Capital Markets Research Career Profile

What is a Capital Markets Research Analyst?

Capital markets research is a sell-side career path within the capital markets division at an investment bank. A research analyst provides research coverage of various markets and asset classes, offering detailed financial analysis and market insights to the bank’s clients. These clients are buy-side institutional investors who manage money professionally, including hedge funds, mutual funds, pension funds, and governments.

Research analysts are highly specialized in the market sectors they cover. They publish research reports with financial analysis and recommendations on whether investors should buy, sell, or hold a particular asset. This work requires a deep understanding of the specific financial instruments or sectors being analyzed.

Typical responsibilities of a research analyst include:

• Building financial models;
• Writing detailed research reports (coverage initiation, earnings reports, news updates, etc.);
• Performing market and industry research;
• Managing Excel models and preparing presentations;
• Engaging with the management of the entities they cover;
• Communicating insights and recommendations to investors and colleagues.

How is Capital Markets Research Organized?

Market sectors

Research analysts are usually aligned with specific market sectors or asset classes, ensuring expertise in their area of focus. Analysts are often grouped by geography or by the type of financial instruments they cover. This specialization allows for in-depth knowledge of the factors influencing the market or assets they analyze.

Examples of market sectors might include:

• Rates
• Credit
• Commodities
• Equities
• Foreign Exchange

Team structure and reporting lines

Each sector or asset class team tends to have a lead analyst supported by a group of associates. The team’s coverage can vary widely, from a few market instruments to dozens, depending on factors such as market complexity and the seniority of the analyst.

In contrast to other divisions of an investment bank, research teams often have a flat organizational structure. The role of a research analyst is more senior than an associate, but they may also hold titles such as Vice President, Executive Director, or Managing Director, depending on their experience and responsibilities.

Each analyst typically reports to a regional head of research, who oversees multiple teams and reports to a global head of research.

Potential conflicts of interest

Research analysts must maintain a high level of objectivity due to the potential market-moving effects of their recommendations. To avoid conflicts of interest, research teams are generally separated from the sales and trading departments. However, they still collaborate closely with sales and trading (S&T) colleagues to market their recommendations to clients.

Investment banks have implemented strict policies and regulations to prevent analysts from being influenced by the bank’s other business activities, such as investment banking services. For example, analysts must declare any personal interest in the assets they cover, and in most cases, they are prohibited from trading those assets.

How Do Research Analysts Generate Revenue for the Investment Bank?

Research analysts contribute to the bank’s profitability through several channels:

Direct payment for research

With regulatory frameworks like MiFID II, buy-side firms in certain regions are required to explicitly pay for investment research. This has created a direct revenue stream for research analysts who provide valuable market insights to clients.

Bundled with execution

In some regions, investment research may still be bundled with trade execution services. In this case, institutional investors rank the quality of the research they receive, influencing the share of trading commissions the bank receives. The accuracy and depth of an analyst’s research are crucial to maintaining a strong relationship with clients.

Ancillary income

Having a reputable research team can also enhance the bank’s ability to attract new clients and strengthen relationships in other divisions, such as private wealth management. High-profile research analysts often participate in media engagements, conferences, and investor presentations, which can elevate the bank’s public profile and indirectly generate income.

What Makes for a Successful Research Analyst?

A successful research analyst excels in several key areas:

Financial modeling and valuation

Research analysts must be able to build robust financial models that provide accurate insights into the markets or instruments they cover. These models are essential for assessing whether a particular asset is over- or undervalued.

Communication skills

The ability to clearly communicate findings, whether through written reports or presentations, is essential for a research analyst. Even the best analysis has little value if it cannot be effectively conveyed to clients and colleagues.

Building a personal brand

In an industry where many professionals rely on public information, an analyst’s personal brand can set them apart. Successful analysts build a reputation for offering unique insights and value-added analysis, which makes them sought-after by clients and peers.

A Typical Day in Capital Markets Research

Research analysts start their day early, reviewing news, market movements, and relevant developments. They typically attend or participate in a “morning call” on the trading floor, where they discuss their latest views and updates with sales and trading teams. These calls are an opportunity for analysts to provide insights on market trends and share new recommendations.

After the morning call, analysts spend much of the day working on new research reports or updating financial models. Senior analysts may spend time speaking with clients or management teams of the companies they cover. Junior analysts and associates often focus on gathering data and refining models. Throughout the day, analysts monitor the performance of the assets they cover and remain alert to any market-moving news.

The day winds down in the late afternoon, but analysts may occasionally work longer hours during periods of significant market activity, such as earnings season.

Compensation Factors and Salary Expectations in Research

Research analysts are well-compensated, with total compensation typically including a base salary and a performance-based year-end bonus. Bonuses are influenced by the value the analyst or their team brings to the firm, as well as the overall performance of the capital markets division.

As analysts gain experience and take on greater responsibility, they may be assigned more prestigious sectors or instruments to cover, which can lead to higher compensation. Senior analysts may also manage teams and have input into how their group’s bonus pool is distributed.

Job Qualifications for Research Analysts

Capital markets research is intellectually demanding and offers excellent compensation for those with the right skills. Successful research analysts typically have strong academic backgrounds in finance, economics, accounting, or quantitative disciplines. Many are recruited from top undergraduate and graduate programs, and they often build their careers through hands-on experience.

For individuals who excel at financial analysis, market research, and communication, a career in capital markets research can be both rewarding and lucrative.

Additional Resources

Interested in learning more about a career in capital markets research?

Enroll in Introduction to Capital Markets for an even more in-depth look at this dynamic role.