Buy-Side vs Sell-Side: What’s the Difference?

There are two types of investment banks: buy-side and sell-side. The main difference between the two is that the buy-side focuses on buying investments, while the sell-side focuses on selling them. In this article, we will discuss additional differences between the buy-side vs sell-side.

We will discuss these two types of investment banks, as well as their roles in the financial world. 

We will also answer some common questions about buy-side and sell-side investment banks. 

What is the buy-side? 

The buy-side of an investment bank is the division that manages money for large institutions, such as pension funds, insurance companies, and mutual funds. 

These firms are known as asset management firms. The goal of the buy-side is to make money for their clients by investing in stocks, bonds, and other securities. 

Buy-side examples 

Some of the largest asset management firms in the world are BlackRock, Fidelity Investments, and Vanguard Group. These firms manage trillions of dollars of assets and have thousands of employees. 

Here is a story example of how a buy-side institution will help a client: 

An insurance company is looking to invest $100 million in a new bond fund. The insurance company will contact a buy-side institution, such as BlackRock, and ask them to find a fund that meets their investment criteria. 

BlackRock will then research different bond funds and present the findings to the insurance company. The insurance company will then decide which fund to invest in. 

What is the sell-side? 

The sell-side of an investment bank is the division that provides securities and other financial products to clients, such as retail investors, corporations, and other institutions. 

The goal of the sell-side is to make money for the investment bank by selling securities at a higher price than what they were bought for. 

Sell-side examples 

The largest investment banks in the world are Goldman Sachs, JPMorgan Chase, and Morgan Stanley. These firms have thousands of employees and generate billions of dollars in revenue each year. 

Here is a story example of how a sell-side institution will help a client: 

A retail investor wants to buy 100 shares of Apple stock. The retail investor will contact a broker, who will then contact a firm like Goldman Sachs. 

Goldman Sachs will then buy the shares of Apple stock from another institution and sell them to the retail investor at a higher price. The broker will then take a commission for facilitating the trade. 

Investment Banking: Buy-side vs Sell-side 

When it comes to investment banking, the buy-side and sell-side are two sides of the same coin. Both types of firms play an important role in the financial world. 

Without the buy-side, there would be no one to invest money in securities. And without the sell-side, there would be no one to provide those securities. 

While both types of investment banks are important, the buy-side is usually seen as more important because they are the ones investing money. 

The sell-side is important because they provide liquidity to the market, but they are not usually generating as much revenue as the buy-side. 

M&A: Buy-side vs Sell-side 

M&A (Mergers & Acquisitions) is a type of transaction where one company buys another company. Investment banks usually play a role in M&A transactions, either on the buy-side or sell-side. 

The buy-side of an investment bank will help the client find target companies to acquire. They will also provide advice on how much to offer and negotiate the price. The sell-side of an investment bank will help the client find buyers for the company. 

They will also provide advice on how to structure the deal and negotiate the price. Both types of investment banks play an important role in M&A transactions. However, the buy-side is usually seen as more important because they are the ones advising the client on how to make the acquisition. 

Due Diligence: Buy-side vs Sell-side 

Both sides are required to do their due diligence. However, the process may be different. The buy-side typically does their due diligence after an offer has been made and accepted. They will then investigate the target company to make sure that it is a good investment. 

Some ways they will research the investment potential is by reviewing the company's financial statements, speaking to management, and visiting the company's facilities. The sell-side typically does its due diligence before an offer is made. 

They will investigate the potential buyer to make sure that they can pay for the company. The sell-side does its due diligence throughout the negotiation process. For example, they will ask for proof of funds from the buyer. 

Are banks buy-side or sell-side? 

Most banks are considered to be on the sell-side because they provide liquidity to the market. They also underwrite securities and help companies raise capital.

There are a few banks that focus on the buy-side, but they are not as common. These firms usually advise high-net-worth individuals and institutions on where to invest their money. 

What pays more buy-side or sell-side? 

The answer to this question is not as simple as it may seem. If you are looking to get into the industry, it is important to know that both sides have their pros and cons. The buy-side typically pays more because they are the ones generating more revenue for the firm. 

However, the sell-side has its perks as well. The hours tend to be shorter and the work is not as intense. The buy-side is typically salary based while the sell-side is typically commission-based. If you are a great salesperson, then the sell-side pays more. 

If you excel in analyzing profitable investments, you can work your way up the corporate ladder on the buy-side. It really depends on what you are looking for in a job. Your overall performance and the specific firm you work at also matters. 

Common questions 

Now that we know what the differences are between the buy-side and sell-side of an investment bank, let's answer some common questions. 

Is equity research buy-side or sell-side? 

Equity research is typically seen as the sell-side because they are the ones providing coverage of a company to their clients. However, some buy-side firms do their own equity research. 

Is Goldman Sachs buy-side or sell-side? 

Goldman Sachs is considered to be a bulge-bracket investment bank. This means that they are one of the largest and most prestigious banks in the world. They are known to be on the sell-side, but they do have a strong presence on the buy-side as well. 

Is Morgan Stanley sell-side or buy-side? 

Morgan Stanley is another bulge-bracket investment bank. As a bank, they are considered to be on the sell-side. However, they have a strong presence in both investment banking and asset management. 

Is a hedge fund buy-side? 

Hedge funds are responsible for managing the money of high-net-worth individuals and institutions. They are considered to be on the buy-side because they are the ones making the investment decisions. 

Is BlackRock buy or sell-side? 

BlackRock is one of the largest asset management firms in the world. They are considered to be on the buy-side because they manage money for their clients. 

Is Vanguard buy-side or sell-side? 

Vanguard is another asset management company. They are well known for their index funds. This means that they are passively investing their clients' money. For this reason, Vanguard is considered to be on the buy-side. 

Is venture capital buy-side? 

Venture capitalists invest in startups and small companies. They are considered to be on the buy-side because they are investing other people's money into these companies. 

Is private equity buy or sell-side? 

Private equity is an investment firm that provides capital to companies. They are usually involved in the management of these companies as well. For this reason, they are considered to be on the buy-side.

Conclusion 

As you can see, there is a lot to consider when trying to figure out if an institution is buy-side or sell-side. It depends on the firm and what its focus is. 

However, in general, banks are considered to be on the sell-side while asset management firms are considered to be on the buy-side. 

Remember that the responsibility of the buy-side is to invest money wisely while the responsibility of the sell-side is to provide investment opportunities and promote assets.