Want to land up with a hedge fund job? Well it is not something uncommon today. What makes it the highly looked-for path in the finance domain is that it provides great prospects to have a thrilling work life and make piles of money. I am sure you are tempted to know how and why? Let’s get started
This article will summarize the below information;
- What is Hedge Funds?
- Types of Hedge funds jobs
- Pros and Cons of Hedge fund jobs
- Hedge Fund Job Essentials
- Skills required in Hedge fund Jobs
- Hedge fund career track
- Hedge Fund Salaries
- Few guidelines for Getting Hired
What is Hedge Fund?
We will try and reveal all of hedge fund jobs, but before that let’s understand what is a hedge fund? Hedge fund is an investment tool which is private. How does it work? It is a pool of money from large wealthy investors. The fund rewards itself for that facility by taking a fat management fee (typically 2% of assets under management per year) and a carry (a percentage of returns over a benchmark) that is paid for performance.
These hedge funds use investment strategies which are aggressive in nature including derivative, long, short, leveraged positions in diverse markets. The goal of such investments is simple “generate highest returns”. The reason they are called ‘Hedge Funds’ is because they frequently hedge (Dictionary meaning- protect oneself against loss by making balancing or compensating transactions) their investments with the very high opposite leveraged position in order to overcome risk or make money when the market goes unfavorable.
Types of Hedge Fund Jobs
You could be hired for any of these hedge fund jobs;
The analyst is often the typical entry level position in hedge fund careers. The hedge fund analyst also referred to as the investment analyst or research analyst.
Role: In this role you would be basically evaluating- company financials, economic and market conditions, investments such as bonds, commodities in order to invest for the hedge fund. Also you are required to analyze financial statements, prepare financial models, evaluate the risk of an investment, and find investments that comprehend with the hedge fund strategy in order to bring in maximum returns.
Pre-requisite: Working as an analyst in a small hedge fund would require a broad knowledge base whereas in case of a larger one it could be more extensive with specific know how of an industry, region or investment.
You could spend a lot of time in attending meetings, travelling and making phone calls which is why making contacts is vital for their success.
As a Hedge fund accountant you are required to manage the finances of the hedge fund and maintain the books of financial records accurately for the fund.
Role: The role includes recording the financial transactions, preparing and filing the financial statements, examine and report the profitability of the fund and reviewing the same. The work is important for the fund as it allows them to go back and analyze the funds profit and losses.
Pre-requisite: These accountants are usually Certified Public Accountants (CPA’s)
Sales and Marketing Manager
This position is for you to maintain client relations, particularly when the fund manager does not desire to take up this responsibility.
Role: Your job would involve bringing in capital for the fund. This is done by marketing the strategy and returns of the fund to prospective investors. The work would be more target based, for example you would be expected to able to bring in at least 10 million for the first year at the fund.
Pre-requisite: As a marketing and sales manager you will have to manage and maintain client relations and continuously bring capital into the fund therefore someone in this role must be confident, persuasive and have good people skills.
Maximizing the return on investment fund is the most important goal of the hedge fund manager.
Depending upon the size and type of strategy that is employed in the hedge there could be more than one type of hedge fund manager such as specific to the type of investment such as bonds, commodities or sector such as telecommunication or pharmaceutical.
Role: As a hedge fund manager you are responsible to select the investments of the hedge fund in certain specific proportions to make up portfolio. For selecting the investments you would be required to undertake research to study wide range of assets such as the stocks, currencies, bonds etc. and pick the best ones for the portfolio. So basically you are buying and selling those investments on behalf of the hedge fund for the corporations and individuals. You could also be partially if nor entirely responsible for the client relations and explaining investment strategies.
Pre-requisite: The job as a fund manager would require more experience as compared to managers and analysts who usually begin their careers as hedge fund analysts.
Pros and cons of Hedge fund jobs
Looking at the brighter side of the hedge fund jobs;
- They allow greater level of individuality than other areas of the domain.
- Compared to the investment banks hedge funds are generally smaller which gives them greater intimacy and control.
- Hedge funds can be considered as a highly rewarding career option, it is not uncommon to see people in this field at the big funds pulling down $5 million a year. It is so because in hedge fund jobs one can easily quantify the contribution to the total profit of the fund.
- You have the opportunity to do well and get noticed quickly. This can help you in getting up the ladder rather sooner and get compensated well for the same.
Looking at the darker side;
- There have been many who haven’t been able to survive the competition and pressure and have failed miserably in managing the fund. In such cases one can be easily kicked out of business as there is room for failures.
- Managing the hedge fund is not an easy task as it entails lot of responsibility. This is because the investors hand over huge amount of money with a promise of guaranteed return regardless of the market condition. In order to do this the hedge fund manager and others involved need to apply hedge fund strategies. Hence someone just cannot start managing those funds and requires experience to do it efficiently.
Hedge Fund Job Essentials
Being a fund manager isn’t the type of role that you can pick up straight after an MBA degree. The size and structure of the fund decides the positions which is where the candidate would be eventually placed depending upon the academic credentials and skills.
The positions in a hedge fund generally include being a junior trader; strategist; analyst; quantitative; software developer; risk manager; and in various administrative roles. To finally get into any of these roles and enter the hedge fund world will require certain credentials and preparations which have been discussed in the below infographics
Skills required in Hedge fund Jobs
Listed below are the skills or characteristics that are required in potential hedge fund candidates
- High intellect
- Strong domain knowledge
- Consistency and accuracy
- Deep investing and finance knowledge
- Financial Modeling Skills
- Strong quantitative and legal skills
Apart from these you need to have a strong feel of the financial markets and sense the changes and act accordingly. The most important quality expected is credibility as you would be handling huge sum of money coming from public.
Hedge fund career track
There cannot be a very typical career path or hierarchy in the hedge fund organization strategy as it depends a lot on the size. There could only be two titles such as the analyst and portfolio manager excluding the fund manager.
For bigger firms compared to this, they could have more complex structures which could include multiple portfolio managers, managing directors, intermediate vice presidents etc. Have a look at the hierarchy and their role below starting with the highest position first;
- The fund manager is responsible for directing the activities related to the operation of the fund.
- They make decision regarding the composition of the fund’s portfolio and look after its daily affairs.
- Speaking about their compensation, they are compensated generously, but they also face great pressure because of the high risk of the portfolios that they manage.
- They basically determine the hedge fund strategy and make investing decisions and allocations.
- The portfolios is compensated via a modest management fee, as well as a performance fee based on the fund’s annual performance.
- Fund managers only get a performance fee if the fund makes money.
Hedge fund analyst:
- For those who just start their career in finance into the world of hedge funds usually begin with a job as a junior hedge fund analyst.
- As an analyst you would conduct due diligence on investment decisions for which you would conduct deep research and analysis and support the team of senior analysts and portfolio managers.
- After working for say about 2-4 years based on your performance you would be promoted to a senior analyst position.
- At this level you are expected to have thorough knowledge of derivatives and financial products of the fund, directly reporting to the Chief investment officer.
Hedge fund trader:
- Traders are considered to be the soul of a hedge fund firm.
- Quantitative analysts work along with traders to create trading models based on Statistics and Computational Mathematics.
- The traders are the ones who actually execute the strategy created by the portfolio managers. A decent education background coupled with trading experience could get you at this job.
Like in case of hedge fund analyst we have Junior and Senior level traders, A junior trader would have a degree and about two years of work experience. After working for five years or so, they might move up the ladder to become a senior trader. Within the traders clan we have the execution traders who execute the trade or ideas of the research team and there are there are others who do both the tasks of generating ideas as well as implementing them.
Hedge Fund Salaries
- If you are someone with a few years of experience in the Investment Banking you would usually start with a basic salary (excluding bonus) of $75,000-$125,000. The bonus would vary according to your and funds’ performance but is usually 2-3x of your basic salary.
- As a senior in this profession you would earn anything between a couple hundred thousand USD to $1 million, $10+ million, or even more. These huge figures could get really inspiring but keep one thing in your mind straight; your bonus would completely depend upon the funds’ performance.
You may find the salary numbers unusually high but ofcourse, there are many others who make much less and many more who fail altogether. All who participate in this industry take on high risk. It would eventually boil down to skill, timing and a little luck. In a recent salary review of starting compensation for recent graduates of the largest MBA programs, the highest average starting pay was in hedge funds.
According to Robert Half Accounting & Finance Salary guide (2015), hedge fund management firms are hiring and are in particular search for the positions of senior level talent to manage the portfolio companies, trade support and middle office professionals and also people with capability in accounting and finance for fund accounting, taxation, and investment valuation analyses.
The below diagram explains the average salary for various positions in hedge funds during the years 2014 & 2015 and shows an increase of approximately 3% over the previous year.
Source: Robert Half Salary guide (2015)
- It is important to note that the income of a hedge fund manager is majorly dependent upon the Hedge fund that is created than only on the base salary.
- The payment structure you would have as a fund manager would include a fee for managing the fund and a performance bonus depending on how the fund finally earns.
Few guidelines for Getting Hired
- Check whether your personality suits to the intense environment of Hedge funds. The competition here is to outperform and have an edge over your other counterparts.
- Learn to analyze and synthesize data quickly.
- Quantitative knowledge and capabilities
- Make contacts and network with people in the hedge fund industry.
- Prove serious dedication towards working at a hedge fund.
- It is essential to do your homework well before so that you are alert of the kinds of investments a fund makes and how they work.
- Dedication towards Finance field with certifications like CFA, FRM, CPA etc.
Hedge funds are here to stay in fact the industry is going to grow and get competitive with time. But is very important for you to be sure for the reason you want to get into hedge funds. Would it be the work or money? Make sure the work excites you and not just the money. This field requires people who are passionate about investments & markets, not because they want to make a few million bucks. Good luck to you as you envisage a Hedge Fund career.