What is Equity Research?
Equity research is a great career where you perform fundamental research and form opinions on equities. The equity research department provides clients with opinions and different perspectives on a variety of companies. More specifically, equity research analysts provide buy, sell, and hold recommendations and publish updates and research reports on companies.
Within an investment bank, equity research and sales and trading are found on the public side of the “Chinese wall”, while investment banking is on the private side. The “Chinese wall” prevents equity research analysts and investment banking analysts from communicating with each other due to regulatory risks. Unlike investment banking and sales and trading, equity research doesn’t directly generate revenue. Instead, equity research departments drive business for the sales & trading department by providing clients with valuable investment ideas, which results in strong client relationships.
Entry level employees in equity research are called "Equity Research Associates." Equity research associates are generally placed in an industry group that focuses on 5 to 15 stocks. They become experts in the specific companies and industry, or “coverage universe” that they analyze. Associates need to know everything about their coverage universe in order to support their analyst and answer any questions from internal salespeople and buy side clients. They assist in building/updating financial models, data mining, and composing portions of research reports. Associates are often tasked with doing much of the due diligence for initiating coverage on a new company, which typically takes between 2 to 3 months.
As associates advance, and eventually become analysts, they are exposed to more client and management interactions. Analysts deal directly with large portfolio managers and other people on the buy side to discuss their investment ideas. They also communicate with the management teams of the companies that they cover to receive insight on how the company is executing on their business plan. These communications range from informal calls to industry conferences and company earnings calls. Analysts are able to prove their understanding of a company by accurately predicting a company’s earnings in advance.
As an equity research associate, you develop many technical skills and knowledge relating to valuation, fundamental research, and how to generate investment ideas. Many equity research associates move on to work at hedge funds, asset managers, or in corporate finance. In order to stand out in a competitive field, many associates enhance their experience by receiving the CFA charter, or going to business school before getting into the buy side. Equity research associates work long hours, but fewer on average than investment banking analysts. They also work longer hours during earnings season or volatile times in the markets.
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