Buy-Side Analyst

Buy-side analysts employed by investment funds conduct thorough research and provide recommendations on potential investment opportunities.

Author: Himanshu Singh
Himanshu Singh
Himanshu Singh
Investment Banking | Private Equity

Prior to joining UBS as an Investment Banker, Himanshu worked as an Investment Associate for Exin Capital Partners Limited, participating in all aspects of the investment process, including identifying new investment opportunities, detailed due diligence, financial modeling & LBO valuation and presenting investment recommendations internally.

Himanshu holds an MBA in Finance from the Indian Institute of Management and a Bachelor of Engineering from Netaji Subhas Institute of Technology.

Reviewed By: Patrick Curtis
Patrick Curtis
Patrick Curtis
Private Equity | Investment Banking

Prior to becoming our CEO & Founder at Wall Street Oasis, Patrick spent three years as a Private Equity Associate for Tailwind Capital in New York and two years as an Investment Banking Analyst at Rothschild.

Patrick has an MBA in Entrepreneurial Management from The Wharton School and a BA in Economics from Williams College.

Last Updated:September 26, 2023

What Is A Buy-Side Analyst?

Buy-side analysts are financial professionals that work in asset management, financial advisory, trusts, mutual funds, private equity, and proprietary trading software providers.

Within these roles, they wield significant influence in crafting and steering investment strategies that align with the overarching objectives of their organizations and clients.

They primarily conduct research and they dig deep into the financial world, studying things like company reports, market trends, and different types of investments like stocks and bonds. This research helps them figure out which investments are likely to do well.

In addition, they are tasked with finding investment opportunities that are expected to outperform the benchmark and provide an above-average return on investment (ROI).

In essence, these professionals act as experts behind prudent investment decisions, employing their research and capitalize on opportunities that drive financial growth.

Key Takeaways

  • Buy-side analysts work in various financial sectors, conducting research and providing investment recommendations. They typically specialize in specific industries or sectors, such as retail or healthcare.
  • Becoming a buy-side analyst typically requires a bachelor's degree in business or finance. Some may pursue a master's degree in finance or business administration.
  • Buy-side analysts' primary goal is to identify investment opportunities that are expected to outperform the market benchmark and generate above-average returns for their clients or firms.
  • Buy-side analysts specialize in sectors, providing confidential recommendations, while sell-side analysts offer public research.

Understanding a Buy-Side Analyst

Buy-side analysts work for firms that place buy orders for a large number of securities, typically but not limited to stocks, and thus the name buy-side.

Examples of firms considered buy-side are as follows:

  • Mutual funds
  • Hedge funds
  • PE firms
  • Pension funds
  • Sovereign wealth funds

In addition, buy-side firms usually purchase securities from brokerage firms or investment banks, known as the sell-side.  

Analysts in buy-side work very closely with portfolio managers to help them make sound investment decisions. Some of their obligations include performing analysis and understanding, interpreting, and analyzing the financial statements of the companies that are being considered for a potential investment.

The financial statements refer to a company’s income statement (IS), balance sheet (BS), and cash flow statement (CFS), as well as the accompanying notes to accounts.  

They are generally responsible for identifying investment opportunities with a positive outlook that will contribute to achieving and exceeding the fund’s target performance benchmark. Their ideas are not publicly available, unlike the ideas of sell-side analysts. Their recommendations are for the firm’s internal use, and they are confidential. 

Buy-side analysts specialize in a specific sector, for instance, retail or healthcare, and analyze and follow the companies within that sector.

When combined with their knowledge of the businesses in question and their understanding of the overall economy, this specialized industry knowledge contributes to forming solid recommendations regarding buying, selling, or holding the security. 

Major events that can impact the sector they cover, such as changes in interest rates, the stage of the business cycle, and the unemployment rate, are usually factored into their analysis. 

How Do You Become a Buy-Side Analyst?

A buy-side analyst typically has a bachelor’s degree in business or finance. Some financial institutions may require a master’s degree in finance or business administration. 

The career path to a full-fledged analyst position involves starting as an intern or an assistant while in university and then leveraging that into a full-time position upon graduation. As with most career paths, internships provide an effective way of breaking into the role. 

An aspiring buy-side candidate must show proof of relevant work experience to be considered for the highly competitive and sought-after role. Work experience through an internship at private equity (PE) and venture capital (VC) firms can be highly beneficial to land the role. 

Another option to land a buy-side role is to consider having work experience at an investment bank. This is particularly relevant for sell-side analysts who aspire to work for a hedge fund (HF) as the fundraising work in both types of firms bears similarities.

In addition to the academic qualifications and work experience, the analyst must demonstrate passion, a strong interest in investing, and an excellent work ethic. Also, it goes without saying that networking plays an important role in the process.

Buy-Side Analyst Skills Needed 

A promising candidate has to showcase a combination of hard (technical) and soft (interpersonal) skills to succeed. 

  • Excellent communication skills: As they work closely with portfolio managers, they have to clearly articulate their investment ideas and the reasoning for their recommendations. Analytical expertise and inquisitive attitude towards companies are part of the analyst’s skillset. 
  • Technical competence:  Their technical competence and competitive edge stems from their ability to accurately interpret and analyze the Securities and Exchange Commission (SEC) filings and sell-side reports, speaking with management, diving deeper into fundamental analysis, and being able to identify caveats into a company’s performance whether it is under or outperforming. 

Fundamental analysis is the analysis of a company in terms of management, products and services, and business model. The analyst has to crunch the numbers and derive the company’s value from them.

Attention to details such as insider ownership, institutional holdings, and current short interest can also help make a difference.

  • Financial modelingMoreover, the analyst is obligated to master financial modeling and understand how stocks or bonds are valued from the perspective of a buy-side firm. 
  • Risk management: Analyzing and monitoring market, industry, and company developments closely and identifying systematic and systemic risks are among the expectations for the roles. Managing risk is essential in the investment decision-making framework.
    • Systemic risk is the risk related to a specific company and industry. It is also known as a diversifiable risk and can be managed through diversification. 
    • Systematic risk, on the other hand, also called market risk, is the risk that affects the broader market and can impact multiple and different industries. It is undiversifiable

What Does a Buy-Side Analyst Do?

Buy-side analysts advise when to buy, sell or hold a security. They work for one of the earlier mentioned buy-side firms and help their firm and clients make investment decisions by providing information on company performance and competitive strategies. 

They are generally required to specialize in one industry or sector of the economy, such as healthcare or technology. They gather information about companies from published reports and interviews with company management.

Buy-side analysts use their knowledge of market trends to make recommendations about buy, sell or hold decisions for their clients’ portfolios.

They must keep up with the daily trends and news related to the industry and the company they cover. They produce reports based on the gathered information and update them accordingly. These reports are available only to the firm for which the analyst works. 

Buy-side analysts also attend calls or meet with the management of the company they cover to obtain timely information, which is subsequently used for updating reports and forecasts

Earnings seasons are particularly important events that they monitor closely. Earnings season refers to the quarterly periods - January, April, July, and October - when companies update the public on their operations, performance, and generated revenue.

These periods tend to be very hectic for analysts, as most of the time would be scheduled for attending the related corporate events and meeting the management of the covered companies.

These corporate events allow analysts to set out and review forecasts and issue guidance for investment decisions. Generally, positive news can positively impact analysts’ outlook and forecasts.

Conversely, a negative event, such as missing an earnings target, has a less favorable impact, which is also reflected in the price of the security. 

What Are the Different Types of Buy-Side Analysts?

Depending on what category of assets they specialize in, buy-side analysts can be classified into equity or fixed income research analysts.

Equity research analysts cover stocks and equity securities and also focus on stocks and conduct in-depth analysis of publicly traded companies, considering factors like financial health, growth potential, and market dynamics to provide stock recommendations. Their goal is to build portfolios for strong returns. 

In addition, fixed income analysts cover bonds and other debt securities, assessing creditworthiness, interest rate trends, and risks to construct income-focused portfolios.

Buy-side analysts specialize in either stocks or fixed income, assisting firms and clients in making informed investment decisions in their chosen asset category.

What Is a Buy-Side Equity Research Analyst?

Analysts specializing in stocks are referred to as equity research (ER) analysts. These experts play a crucial role in the investment ecosystem, providing in-depth insights to inform investment decisions. They can work for both sell-side and buy-side firms.

Sell-side firms, such as investment banks and brokerages, sell securities to their clients such as pension funds, mutual funds, insurance companies, among others, who are known as the buy-side. 

These analysts aim to identify promising stocks that align with their clients' investment goals. 

Buy-Side Equity Research Analyst Responsibilities

Equity research analysts gather extensive data on the companies they cover to produce reports, recommendations, and forecasts. Usually, they follow a small number of companies to ensure in-depth expertise and coverage. 

They specialize in particular sectors and companies. Their research and reports are exclusive and restricted to internal use.

Highly skilled and competent analysts tend to be better compensated than their sell-side equivalents as they share the upside of arriving at the correct conclusions to generate alpha to help enhance the fund’s performance.

Alpha defines the risk-adjusted performance of a fund, a portfolio, or an investment strategy above their benchmark return. The ability to outperform the market is a key concept of active investment management. 

Unlike passive investing, active investors employ strategies that try to exceed the benchmark return they track. For instance, a hedge fund benchmarked to the S&P 500 would try to generate strategies that outperform that index.

The compensation of analysts at buy-side funds depends on the overall fund’s performance and the analyst’s skill of selecting outperforming securities. 

Both sell-side and buy-side research analysts can enhance their career progression by obtaining the Chartered Financial Analyst (CFA) designation. Earning the CFA charter enhances the opportunity to become a portfolio manager (PM).

It is not uncommon for equity research analysts to have a background in statistics or mathematics. 

What Is a Buy-Side Fixed Income Research Analyst?

A buy-side fixed income (FI) research analyst is an analyst who specializes in bonds and other such fixed income securities. Bonds are debt securities issued by companies and governments to fund operations and projects through raising capital in public markets.

In other terms, companies and governments borrow money from investors. In return, the investors receive interest on the invested money and the principal at the end of the term. 

Buy-Side Fixed Income Research Analyst Responsibilities

A buy-side fixed income research analyst is responsible for providing fundamental credit and relative value analysis on the debt securities, making recommendations based on a company's credit risk, and identifying relatively higher yield investment opportunities.

They must understand the impact of the Federal Reserve, known as the Fed, on interest rates and a company’s credit metrics, such as its leverage relative to EBITDA and its coverage or the ability to repay the debt.

They also need to be good at bond pricing, calculating yields, assessing risks, and articulating them in the analysis and recommendations reports

In addition, they will greatly benefit from having knowledge of corporate bankruptcy law, which is all the more important when analyzing and submitting recommendations on high-yield bonds and high-risk bonds (junk bonds).

These bonds are usually issued by companies that are more likely to default, and thus the high yield compensates investors for the risk they take by investing in those companies. 

The following quote from our forums gives you a good idea of what is usually expected from aspiring fixed equity research analysts.

Monkey Business

I’ll give you a set of questions I got as well as what I heard other candidates in my final round got:

  • What is duration? How is it calculated?
  • Term structures? Yield curves, their shapes, and how do you make money on the various ones?
  • What’s the present yield curve look like here (Canada) and there? (USA)
  • Tell me some of the different bonds you know about...what about their prices with respect to each other? (Plain vanilla/convertible/callable)
  • If interest rates go up/down...what would you do with a bond that is presently variable in coupon rate that has a convert option to a fixed coupon bond?
  • Show me how to do a DCF.

Becoming a fixed income research analyst requires a solid academic background, for example, a bachelor’s degree in accounting or economics. In addition, a CFA charter is beneficial, and as always, there is no substitute for relevant work experience. 

Buy-Side Analyst Compensation and Bonuses

According to the US Bureau of Labor Statistics, the average salary for an analyst was $83,660 in May 2020. The job outlook is expected to grow by 6% in the current decade and align with the overall average market growth for all occupations.

An MBA graduate with a couple of years of experience on the buy-side could be well-positioned for a salary in the range of $200k-$250k at a leading firm with over $50B assets under management. 

Bonuses can vary and depend on the assets under management (AUM) and the performance of the recommended stocks or fixed-income securities. The bonus for an analyst can be between 50%-100% of their base salary.

At hedge funds, where execution is backed by strong investment understanding, the bonus contributes to a higher portion of the total compensation. 

Private equity firms are famous for the carry or carried interest. The carry, which designates the difference between the interest earned when buying and selling a company, is an essential component of executives’ compensation. 

To know more about the pay at these firms, please refer to our Hedge Fund Pay Guide and Private Equity Pay Guide articles.

PE Interview Course

Everything You Need To Break into Private Equity

Sign Up to The Insider's Guide on How to Land the Most Prestigious Buyside Roles on Wall Street.

Learn More

Free Resources

WSO is a leading provider of financial modeling courses for finance professionals. To help you advance your career, check out the additional resources below: