Buy-Side

The financial institutions of Wall Street include a segment called the buy-side. The buy-side professionals work with insurance firms, mutual funds, and pension funds as they purchase large blocks of securities for fund managers. 

Opposite of the buy-side professional is the sell-side. Unlike the buy-side, sell-side efforts do not include making a direct investment. Instead, they assist the investing market with recommendations for the downgrading, upgrading, and setting target prices for investments. 

Jointly, these two sides make up the activities of Wall Street.

A business involved in buy-side activities will purchase stocks, securities, and other financial products based on the needs and strategy of their company's or client's portfolio needs. Buy-side activity takes place in many settings not limited to the financial institutions mentioned above. They also work with hedge funds, trusts, equity funds, and proprietary traders to supply the assets needed by these large commercial entities.

• Buy-side is a segment of Wall Street made up of investing institutions that buy securities for money-management purposes.
• The sell side is opposite of the buy side, providing only investment recommendations.
• BlackRock is the world’s largest buy-side investment manager with assets under management (AUM) at US$6.29 trillion as of September 2018.

The whole point of buy-side investing is to create value for a firm's clients. They do this by identifying and purchasing underpriced assets that they believe will appreciate over time. Since buy-side involves buying large blocks of market securities, the most prestigious companies often have a great deal of market power. These market titans are also closely watched by investors and the media. 

Firms like BlackRock and Vanguard can significantly sway market prices as they make large scale investments in single names. However, these investments are typically not disclosed in real time and can be somewhat ghost-like for market traders. The Securities and Exchange Commission’s (SEC) 13-F filing requires public disclosure by buy-side managers for all holdings bought and sold every quarter.

The quarterly 13-F filing is a recommended source for all types of investors in following some of the market’s top investments and investors. Warren Buffett and his firm, Berkshire Hathaway (BRK.A/B), are examples of how following buy-side investors can guide investment approaches. 

Further, many investors will look at these large investors holdings, and changes in those holdings, in particular securities as a consideration for making a transaction themselves. This data is available through several online resources. As an example, data shows that as of December 2018 Berkshire has a large stake in Apple (AAPL) at 21.5%. At that time, Berkshire held 5.29% of Apple’s total outstanding shares.

Buy-side investors have many advantages over other traders. They can place large-lot transactions which minimize trading costs. They also have access to a very broad array of internal trading resources which helps them to analyze, identify, and act on investment opportunities in real time.

While buy-side investors are required to disclose their holdings in a 13-F, this information is only available quarterly. Overall it can generally be advantageous for buy-side analysts and investment firms to keep their investment research and watch lists proprietary. The high level of competition in the buy-side market and the nature of its business typically results in privacy around all trading ideas for the most optimal trading advantages.

The buy-side analyst performs a pivotal role in the buy-side exchange. Buy-side analysts regularly work in non-brokerage firms including pension and mutual fund providers. These analysts provide recommendations based on research meant only for the use of these large fund providers. Individual investors may see sell-side recommendations, but buy-side work is behind the scenes at the big firms, and research strategies and the results of their analysis are kept private.

Analysts employed on the buy side engage in financial research of companies and investment strategy development, which typically involves in-depth research and financial modeling. They may also talk directly to companies in which they have investment interest. Buy-side analysts primarily are looking for companies that are a good fit for a portfolio’s strategy based on certain investing parameters and companies that will generate the highest returns over time.

Since the roles of buy-side and sell-side analysts are distinctly different, some firms may deploy certain policies to ensure that research efforts are divided. At firms with both buy-side and sell-side analysts, a "Chinese Wall" can be constructed to separate the two departments, which usually entails procedures and security policies that prevent interactions between the two units.

In the financial services industry, the leading mutual fund and exchange-traded fund managers that investors rely on to manage popular investments are some of the most well-known buy-side firms. Statista data through September 2018 identifies the following as the world’s largest buy-side firms by assets under management.

• BlackRock $6.29 trillion
• Vanguard Group $4.94 trillion
• State Street Global Advisors $2.78 trillion
• Fidelity $2.45 trillion
• BNY Mellon Investment Management $1.89 trillion