Tag Archives: buy side research outsourcing services

Introduction

For institutional investors, buy-side research is essential in making investment decisions. To find appealing investment opportunities and effectively manage investment portfolios, requires doing in-depth study and research. Buy-side research is carried out by analysts who work directly for institutional investors, as opposed to sell-side research, which is carried out by analysts employed by brokerage companies and primarily serves to make recommendations to customers. Buy-Side Research and Analytics are concerned with determining the asset’s full potential. It tries to provide answers to the following important queries regarding the asset being traded. The most important component of the Buy-side research is locating the asset itself to purchase.

There are many different types of transactions in the financial sector. Every time a transaction takes place, there are two parties involved: one who sells the asset and one who purchases it. The sell-side refers to the party selling the asset, and the buy-side refers to the party purchasing the item. Private or public businesses, real estate, and other financial assets that produce returns or increase in value over time are examples of assets. The success of a transaction is significantly influenced by buy-side research.

Insights and a thorough grasp of numerous investment options, such as stocks, bonds, commodities, real estate, and alternative investments, are the main goals of buy-side research. Buy-side researchers seek to discover new trends, find cheap assets, and evaluate the risks of potential investments by undertaking in-depth analysis. The typical framework for buy-side research is an investment strategy or mandate established by the institutional investor. This strategy specifies the portfolio’s asset classes, investment goals, risk tolerance, and asset classification rules.

It is a dynamic, ongoing activity. Researchers closely monitor economic data, news items, and market moves that can affect investment decisions. To get more data and strengthen their analysis, they also actively engage in conversation with company leaders, subject matter experts, and other market participants. Institutional investors typically rely on buy-side research to assist them in managing their portfolios and selecting profitable investments. It necessitates superior analytical and research skills in addition to a profound understanding of financial markets, commercial trends, and valuation procedures.

Categories of Buy-Side Research

These divisions offer a structure for arranging and categorizing activities related to buy-side research. The distinctions between these categories can, however, be ambiguous, and there may be overlaps or hybrid approaches depending on the precise research goals and investment tactics used by various organizations.

Categories of Buy-Side Research

Categories of Buy-Side Research

The following categories can be used to categorize the research:

Equity Research

Individual stocks or equities are the focus of equity research. It includes assessing a company’s financial performance, growth potential, strategic positioning, and valuation.

Fixed Income Research

Bonds, fixed-income securities, and debt instruments are all fixed-income research subjects. It primarily focuses on yield analysis, bond valuation, credit risk assessment, and interest rate risk assessment.

Macro Research

Examines various macroeconomic elements, such as financial and geopolitical developments, interest rates, inflation, and economic indicators. Investors can explore the effects of macro factors on investment opportunities and the general state of the economy.

Sector Research

Analysis of particular sectors or industries is the main goal of sector research. It involves assessing the financial performance of enterprises within the sector, industry dynamics, market trends, competitive environments, and regulatory developments.

Quantitative Research of Buy-Side Research

To analyze financial data and produce insights, quantitative research employs mathematical and statistical models. Designing investing strategies, creating and testing quantitative models, and doing quantitative analysis of market data are all included.

Environmental, Social, and Governance (ESG) Research

ESG research aims to assess businesses and investments using environmental, social, and governance standards. This process includes analysis of elements including carbon footprint, labor practices, board makeup, diversity and inclusion, and ethical issues.

Alternative Investments Research

Research on alternative investments includes non-conventional asset classes like commodities, real estate, hedge funds, private equity, and venture capital. It entails monitoring liquidity, examining risk-return profiles, appraising investment opportunities, and comprehending the particular traits and tactics linked to alternative investments.

Benefits of Conducting Buy-Side Research

Asset management companies and institutional investors can profit greatly from research research. These advantages and benefits highlight the critical role that buy-side research plays in assisting institutional investors and asset management companies in making investment decisions, managing risks, and achieving investment goals.

Benefits of Conducting Buy-Side Research

Benefits of Conducting Buy-Side Research

The following are some major advantages and benefits of buy-side research:

Enhanced Decision-Making

The research offers insightful analysis and data that help investors make decisions. It assists investors in making knowledgeable decisions regarding assets by conducting in-depth analyses of businesses, markets, and industries.

Risk Mitigation

Research conducted by the buy side is essential for risk management. It assists investors in reducing risks and making knowledgeable risk-return trade-offs by doing thorough analysis and due diligence.

Alpha Generation

Alpha, or excess profits earned above a benchmark, is what buy-side research attempts to produce. The research can help generate alpha and outperform the market by conducting in-depth analysis and spotting inexpensive securities or investment opportunities.

Portfolio Diversification of Buy-Side Research

It enables portfolio diversification by thoroughly examining various asset classes, industries, and geographical areas. Diversification increases the possibility for superior risk-adjusted returns while lowering concentration risk.

Competitive Advantage

Investment businesses can gain a competitive edge by conducting superior buy-side research. Buy-side research can assist investors in staying ahead of the market and spotting investment opportunities before they are generally known through proprietary research methodology, distinctive insights, and differentiated viewpoints.

Long-Term Perspective

A long-term investment horizon is frequently emphasized in buy-side research, with an emphasis on sustainable growth and wealth generation. Buy-side research urges investors to have a long-term perspective and steer clear of short-term market swings by examining the fundamental variables influencing investment performance.

Magistral’s Buy-Side Research Services

Magistral Consulting has helped numerous Investment Banks, Family Offices, Hedge Funds, and Private Equity firms in outsourcing buy-side research operations. It has clients based in the United States, the United Kingdom, Europe, and Australia.

Some of the services provided by Magistral Consulting for Buy-Side research are listed below:

-Hedge Funds, Family Offices, and Fund of Funds: Stock and Equity Research, Valuation and Equity Research, and, Manager Research.

-Private Equity and Venture Capital: Private Companies Due Diligence, List Bidding, Valuation, and Financial Modeling.

-Investment Banks: Research for Private Companies, Listed Companies, Asset Managers, and Real Estate (Housing, Infrastructure, Specialty Lodging, etc.).

-Corporate Mergers & Acquisitions: Target List Building, Due Diligence, Valuation and Analytics, Post-Merger Integration Support, and, Selection of the Right partners like Brokers, Investment Bankers, etc.

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates, and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modelling, Portfolio Management, and Equity Research.

For setting up an appointment with a Magistral representative: visit www.magistralconsulting.com/contact

About the Author

The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you can reach out to  prabhash.choudhary@magistralconsulting.com

Introduction to Sell Side and Buy Side

The financial world is full of transactions of all sorts. Whenever a transaction happens, there is a party who sells the asset and there is another party that buys the asset. The party selling the asset is the sell-side and the party buying the asset is the buy-side. Assets could be private or public companies, real estate, and other financial assets that give returns or value appreciation over time. Buy-Side research plays a vital role in the success of a transaction.

The parties could be an Investment Bank, A broker, A Company, A Hedge fund, An asset manager, or any other type of entity owning the asset or representing the owner

 

What is Buy-Side Research and Analytics?

Buy-Side Research and Analytics concern with identifying the full potential of the asset that is being bought. It attempts to answer the following crucial questions about the asset being transacted. Finding the asset itself to buy is the most crucial part of the Buy-side research

– Does the asset have the potential to generate returns or value appreciation over time?

– Is the asset valued rightly?

-Are there any risks associated with the asset? If yes, what are the risks?

-Is everything makes sense from a legal point of view?

-Are the documents right and portray the complete picture?

-Are there any other assets that may be more suitable?

Buy-Side research attempts to uncover all aspects of the asset to ensure the transaction achieves its objectives of maximizing returns for its investors

Buy-Side research is a regular function at institutions like Investment Banks, hedge Funds, Family Offices, Fund of Funds, Private Equity, Venture Capital and M&A departments in Corporates

Types of Buy-Side Research

Buy-side research could either be categorized as per the asset class like public companies, private companies, funds, etc. or as per the institutions like Investment Banks, Fund of Funds that undertake them

Type of Buy-Side Research

Buy-Side Research Types

Buy-Side Research- Hedge Funds

Hedge funds operate on multiple investment themes. However, the most common one, the long-short equity hedge fund uses the buy-side research which is predominantly equity research. This comprises researching the stocks which are being taken a position on, long or short. A fundamental analysis using methods like DCF or comparables is quite popular with hedge funds. Apart from researching the stocks, the industry, or geography, or any other aspect related to the stock or Hedge funds’ investment theme is also researched.  For hedge funds that take positions for the long term for a few stocks, the research is fairly detailed.

Buy-Side Research- Family Office

There is no set template or scope for buy-side research when it comes to family offices because investment mandates of family offices vary greatly. In family offices, buy-side research is mostly about equity research, manager research, asset research, and private company due diligence.  Quite a lot of partner and broker research is also common. Equity research as with hedge funds revolves around the fundamental analysis of the listed stocks. Manager Research is about finding asset managers who could deliver superlative returns as per the investment thesis of the family office. A typical example of this would be say finding hedge funds that are investing in China and have delivered more than 10% returns annually over 10 years or more, with moderate or little risk. The assignment involves the collection and analysis of huge data to find the best performing hedge fund managers for the family office.

Asset research is done for family offices with an investment philosophy around a specific asset. A typical example here would be getting into the details of a Real Estate asset deal or a Real Estate fund or a cryptocurrency-based fund.  Family offices work with all types of brokers, investment agents, and investment banks. Finding the right partner who has experience in the relevant area of investment and offers a competitive fee for the services is also common for family offices to research.

Buy-Side Research- Fund of Funds

Fund of Funds and Family Offices research funds to park their money. Here buy-side research concerns about finding the best manager to manage the funds. Information is collected on dozens of fund managers, analyze their performance for an objective evaluation on their potential to generate alpha.

Buy-Side Research- Private Equity and Venture Capital

Private Equity firms deal with both private and public companies whereas venture capital firms solely deal with private companies, sometimes very small ones. Buy-side research here revolves around the due diligence of the companies that are intended to be invested in. Another important aspect of the research here is finding the targets that fulfill the criteria for investments. A typical assignment would be to generate a list of all the SaaS firms with revenue more than $10 million, looking for Series B or beyond, with presence in the United States and products centered around blockchain.  This is typically followed by profiling the right set of companies for investments or acquisitions. For smaller companies, there is primary research that is done to talk with people who may have information about the industry and the company

Buy-Side Research- Investment Banks

Research here acquires as many types as the investment banks themselves. It can range from Equity Research as in the case of hedge funds or list generation and company profiling as in the case of Private Equity or Manager Research as in the case of Limited Partners or Fund of Funds.  The only difference here is that Investment Banks perform these tasks for their clients who may be looking for investments

Buy-Side Research-Corporate M&A

Bigger corporates continually evaluate targets for synergies with their business. Inorganic growth is a well-accepted way to grow. Not only growth but companies evaluate targets to acquihire, getting a tech, enter geography or industry or to eliminate competition. Buy-Side research in these cases pertains to building target lists as per the acquisition criteria and profiling companies.

Characteristics of High-Quality Buy-Side Research

Whether one is looking to outsource Buy-side research or building an in-house function. These are the qualities of good buy-side research, that should be paid attention to:

High Quality Buy Side Research

Characteristics of high quality buy side research

Depth of Research

Research on the surface seems easier, but intellectual curiosity is required to get into the depth of the information presented. A company that appears to be satisfying a criterion may not have any business in the key area that is the source of synergies. This requires studying lots of data and information to make sure if the target has all the right attributes for evaluation. Primary research and ghost interviews help the cause of getting into more details. Asking the right questions to management and analyzing the documents provided by the company holds the key to get into in-depth research.

Rapid Research

Deals are time-bound. Sometimes it requires quick and dirty analysis and other times it requires studying hundreds of documents over months. Whatever is the case, your outsourcing partner needs to be reliable about sticking to the promised timelines. Sharing interims before the finalized deliverables help too.

Expertise

Expertise in buy-side research ensures research is being done the right way. It ensures the right questions are being asked, the right information is being sought and the information is analyzed with all relevant angles to arrive at an objective opinion. Buy-side research outsourcing partner needs to be an expert in the financial sector generally and buy-side research particularly

Outcomes

All the research that does not yield any outcome is useless. Researching a target and then not acquiring it because of red flags pointed by research is still an outcome, which saves millions of dollars for the client. Whatever is the case the research outsourcing partner needs to keep an eye on the business outcomes of their research activities.

Accountability

Most research partners are great order-takers. If a list is to be generated, it is generated as suggested. But a great research services partner goes a step further and takes accountability. After making the list from secondary research, they do primary research to make sure the information collected from secondary sources is correct. They ask the right questions from Asset Managers to ensure the client gets what they are looking for and not “unverified” data in an excel sheet.

Engagement Flexibility

A great buy-side research outsourcing player offers complete flexibility to their clients, with scalable engagement models, and have contracts that carry no significant exit barriers. Whatever is the engagement model the work quality is not hampered

Magistral Consulting has helped multiple Investment Banks, Family Offices, Hedge Funds, and Private Equity firms in outsourcing buy-side research functions. It has clients based out of the United States, the United Kingdom, Europe, and Australia. To drop an inquiry get in touch here

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.