Buy side fixed income firms are structured similar to most equity buy side shops.
Portfolio Mangers and Research Analysts – They decide on investment decisions such as which corporate bonds to buy.
Traders – They contact and receive offers from the sell side and analyze market color and conditions.
Differences between buy side fixed income and equity
Many more products including non-corporate instruments such as Municipals, MBS, ABS, and Treasuries.
Most equity shops have teams or individual portfolio managers who are responsible for industry specific funds. This is rare on the fixed income side.
Much like managing a specific sector of the equity market (i.e.. small cap equity), fixed income PMs manage portfolios based on either product (MBS), credit quality (High Grade vs. High Yield), maturity (short duration vs. long duration), and region (Europe vs. Emerging Markets).
Teams are separated into three main groups: Credit, Non-credit, and interest rates.
Credit group, including High Yield and High Grade, make bets on individual companies. Those interested in equities may find opportunities here.
Non-credit group manages portfolios of MBS, ABS and non-corporate related securities. Highly quantitative folks should look into positions in this area.
Interest rate team works with both groups to set duration decision for all the portfolios. Thus, will work with credit group to decide value proposition on buying longer or shorter maturities. Work with MBS group to manage interest rate risk while monitoring issues dealing with prepayments and other product specific issues.
An Example on How a Fixed Income Buy Side Shop Might Operate:
High Yield and Distressed Fixed Income securities are very equity like thus an equity type analysis is required.
For example, many buy side funds (especially hedge funds) invest in distressed bonds thus end up owning a majority share of companies coming out of bankruptcies.
K-mart – ESL and Third Avenue Funds bought majority of distressed securities prior to the K-mart bankruptcy and had majority ownership of the equity of the company coming out. Fixed income analyst was responsible for the investment decision.
Adelphia – WR Huff Asset Management is one of Adelphia’s largest Bond holders (BW article June 14, 2004).
These are just examples. There are many firms out there with potential opportunities thus cast a wide net!