I understand it had an important function 20 years ago when there weren’t the available investment tools and information that is available today. But in this day and age are they really needed? I imagine most of the major institutional investors have their own research departments. Plus it has been established that much of the sell-side analysis is biased because of their bank’s IB relationships. (I remember the issue with Sandy Weill and that Grubman fella over AT&T.) I was wondering if the business has a future?
I can hear greengrape sharpening his knives.
OP, do you work in finance? and what do you do?
I understand your points. I find the function of buy-side analysts easier to understand. I think sell-side analysts generate money in three ways: 1) Support their IB department (as you said) 2) Support their trading and brokerage desks (advising them which positions to buy or sell) 3) Selling custom research reports to clients.
- Sell-side analysts don’t support the IB dept. They are supposed to be separated (Chinese Wall). Whether that happens or not it’s another story. 2) Sell-side analysts don’t advise their traders, those are buy-side analysts. 3) They do sell custom research reports to clients.
Of course they are *supposed* to be separated (which is also stated in the L2 Research Objectivity Standards), but in practice, that’s often not the case. I’m pretty sure traders in an IB often rely on research analysts to determine the impact of company announcements and things like that.
mik82 Wrote: ------------------------------------------------------- > 1) Sell-side analysts don’t support the IB dept. > They are supposed to be separated (Chinese Wall). > Whether that happens or not it’s another story. > 2) Sell-side analysts don’t advise their traders, > those are buy-side analysts. > 3) They do sell custom research reports to > clients. HAHAHAHA mik82 is obviously ignorant as hell or not i the industry… Sell-side analysts are a cost centre sand tools for Ibankers
So that buy side analysts don’t have to do dirty work of basic analysis, SS will live on as support tool, but IMO it has lost it’s charm of earlier days and falling a lil bit on low end as compared to what buy side analysts do… hence getting offshored as much as possible.
Like in BO/MO, you are important but not that important.
I work in SS ER. There’s so much wrong information in this thread, it’s sad.
greengrape Wrote: ------------------------------------------------------- > I work in SS ER. There’s so much wrong information > in this thread, it’s sad. Working in ER doesn’t automatically qualify you to be someone to comment on the vibrancy of the industry. Afterall everyone thinks their job “special” and lose big picture focus.
thepinkman Wrote: ------------------------------------------------------- >> > I was wondering if the business has a future? I see them performing the function of price discovery in the market. You also pay for corporate access. Kinda like the question of why hire McKinsey when you can have a full time consultant inside. Afterall most CEO thinks that he/she knows the industry better than most consultants anyway. Now how much would you pay SS ER, we will have to wait for the reset at the next GFC !
greengrape Wrote: ------------------------------------------------------- > I work in SS ER. There’s so much wrong information > in this thread, it’s sad. Surely you could spare a few seconds for us mere mortals to inform us where we’re wrong. Always a fun story: http://jeffmatthewsisnotmakingthisup.blogspot.com/2010/01/think-for-yourself-part-iigoldman-8.html
greengrape Wrote: ------------------------------------------------------- > I work in SS ER. There’s so much wrong information > in this thread, it’s sad. why is ss so important? you guys cost money to have around. you cover companies that your company provides ibanking service to. how many companies that you are covering have sell recs?
NakedPuts Wrote: ------------------------------------------------------- > greengrape Wrote: > -------------------------------------------------- > ----- > > I work in SS ER. There’s so much wrong > information > > in this thread, it’s sad. > > > Surely you could spare a few seconds for us mere > mortals to inform us where we’re wrong. > > Always a fun story: > http://jeffmatthewsisnotmakingthisup.blogspot.com/ > 2010/01/think-for-yourself-part-iigoldman-8.html I think he just got a job in SS ER and is very proud. I remember when I got into CDO Structured Finance back in 2007. I was proud too.
ss analysts traditionally support the advisor network (i.e. advisors don’t have the time to do research so pre-packaged reserach is necessary to operate efficiently). any other functions outside of that have come to fruition in recent years only.
Analysts set the benchmark of which things are compared against It’s like asking what’s the function of the S&P 500
I’m in S&T so maybe a good distance to see the value Reasons: #1 - Support investment banking revenue. Few companies would hire an IB firm that did not have sell-side research in the targets sector. Furthermore, many expect the IB firm’s research department to cover the firm post deal. Why? If an IB firm has SS analysts covering a sector, the sales and trading area likely has frequent contact with all of the buy-side clients that buy that sector. As an example - lets say you are a healthcare REIT. Why would you want your IB firm to cover the REIT sector? Answer: So that you know that when the firm pitches your stock or bonds to the buy-side you know they have someone to listen. #2 - Company access. You might think that your buyside firm is smarter than the guy at XYZ Securities, but if your guy picks up the phone and tries to call the CEO and grill him about the projections for their new joint venture, my bet is he doesn’t get a call back. A good analyst provides the buy-side with company access. They call their sales coverage, who asks the analyst to set-up a call and just like that, your buy-side analyst can ask his questions. SS firms that can get the buyside more company access get more brokerage revenue. #3 - Idea generation Whether the buyside follows the sellside recommendations varies firm to firm, but virtually all rely on the sellside for idea generation. The sellside, through economics, strategists and analysts generate ideas, some published, some desk notes, that give the buyside something to think about. They can do their own research and come to a different conclusion but they still rely on the SS to come up with the idea. #4 - Enhance liquidity IB clients that are well covered by research have more liquid securities. More IB revenue goes to the firms that cover for research and therefore trade the securities the most. #5 - Other reasons Support internal research (as asked by management), support retail, enhance brokerage revenues
1morelevel Wrote: ------------------------------------------------------- Great points!
Don’t forget: training future buyside analysts. Most buyside shops are afraid to hire analysts that don’t have experience somewhere, so sellside experience > no experience from a CYA perspective.