What is the Buy-Side?
Wall Street financial institutions include a segment called buy-side. Buying side professionals work with insurance companies, mutual funds and pension funds when buying large blocks of securities for fund managers.
The opposite side to the professional buyer is the seller. Unlike the buy side, the efforts on the sell side do not include direct investment. Instead, they help the investment market with recommendations for downgrading, upgrading and setting target prices for investments.
Together, these two sides (buying and selling) constitute the main activities of Wall Street.
A company involved in purchasing activities will buy stocks, securities and other financial products according to the needs and the strategy of the needs of the portfolio of their company or their client. The purchasing activity takes place in many contexts not limited to the financial institutions mentioned above. They also work with hedge funds, trusts, equity funds and proprietary traders to provide the assets needed for these large business entities.
Key points to remember
- Buying is a segment of Wall Street made up of investment institutions that buy securities for money management purposes.
- The sell side is opposite to the buy side, providing only investment recommendations.
- A company involved in purchasing activities will buy stocks, securities and other financial products according to the needs and the strategy of the needs of the portfolio of their company or their client.
The interest of buying side investment is to create value for the customers of a company. To do this, they identify and buy undervalued assets that they believe will appreciate over time. Since buying involves buying large blocks of market securities, the most prestigious companies often have great market power. These market titans are also closely watched by investors and the media.
$ 6.3 trillion
BlackRock is the world’s largest investment manager with assets under management (AUM) at US $ 6.3 trillion in September 2020.
Companies like BlackRock and Vanguard can significantly influence market prices because they invest on a large scale in unique names. However, these investments are generally not disclosed in real time and can be somewhat ghostly for market traders. Securities and Exchange Commission (SEC) filing 13-F requires managers to publicly disclose the purchase of all securities purchased and sold quarterly.
After a purchase side investment
The 13-F quarterly filing is a recommended source for all types of investors to track some of the best investments and investors in the market. Warren Buffett and his company, Berkshire Hathaway (BRK.A / B), are examples of how the following buy-side investors can guide investment approaches.
In addition, many investors will consider these large investor holdings and changes in these holdings, particularly securities, as consideration for making a transaction themselves. This data is available through several online resources. For example, the data shows that in December 2020, Berkshire held a significant stake in Apple (AAPL) at 21.5%. At that time, Berkshire owned 5.29% of the total outstanding shares of Apple.
Investor buyers have many advantages over other traders. They can transact on large lots, which minimizes transaction costs. They also have access to a very wide range of internal business resources that help them analyze, identify and act on investment opportunities in real time.
Although investor buyers are required to disclose their assets in a 13-F, this information is only available quarterly. Overall, it can generally be beneficial for purchasing analysts and investment firms to retain ownership of their investment research and watch lists. The high level of competition in the buying market and the nature of its activities generally translate into confidentiality around all trading ideas for the most optimal business benefits.
The purchasing side analyst will also follow the rules of the International Organization of Securities Commissions (IOSCO).
Duties of a Buy-Side Analyst
The buyer-side analyst plays a central role in the buyer-side exchange. Purchasing analysts regularly work in non-brokerage companies, including pension fund and mutual fund providers. These analysts provide recommendations based on research intended only for the use of these large donors. Individual investors may see recommendations on the sell side, but work on the buy side is behind the scenes of large companies, and research strategies and results of their analysis remain confidential.
Analysts employed on the purchasing side engage in corporate financial research and the development of investment strategies, which generally involves in-depth research and financial modeling. They can also apply directly to companies in which they have an investment interest. Purchasing analysts mainly look for companies that match a portfolio strategy well based on certain investment parameters and companies that will generate the highest returns over time.
Since the roles of analysts on the buy and sell side are very different, some companies may deploy certain policies to ensure a distribution of research efforts. In companies with both buy and sell analysts, a “Chinese wall” can be built to separate the two departments, which generally involves security procedures and policies that prevent interactions between the two units.
Examples from the real world
In the financial services industry, the leading managers of mutual funds and exchange traded funds that investors rely on to manage popular investments are among the best known buying companies. Statista data up to September 2020 identifies the following companies as the world’s largest companies purchasing assets under management.
- BlackRock $ 6.3 trillion
- Vanguard Group $ 4.94 trillion
- State Street Global Advisors $ 2.78 trillion
- Fidelity $ 2.45 trillion
- BNY Mellon Investment Management $ 1.89 trillion