Should I work sell-side or buy-side? It's a question all students considering a future in finance should consider and, as with many career-based decisions, what you decide can have an enormous impact on your future. When Johan Sjogren graduated from university in 2008, he made the decision to work sell-side, and secured a graduate position at a leading investment bank.
Working on the sell-side involves acting as an intermediary, selling investment services to asset management firms and other investors with the aim of generating trading orders, on which they charge a transaction fee. They also analyse the market and provide public investment recommendations. Investment banks and stockbrokers are the usual providers of sell-side services.
After just two years, though, Johan decided it wasn't the right career for him and switched to working on the buy-side at asset management firm BlackRock in their fixed income team. Three years on from making the change, we spoke to Johan about his decision and how his new job compares to his old one.
A fresh start
Buy-side firms, usually asset management firms and other institutional investors, invest money from clients into large portions of securities with the aim of generating a profit. Buy-side firms decide where to invest based on a mix of in-house recommendations and the public recommendations offered by sell-side firms. They then use sell-side firms to carry out the transaction.
While switching from working sell-side to buy-side is hardly an uncommon career move, to do so as quickly as Johan did is slightly unusual. "I just thought buy-side was much more suited to me," he explains. "On the sell-side, I was interacting with the buy-side every day and I'd find myself thinking 'hang on, that's what I want to do.'"
After two years of selling interest rate derivatives, Johan had begun to find the short-term nature of the work limiting. The prospect of working for a buy-side firm where client investments are assessed on a long-term basis was extremely appealing. "I wanted to focus more on work geared towards analysis and long-term thinking and to have more agency in my work," he tells us.
Having made the change, Johan says he hasn't looked back once. He also found a lot of his experience of working sell-side continued to prove useful at BlackRock. "Although it's not something you need to have in order to work buy-side, it has contributed to my understanding of the market and my awareness of how investment tools are used."
Think for yourself
Having felt restricted by the sell-side's function as an intermediary, Johan has found the greater level of freedom in how investments are handled on the buy-side an exciting change. "On the buy-side, clients give us their money and in return want reviews on a monthly, quarterly, or perhaps just annual basis to inform them of how their investment is doing. By contrast, on the sell-side I was interacting with buy-side firms and banks every day."
Although the work Johan is doing at BlackRock is still on behalf of other people, he tells us the trust clients have that their money will be handled properly means there's more opportunity to try your own ideas. This encourages a level of long-term thinking which was never possible in Johan's previous job.
"Here, you try to formulate your investment and trading ideas with a bigger picture in mind. For instance, we do a lot of analysis where we consider the probabilities of one event following another. That's something we never did on the sell-side."
A team game
In addition to finding the actual work more enjoyable, Johan has also noticed a shift in the office environment between investment banking and asset management. "On the sell-side the perception of your performance is very much based on your personal actions," he explains, "so those determine your pay and prospects of promotion. At BlackRock, it's more about the team than the individual. It actually makes the work much more rewarding as everyone helps to push each other on. After all, it's in your interest for the whole team to do well."
This emphasis of the collective over the individual also has a bearing on the wider culture of buy-side firms compared to their sell-side counterparts. While the cycles of boom and bust can make job security uncertain at investment banks, Johan tells us the regulatory checks on the buy-side are much firmer. "The risk and compliance systems make this a much more stable business. Although investment banks will hire more people in the boom years, they'll also fire more people when things go badly. There's a lot less risk-taking at buy-side firms like BlackRock."
Becoming a buy-side graduate
When it comes to working on the buy-side, Johan says the work broadly falls into two categories. "There's what we call the 'Alpha' work, which is the money-making side responsible for generating ideas and then there's also the 'Beta' work, which is more about managing the background, understanding the portfolios and the constraints on them."
'Beta' work, Johan stresses, helps develop an understanding of how client relationships on the buy-side operate. "It's really important to understand how we work with clients and the constraints they put on us. For example, if a client didn't want us investing their money in Spain but we had a positive view on Spain we would need to find an alternative. In that case, we might invest in Italy instead as the correlation between those two countries is very high."
Being able to work around client constraints like this and find alternative investment opportunities is an important aspect of buy-side work, and demonstrates the capacity for inventive thinking which Johan felt was lacking in his role in investment banking. However, he understands that everyone is likely to want different things from their future career and urges students to do their research before applying. "Reach out to any contacts you have who can offer more information. If you don't have any contacts then go to careers fairs and company presentations and ask questions about the company and working life there. That's the best way to get the answers you'll need. It's important to really think about what you want to do."
Investing from the buy-side
Johan walks us through a simplified example of a buy-side investment.
Money to invest
It could be a wealthy individual, it could be a pension fund, it could be an insurance company. Whichever it is, people have given us a pool of money and asked us to manage it.
Money is split into different categories
Some of the money makes its way to my department, Fixed Income.
Picking an investment
Let's say that I have reason to be positive on Spain. Therefore, I want to invest in Spain, but need to decide what kind of investment I want, whether it be government bonds or bank exposure. To decide, we work out what the best-value asset is and then give the instruction to increase the amount of it in our portfolios.
Go to the trading desk
Say the cheapest asset is government bonds. We might then decide to invest £300 million in ten-year Spanish government bonds. I then go to our trading desk at BlackRock and inform them of our decision.
Go to the sell-side
The trading desk go to the sell-side and tell them we want to buy these Spanish government bonds and to get them at the best possible value.