally quite disappointed when the hours are the same if not worse with much more severe consequences when it comes to deadlines and workstreams

These are a few of the things I think are driving forces in the mass effort on behalf of analysts who want to exit to the buyside. My experience stems from a large fund so obviously those who are at smaller funds and have differing experiences based on my anecdotes may beg to differ from what I said. That being said, I think if you're seriously considering a move to the buyside, consider the above and DEFINITELY consider whether the banking role you are in is actually good and you have solid relations/positioning within the team you are in. I doubt those who are chasing these roles are going to be swayed much but it is definitely something to consider and something I wish I considered prior to leaving IB

 
Nov 18, 2020 - 11:32am

SB'd. I came in here to post a similarly wry & cynical list.

 

The memes on this board say that PE is both Banking 2.0 and the Promised Land. It sounds like a paradox but they're not mutually exclusive. It depends on so many factors. 

 

I came to PE because of a combination of factors on your list. Thought it was the logical next step in some abstract form of "progression/success", I wanted better comp (In my case it is meaningfully better), I felt like I was doing monotonous work in banking (work is more meaningful in PE in my experience, but we're very hands-on at my shop), I wanted to scratch an entrepreneurial "itch" and help grow companies, etc. It's given me a new skillset and I would make the move again in hindsight, but I'm not gonna lie and say I love my life and my job or even that I'm happy (or even happier) on average. I mean fuck, I was up past 2AM again last night and have logged 50 hours since Saturday. I've had 40 hour weeks and taken vacations too, but I got that in banking.

 

I think folks should choose "the buyside" for intrinsic reasons. Don't "come to the buyside" for comp, WLQ, prestige, etc., but rather for the different angle on transaction and investment focused work and analysis. The buyside isn't objectively better than the sell side on any metric.

 
Nov 18, 2020 - 9:00am

The variety on how much LMM partners is pretty insane. I've seen two firms in the 200-500 mil fund range whose founders have been in PE for 20+ years. Both worth in the 100-150 mil range and I guarantee none of you have heard of either. One specialized in a niche and got very good at it - lucky for him, it's an industry that got wrecked by COVID. Bought their last portfolio company at a discount. The other coinvests with a distressed UMM PE fund and is an expert operator in the field (entrepreneur turned PE). Known to buy really crappy run companies, cut costs (mass layoffs), eventually turn around in 5-7 years then resell. Made a huge fortune off recent sale.

 
Nov 18, 2020 - 4:23pm

Most people joined IB because that's what everyone was doing. Same reason they go after PE
 

Most people don't know what they want or what they're talking about as evidenced by people going to PE mega funds thinking their role as an associate is going to be materially different as a senior analyst / junior associate. At the end of the day you're still an excel monkey

 
Nov 19, 2020 - 2:33pm

Devils Advocate

Most people joined IB because that's what everyone was doing. Same reason they go after PE

This.  IB to PE is one of the proscribed paths if you're at a target.  Once people decide to go to IB over consulting/tech/law school/med school (the other "acceptable" paths), they don't spend a lot of time analyzing the choice.  

 
Nov 20, 2020 - 1:22pm

Typical top decile in the buyside makes way more money than the top decile in banking. Different kind of stress means the hours aren't directly comparable.

Typical median buyside performer makes the same amount of money as the median banker. Median hours worked are lower. 

Lower-end performers on both sides end up playing musical chairs across different seats in the M&A world. But no one enters this game expecting to be a lower-tier performer.

As a whole, the buyside entails less internal bureaucracy than working on the sell-side does.

 

The truth is you're the weak. And I'm the tyranny of evil men. But I'm tryin', Ringo. I'm tryin' real hard to be the shepherd.
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