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This is what you’ll earn as a research analyst on the buy-side and sell-side

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Even with many banks in cost-cutting mode, firms on the buy side and the sell side are willing to pony up to keep their most talented research analysts.

Equity research on the sell-side has been decimated since the financial crisis, but demand on the buy-side has remained relatively robust. Right now, firms want to hire people who can formulate views on a broad macro scale.

“We’ve experienced a rise in inquiries for chief economists at both buy-side and sell-side firms,” said Michael Karp, the CEO and co-founder of Options Group.

Operating research divisions can be very expensive and many investment banks have decided to get ‘cost-effective’ on the divisions, or develop a strategy where they can at least justify holding large numbers of researchers who are not directly tied to revenues.

Sell-side research analysts

As for sell-side equity research, hiring is not as active as it’s been in past years, because there’s a lot of fee compression and pressure for banks to cut costs. Many firms are still in the process of downsizing this division, while others only want to hire top-ranked senior analysts, but since experienced researchers are heavily invested in the sales and trading platform, convincing them to switch is challenging, according to Karp.

Firms continue to recruit for entry-level and junior analysts, some directly out of university – graduate hiring is very active in that area, he said.

“It’s the mid-career-stage analysts who may have less options, as we see limited demand for them,” Karp said. “For fixed income researchers as a whole, it’s been pretty slow this year on both the buy side and the sell side – most of the activity has been for quants.

“The sell side is looking to the electronic fixed income trading area, so they want people with e-trading and quant experience,” he said. “For example, a candidate coming out of a large broker-dealer who is a highly ranked equity analyst declined an offer to join a bulge bracket bank when his firm matched the terms.”

In research, a lot of the best senior analysts are retained by their firms given that their performance is tied to their relationship with their sales and trading teams – firms typically cannot poach senior research analysts for money alone.

Buy-side research analysts

One place that has seen a lot of hiring is within credit on the buy-side, especially research analysts specializing in high-yield and distressed debt, covering both loans and bonds.

“That area has been really hot – given where the market is headed, that has been picking up as asset managers and hedge funds looking to hire more credit research analysts,” said Victoria McGill, the head of fund management for the Americas at Selby Jennings.

McGill has seen the most hiring of research analysts by smaller hedge funds with $500m under management or less, in particular long-short equity hedge funds that are sector-specific, for example, focusing on either healthcare or technology.

“Every role that we’re working on, even the large asset managers, they want a minimum of five years of experience doing the job exactly on the buy side, focusing on a specific sector or space,” McGill said. “The ideal candidate across every research analyst role have eight to 10 years of experience, with at least five of those on the buy side.”

Buy-side research analysts who fit that profile are like to earn a base salary in the $150k-to-$200k range, plus a 90%-100% bonus on top of that number.

Anecdotally, McGill recently placed a candidate at a small hedge fund who had six years of experience on the buy-side, plus three years on the sell-side prior to that. He earned a $175k base salary and, once the bonus is factored in, $310k in total compensation.

Base salaries don’t change too dramatically at such small hedge funds, even if a research analyst get promoted to portfolio manager. They’ll maybe get an incremental raise or an increase to the $250k range, but you’ll rarely see a senior hedge fund analyst or PM with a base salary above $250k, unless it’s the head of credit or the head of equities, who may earn $300k or $350k, per McGill.

The compensation upside – the bonus – is based on the strategy’s performance.

“If you have really good performance, then you’re going to get the financial benefits of that, but you’re not going to reap any benefits if you’re down,” McGill said. “The bonus is based on your individual performance and the overall firm’s performance, a combination of a discretionary bonus and a correlation to what your strategy is bringing in.

“While the base salaries aren’t much different, there is much more upside as a PM than an analyst,” she said.

It’s a bit tougher sledding for researchers who have become a PM or a higher rank to find good opportunities at the moment.

“Senior researchers with 15 or more years of experience are not really in demand at the moment, although bigger firms tend to be open to candidates with more experience,” McGill said. “Big hedge funds have more flexibility in bringing on senior candidates, as opposed to smaller funds that prefer closer to five years on the buy side.

“A lot of younger research analysts are looking to move into a PM role, looking for a firm where they can work their way up,” she said.

Photo credit: ferrantraite/GettyImages

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