When I was reading about investment banks, I came across the terms buy side and sell side. But what does that mean?
Buy side and sell side is a way of classifying investment banks based on the type of clients they represent, and the services they provide to those clients. Some investment banks can have separate divisions that focus on the buy and sell side of transactions.
So, what is a buy side investment bank?
Buy side firms represent clients that want to buy securities. Their clients typically have money that needs to be invested – like pension funds, endowments, insurance companies, hedge funds, etc. The main function of buy side investment banks is managing money on behalf of their clients to get them the best return possible.
And who does a sell side investment bank represent?
Sell side firms represent clients that issue or sell securities. These clients typically need to raise money in the most effective way possible. They could be corporations, advisory firms, or even other investment banks. The main function of sell side investment banks is marketing and selling securities to raise money for their clients.
Which one is better – buy side or sell side?
One is not better than the other – these two are dependent on each other, and often form the two sides of a financial transaction. For example, if a company is planning an IPO, it will hire a sell side investment bank to raise awareness of its IPO. A buy investment bank representing a pension fund can participate in the IPO if it thinks it would be a good place to put the client’s money. So both buy and sell side investment banks would have done their jobs well.