What is the Buyside?

Buyside firms include firms that make investment decisions to deploy capital, managing money on behalf of investors. This differs from the sellside, which primarily facilitates transactions and provide clients with banking needs.

Types of Buyside Firms

Career Progression

Generally, finance professionals join the buyside after a two-year stint in Banking. The sellside is a great training ground to learn the basics, where upon joining the buyside, finance professionals start to learn how to invest, deploy capital, and manage money.

Is Working on the Buyside Worth It?

So this is the big question, Is working on the buyside worth it?

We think yes, working on the buyside is worth it. Here's the pros and cons of why Investment Bankers should move to the Buyside:

Pros towards moving Buyside:

• Escape Market Volatility: Investment Bankers are subject to very volatile M&A activity environments, where during recessionary environments, there's fewer deals for them to work on.
• Less Regulatory Burden: Banks have significant regulatory requirements as well, which reduce profits and the ability to take risks. This can also result in a large amount of bureaucracy.
• Automation Resistance: A large portion of historical roles in banks have been automated away over time.
• Job Security: Typically, a lot of Banks will make 2%-5% annual layoffs each year as well.
• Stability: In most cases, you're investing off of a stable base of AUM that provides a degree of predictability and stability that banks doesn't have. The Buyside in private markets roles can be much slower to fire folks and declines in performance take several years to play out.
• Flexibility of Mandate: The buyside gives you more optionality in what you work on, providing more intellectual rigor.
• Work Life Balance: Hours can be high at certain buyside shops, but generally there's better work life balance on the buyside.
• Long-Term Compensation: Compensation on the buyside can outpace sellside professionals, especially as deferred compensation and carried interest starts to play out.

Cons:

• Performance Pressure: Your time on the buyside comes down to how smart you are: However, public markets related buyside roles depend heavily on how you do over the past quarter and past year, as you have to provide robust investment returns and not make too many poor investment decisions.
• Industry Consolidation: There is consolidation in parts of the buyside and there can be difficult fundraising environments. Therefore, you want to make sure your firm isn't evaluating any strategic reviews or trying to sell itself.
• Capital Constraints: You also need to make sure your firm has plenty of capital to invest, with remaining fund capacity, a track record in making good investment decisions, the ability to provide solid investment returns to limited partners, and confidence in their ability to fundraise.

An Investment Banking role is a launchpad to do a significant amount of things later on in life. You're working in a very intensive work environment, getting a significant amount of reps, and learning how to do processes very quickly. Most Investment Bankers end up gravitating towards the buyside.

There are several roles for Investment Bankers that we've written about here on Buyside Hub:

This includes Private Equity, Hedge Funds, Direct Lending, and High Yield Bonds and Leveraged Loans. This can also include venture capital, where you help finance startups.

Buyside Interview Questions

Buyside Interview Questions can vary significantly depending on the type of role.

Typical questions can focus on:

• Technical questions
• Talking in detail about deals you've worked on
• Any best ideas or trade recommendations that you have
• Walking through your investment and diligence process

The firm will also assess whether you are a culture fit and ensuring you have good communication skills and can collaborate with the rest of the team.

Typical questions include the "If depreciation increases by $10 how does this impact the financial statements?" question, an explanation of discounted cash analysis, how the change in deferred revenue works, LBO Modeling assumptions, and calculating IRR and MOIC.

Case Studies and Modeling Tests:

Depending on the role, you may be asked to complete an at-home or in-person case study where you analyze a company in a confined-time environment, piece together your findings, prepare materials, and present on your results and takeaways.

Writing an investment memorandum, or in credit, a "Credit Memo" is really important. To learn about Credit Memos, please access the High Yield Harry Newsletter Paid Resources on Credit Memos.

Your modeling proficiency will be tested at a junior or younger level. This may include a 3-statement modeling test. This will include adding and explaining granular details of your LBO Model assumptions and effectively calculating IRR and MOIC and other investment returns. You should be very efficient and understand that people will check your work afterwards. When you're older, it will be assumed that you know what you're doing from a modeling standpoint.