What distinguishes buy-side firms from sell-side firms?

• A. Buy-side firms focus on issuing securities, while sell-side firms manage investments
• B. Sell-side firms manage investments on behalf of clients, while buy-side firms issue securities
• C. Buy-side firms manage investments on behalf of clients, while sell-side firms facilitate transactions
• D. There is no significant difference between the two types of firms

Answer: (C)

Buy-side firms are primarily involved in managing investments on behalf of clients, such as institutional investors or high-net-worth individuals. They focus on buying and holding securities to build portfolios that align with their clients' investment goals and risk tolerances. The key activity for buy-side firms is to select investments that they believe will appreciate in value over time, making their value proposition closely tied to investment performance.

In contrast, sell-side firms provide services that facilitate transactions for their clients. This includes activities like underwriting securities, offering market research, and providing advisory services for mergers and acquisitions. Sell-side firms do not typically manage investments but rather work to enable clients to execute trades and invest through market transactions.

The distinction lies in the functions each type of firm serves within the financial ecosystem, with buy-side firms focused on managing and growing investments and sell-side firms concentrated on enabling market access and facilitating trading.