One of the most popular statements I've heard over the last decade as a headhunter is, "I want to move to the buy side".
It is a worthy goal and, for some, a great move. However, it's a difficult move to achieve. I've been fortunate to have helped numerous people realise this ambition, so I am compiling a short guide to help prime those thinking about making the switch.
What even is the buy side?
The buy-side is the groups that buy securities for their own account (prop) or investors' account (Hedge Fund) to generate a return. The opposite is the sell side, which provides the services required to facilitate the buying and selling of securities. Such as underwriting, prime brokerage, and execution, to name a few.
Buy-side groups are hedge funds, prop shops, asset managers, insurance firms etc. For this article, when we say the buy side, we're referring to prop shops & hedge funds.
The sell-side is a loosely collected bunch of groups that include investment banks, data vendors, research houses, and market makers (although some market makers are prop shops and have carved out their own niche these days as the HFT world has essentially taken this over). Practically anyone who provides a service and is not directly involved in taking risks with someone else's money. (Although, not taking risk is laughable given SVB, First Republic etc.)
Why move to the buy side?
This complex answer depends on the individuals and their motivations and career goals. While no two people are the same, we can generalise some main motivations and reasons.
The most apparent reason is trading-related, being able to generate alpha and take risk. This is very difficult to do on the sell side due to rule changes since the 2008 financial crisis and for reasons beyond this article.
Compensation is another obvious one, with bonuses essentially unrestricted. The comp structure is very different between the sell-side and buy-side. Hedge funds typically pay lower base salaries than investment banks. However, the bonuses swing the total compensation back in favour of the buy side. Especially if your bonus is contractually linked to PnL with a percentage deal, which many Portfolio Managers are on.
Culture is also a significant factor. Hedge funds can have a more tech or start-up feel, a more modern approach. Hedge Funds started on the outside; the outcasts originally started them. So they have never had this corporate feel. They have unique cultures, Bridgewater being the prime example. The sell-side is typically big institutions, giving them an older, corporate, hierarchical feel.
Hedge funds and prop shops have a far quicker turnaround time in their work. This creates arguably a more high-pressure environment, but one that is far more focused on actions and results. While banks can need multiple levels of sign-off before starting any project, and you will need permission to make the slightest alteration to an algo.
There is more hierarchy on the sell side, and people may want to move to a flatter structure with fewer office politics. Yet, that doesn't mean you can escape office politics! Some hedge funds have a reputation for being highly political and having an "inner circle".
Career advancement tends to be more meteorically based on the buy side as it's more focused on the bottom line and your PnL contribution. A large institution requires a little more manoeuvring, hand-shaking, coffee catch-ups, and bargaining included in that promotion.
The buy side is usually more exciting work. It is the tip of the spear type of work. They will have the latest data sets, the coolest new tech, computers & hardware, etc., needed to do your job. The work is on the bleeding edge, where the boundaries are pushed. Ultimately, the sell side facilitates the buy side, so it is a little reactionary in its work and evolution. Many complain about the old legacy systems at investment banks that make it hard to implement innovative solutions. They have old systems on top of old systems - turtles all the down, according to some devs!
What to consider?
When looking to switch to the buy side, the first consideration is which type of group you should go for. The buy side world is vast, and groups come in many shapes, sizes and styles. This should be a key consideration in which groups you target in your search. If your long-term aim is to become a PM, then targeting multi-manager platforms is best. If you prefer a collaborative research environment, targeting the larger research houses is best for you.
Another variable is trading style. Are you best suited to a high-frequency shop or a long-only shop? The two are immensely different in everything they do. And there are many different styles in between. If you're sitting at a market-making desk, there is little point in targeting a big asset manager.
As well as understanding and targeting specific groups, you should research and target particular roles. It's important to consider what roles are available on the buy side to target the types that best fit your skills. If you've been building algo execution strategies, they will unlikely hire you for an alpha research role. But, with the understanding of what roles suit your current skills and what skills are needed in your desired role, you can begin to take steps to close the gap. For example, if you're in algo execution, you should go for short-term price prediction roles instead of targeting medium-frequency stat-arb alpha research roles.
Don’t Overreach
When people move, they rightly expect an uptick in their job function & responsibilities as well as comp. Quant Developers want to become Quant Researchers; Researchers wish to to become portfolio managers; Data engineers want to become Data Scientists. This is what you should normally do. However, when you add in a switch from the sell-side to the buy-side, you need to acknowledge that this adds another layer of difficulty. The likelihood of getting an uptick in job functions is hard.
Career upgrade moves are 100% feasible; I focus on improving someone's career. However, the gap between these moves needs to be figuratively small. Such as moving from technology to front office, researcher to sub-PM, and sub-PM to PM. Quant dev to a quant researcher. VP to Director. Algo execution to a market maker. These are all achievable.
The point here is that these moves happen within the same vertical of the sell or buy sides and do not occur across the verticals. You won't be going from a quant developer at an investment bank to a quant researcher on the buy side. Quant dev reporting into a PM - 100% possible.
When you wish to cross from the sell side to the buy side and advance your role, it's almost impossible. The main reason is that competition is fierce. Why would a hedge fund hire someone with five years of experience doing market microstructure research to research alpha in medium-frequency stat-arb? There are plenty of quant researchers that would be a far better fit. But joining a fund to be their microstructure expert would be outstanding; then you start adding extra value, doing extra internal work to move towards alpha. Staff retention is an essential priority for many funds. So once you're in, funds will be far more accommodating to their current employees' growth plans than the strangers they are interviewing!
The other primary reason is to target roles where you can add value. Ultimately, the buy side is all about the bottom line. You can't expect an offer if you're not a value add. You have to put yourself in their shoes. What is your value add? Your value is your experience. A hedge fund likely wants to hire you because of what you've done for the last few years. Built the CDS portfolio trading business; great, you can help develop our credit trading desk. Have you created central risk internalisation strategies? Great, you can help internalise our flow.
Hedge funds hire on value add, rarely potential value - at least for mid to senior roles. Potential comes second. Even PhD and Master's students are hired based on their experience, schooling, pedigree, achievements, hard quant skills & programming ability, and the complex statistical calculations they made about black holes! How will you add value to a medium-frequency portfolio manager if you've been doing market making? Yes, you will have strong core skills in terms of coding, quantitative, and general finance knowledge. But you don't have direct day-one skills - someone else does!
I advise focusing on making the switch first, then continuing the journey to your career goal role.
In Practice
Ok, You’re thinking; “I should consider what groups to target and be specific about which roles I can add value to the most. But what does that actually look like?”
If you design and build execution algos and heavily research market microstructure, targeting groups trading higher frequency is a good option. Also, there are PMs with huge books where minimising slippage can contribute significantly to alpha generation or completely ruin any alpha made.
If you're less worried about alpha research and want the buy side as a whole, your options open further. Some hedge funds have dedicated teams building in-house algos for execution for the entire fund. Another option is to look at some of the central risk teams where internalisation of flow is essential. These started on the sell-side but have grown at the more significant hedge funds.
If you are a quant trader on a market-making desk doing pricing and auto-hedging research, then HFT prop shops would be an excellent option. Also, some hedge funds are doing more and more intraday trading, sub-30 minutes, so these would also be good for you to target.
If you're on the program trading side, your priority should be to start being able to take risks and do principal trading, not pure agency. Hedge funds have no interest in agency traders other than purely for execution work. With risk-taking and principal trading experience, you can target roles at big index rebalance funds & teams. (Although the rebal trade hasn’t worked for the last year or so)
Central risk desks are the closest match between the sell and buy sides. While prop trading is banned, alpha research still lives on here. Typically, you're looking at stat arb, mean reversion strategies. The big thing that is often overlooked by CRB quants is that your alpha may be based on banks' flow or unique proprietary data sets belonging only to the bank, things that are not present or portable to the buy side. Can you replicate your Sharpe 3 strategy without the bank's flow or proprietary data? If you are thinking about switching in the coming months & years, it might be prudent to check how portable your signals are and maybe come up with some that are.
If you're a Quantitative Developer, first, we need to consider what type of quant dev you are and where you sit. If you're focused on risk and PnL reporting systems, these are skills in demand on the buy side, but by central teams rather than portfolio managers. If you support traders or quants in getting data or building simulation and backtesting environments, then you are of more value to Portfolio Managers and front-office teams.
If you're a developer, I would advise you to get into the front office first. From there, experience is the key indicator of which direction to go. If you've been working on exchange connectivity or market data feeds, you are a value add to an HFT group or centralised technology team. If you've been implementing strategies and writing production code or building trading engines and systems, you would be of value to a Portfolio Manager building a pod.
How to make a move?
So now you've decided which groups are best to target and what types of roles will be the best match to apply for. But what if you're slightly short on the requirements or want to strengthen your case until you're ready to move?
What skills you need is determined by the group and role you target. The hard skills are mathematical/quantitative and coding. After that, it's role-specific, such as building a backtesting environment, researching new signals, using machine learning, portfolio construction & optimisation skills, idea generation, etc.
Quant Skills
Quantitative skills are obviously needed to move to the buy side. But there are various quant skills. Having Monti Carlo and pricing libraries experience means you should target the discretionary style shops instead of the fully systematic shops. Skills around optimisation and automation allow you to target systematic funds.
Data Skills
Data Science has always been around in quant trading; quants have always analysed data or created statistical strategies. The buy side is always interested in machine learning and AI techniques. It's not a prerequisite but would help you get a buy-side job if you have experience applying deep learning to parts of the trade life cycle, such as portfolio construction, alpha research, time series analysis, alternative data analysis, etc.
Trading Skills
Trading skills are important and highly valuable, depending on the role. Trade execution experience is less critical for pure alpha research roles or when joining a collaborative place that separates the function. Execution trading and risk management are part of the trade life cycle process. But in a research style fund, they may be irrelevant for the role of alpha researcher as they outsource execution to a dedicated team. Check out this paper by Marcos Lopez de Prado for more info on the research style factory shop. If your long-term ambition is to become a portfolio manager, trade execution experience would be excellent. It is of more use in a multi-manager group where you could help the PM manage the book.
Coding Skills
It's pretty simple for the buy side; do not expect a front office job if you can't code.
The requirements for front office roles have drastically evolved in recent years. Coding has become an essential skill, no longer optional but integral to success in these roles.
The necessity of coding skills for securing a front office role within quantitative finance cannot be overstressed. As the industry evolves, coding has become an essential tool, almost as important as numeracy and financial theory understanding. Without the ability to write and understand code, securing a front office quantitative role is becoming increasingly challenging. In fact, proficiency in programming languages like Python, R, and C++, among others, is now a prerequisite. These skills are vital for the development and implementation of complex models used in pricing, risk management, and strategic decision-making.
Even positions like traditional investment analysts, which were once heavily reliant on fundamental research, are now utilising data, particularly alternative big data, to augment their research capabilities. Basic coding skills have become needed in such scenarios.
In light of this, if you aspire to land a quantitative or systematic role in the front office, mastering coding is no longer a recommendation, but a requirement. Proficiency in programming will not only help you to navigate through complex data structures but also enable you to design and implement innovative trading strategies, perform risk management, and optimise portfolio construction. Thus, possessing coding skills is a crucial factor that can significantly influence your career trajectory in a quant role in the front office.
Python is the best to learn as nearly every fund uses Python, primarily for research. Some use R, and even rarer is Matlab – but you need comprehensive skill and experience in at least one of Python, R or Matlab. Knowledge of Python packages, such as Pandas, NumPy, and TensorFlow, is advantageous. These are all used by the buy side, and if you can show a project, even a personal project, where you used them, you are a step ahead of your competition.
SQL is handy to have for several hedge funds, and this is because it allows you to get and handle the data. You don't need in-depth knowledge, but you need to be at least able to run queries.
If you're targeting more HFT-style shops, you need object-oriented programming skills, C++ or Java. Python will be used for research, but C++ or Java will be for production code. These days languages like Rust are becoming increasingly popular, particularly in crypto,. Learning this language could be a journey that is less well travelled, giving you an advantage over others.
For developers, programming is another consideration needed in what groups to target. Essentially half of the buy side will be inaccessible to you. Some shops use Java, and some use C++. It's worth knowing this before thinking you can get a job there. The same rings true for the banks; some have their systems in C++, and others are Java based. Rarely are the two languages both used in the front office at the same institution.
Insider Tip: There is a growing trend across both the buy and sell side of having quants write better code. Groups are pushing research and production development closer together. Groups want the quants to be able to implement more of their code rather than just passing it off to the development team. Strategies that work great in Python backtesting can lose functionality or performance when entered into production-level code. A quant who can write production-level code, or close to it, has immense value!
Learning & Development
If you're serious about moving from the sell side to the buy side, first get your skills in order; otherwise, you will be found out in interviews and burn an approach. You only get one try; if that fails, you must wait a year or longer before applying again. And you'd need to improve during that time, so why not improve or practise before? There are tons of practice tests online that can be used to sharpen your skills. Examples in footnote.
Getting the right skills means using those skills. Saying you used C++ during your PhD will not cut it if you haven't used it in the four years of your career. A Python programming course certificate certainly looks good on your CV and LinkedIn profile but counts for a little if you've never used Python programming in your job.
Remember - your competition has used it!
Get the certificate, but then use it. You want to point to a project where you've used it. The project doesn't have to be in work, it helps, but I've seen people get jobs because a personal project they completed aided their application. In this case, the quant was an equities microstructure researcher but built an alpha prediction model for the crypto market in their spare time.
Get the right experience. Similar to getting the right skills, you need the right experience. First, experience using your skills - coding, data analysis, problem-solving, etc. But, get the right experience. If you are focused on algo execution strategies but want to do alpha research, don't expect a hedge fund to hire you for this. Instead, transfer internally to the CRB desk. Or ask your boss to increase the scope of your research to try to use microstructure data for price prediction. If you are an agency trader, get some principal risk-taking experience.
Compensation Considerations
Compensation is the last thing to consider when and how to move from the sell side to the buy side. As mentioned, money is a significant motivation for moving from the sell side to the buy side. Although, you do need to be pragmatic.
First, bases are different. Typically they are lower on the buy side. As a Director at a bank, you're likely getting £175k to £225k as a rough range. That isn't happening on the buy side, and it will be more around the £150k-175k type range for a front office role. Your total compensation should be higher, and you'll likely be getting some guarantee in bonus if the base is being lowered, so you are not taking a hit on total comp. But can you take that hit on your regular income?
A major reason bases are lower is the performance-related nature of the buy side. It is about how much money you generate and therefore is rewarded based on that. You're not there to pick up a salary. A portfolio manager knows their budget and what their bonus pool will likely be; they want to avoid a high fixed cost on their balance sheet. Instead, they are happy to share in the upside.
As said, you need to be pragmatic - expecting a jump from £175k to £200k+ and a buy-side move is not practical. That is wishful thinking, and you'll be waiting long for that offer to come around. It pays to be pragmatic.
A hard truth to hear is you're not likely to get your dream role and dream pay package in one move. Your best option is to target switching to the buy side and then progress to the role you want once you've made the switch. If your 5-year or 10-year plan involves being in a senior position on the buy side, should you jeopardise that by arguing over the fact that they are offering you £120k when you're a VP on £140k? Your total comp will be north of £200k on the buy-side, while at the bank, MAYBE it hits £180/200k total comp. On the sell side, there is a ceiling to what your bonus can be for the vast majority. On the buy side, the vast majority have essentially uncapped bonus potential. In 5 years, will you care about that 20k that is so important today, and after tax is like 12k? The point is don't focus on just the numbers today; instead, look at the bigger picture, the role, the growth potential, the group and its direction, and what you will earn in 3, 5, or 10 years. The offer isn't just what is written on the paper; it includes everything that isn't directly in the offer letter.
20 of London’s top hedge funds – and what they pay.
Conclusion
The quant trading world is ever-evolving, and as you progress in your career, continue to challenge yourself and explore new frontiers in the buy-side space. We hope this guide has provided valuable insights to help you navigate your transition and embark on a fulfilling and successful buy-side career.
I've moved dozens of people from the sell side to the buy side. They all had the above things in common. They didn't overreach, knew what their value add was, went for the roles that fit their current skills, added skills & experience where they were short and focused on the bigger career picture.
Competition for roles has been the highest I've seen in the last ten years. There are many quants with similar skills, data scientists in other industries, and developers in tech, all competing for buy-side roles in only a handful of groups. It would help if you thought about your competition. Rarely do people think about others when applying for a job. They think I am a great fit; they should hire me. But there is usually someone that is a better fit; hopefully, with this guide, that person can be you.
Patience is underrated, and these processes take time. Remembering that patience and persistence are key factors in this journey, with a willingness to adapt and learn new skills, and you’ll go far!
Lastly, the ideal roles that tick all the boxes above aren't waiting for you to decide to move.
They come up sporadically. A team member leaves. A team has a record quarter. A fund has a massive influx of AUM. There are many reasons why a group might or might not be hiring right now. So it pays to stay in touch with a headhunter and keep an ear to the ground for that ideal buy-side role so that when it comes, it's yours!
Join the conversation by sharing your experiences and tips on transitioning from sell-side to buy-side in the comments below. Your insights could make a difference in someone's career journey.
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