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How to Get Into Hedge Fund?

Article bySayantan Mukhopadhyay
Reviewed byDheeraj Vaidya, CFA, FRM

How to Get a Hedge Fund Job?

To get into the hedge fund, the person is required to fulfill the required educational qualifications and the skills criteria, get a master’s degree like CFA and the CAIA even if they are not compulsory as it helps in getting better jobs, and get the knowledge about the industry by doing an internship at the hedge fund and work on the different skills such as Financial Modeling Skills, Deep knowledge in investing and finance, etc.

Table of contents

Explanation

Getting into a hedge fund is no cakewalk. And it’s not for the faint-hearted. Hedge fund managers are the ultimate source of industry knowledge, investment skills, and flawless execution of the deliverables (because so much money is at stake). If you want to get into a hedge fund, here’s what you should start with, i.e., understanding how it is to be a hedge fund professional.

The first thing that should be mentioned first. There are a few requirements if you want to get into hedge funds. They’re not earth-shattering in nature but not an easy list to tick off as well –

  • Do you study investments, market scenarios, ups & downs of stocks, etc.?
  • Do you have original ideas about investments and can implement them right away?
  • Are you involved in investments in stocks? If you don’t do investment yourself, you won’t ever know how it is to be into hedge funds.
  • Do you want to put in the arduous effort every day for at least 4-6 years?

The above prerequisites are relative. However, if you tick off “yes” to all of them, you won’t face any issues getting into hedge funds. But if you say “no” to any of the above questions, think back, and reconsider your stance.

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Types of Hedge Fund Jobs

Now, let’s talk about how it is to be a hedge fund professional.

In Hedge Fund, there are two types of hedge fund jobsHedge Fund JobsHedge fund jobs are very popular among people in the finance industry because they can earn lucrative salaries. Some of the jobs available in hedge funds include fund manager, analyst, sales manager, marketing manager, and accountant.read more

first, you can work in the front office, which most people aim for, and second, you can work in the back office.

As the front office is the most attractive path in a hedge fund, we will discuss this in detail.

Usually, there are three options you have in the front office –

#1 –  Traders

These people are also called Execution Traders (ET). There are two types of ET in a typical hedge fund. First, some traders generate new ideas and execute them. Second, some traders only execute others’ opinions.

Trading

#2 – Investment Analysts (IA)

These people put in the arduous effort to do the research, generate new ideas, and help the top-level managers make prudent decisions. There are two rungs in investment analysts’ positions – junior and senior analysts. These investment analystsInvestment AnalystsAn investment analyst is an individual or firm that excels in the financial and investment research and have a keen knowledge of financial instruments and models. Such financial professionals include portfolio managers, investment advisors, brokerage firms, mutual fund companies, investment banks, etc.read more are also called Research Analysts.

Investment Analyst

#3 – Portfolio Managers

These people are the bosses and sit at the highest rung. They decide where to make the investment and what to buy/sell. Portfolio managersPortfolio ManagersA portfolio manager is a financial market expert who strategically designs investment portfolios.read more go to the research analystsThe Research AnalystsResearch analyst is a profession where the main task includes research on specific fields, analyzing the facts and figures, interpreting the analysis, and finally presenting the same to a structured audience that can relate to marketing, finance, operations.read more and ask questions about their findings. And if there is any concern, the research analysts are invited to revisit the report to provide a sound recommendation. Then the portfolio managers take the final call and instruct the traders to buy/sell everything at the right price.

Portfolio Management

So, now let’s talk about the back office briefly.

Since the chief attraction of the hedge fund is the “front office,” people at the back office don’t get the limelight. In the back office, you need people to support the primary function. Technology people support the system, administrative ninjas who keep things tidy and take care of minute details, and CFOs. They take care of the whole finance function of the organization.

If you want to get into a hedge fund (front office), you can start as a junior analyst/trader in a small/big hedge fund and get promoted eventually.

Hedge Fund Job – Educational Qualifications

Hedge fund Job Education qualification

The correct answer regarding the qualification of a hedge fund manager is this – “you don’t need any qualification to be a hedge fund manager except a few certifications.”

But usually, people who handle large funds (AUM $5-10 million or more) are from prestigious universities. And they have impeccable knowledge in one or more areas they work in, e.g., foreign currency, oranges, oil, stocks, gold, coffee, retail stocks, etc.

So, do you need elite qualifications to make a mark in the hedge fund?

Of course, yes.

If you have excellent qualifications, it would certainly make things easier for you.

For example, suppose you have a bachelor’s and master’s degree in Finance/Mathematics/Economics from a reputed university. In that case, the knowledge will help you make better decisions than a layman with no experience in finance/relevant fields.

If you don’t want to go to that pedagogy, you can do a crash course in Finance and get started.

Have a look at the guide below, which may help you tread the path of hedge fund well –

Follow this simple framework, and it will nudge you to have a great career in a hedge fund.

Hedge Fund Skills Required

Hedge Fund Job Skills

Without any ado, let’s get to the look at the skills you must have to get into hedge fund –

  • Intuition: Most people may not consider this a skill, but to a hedge fund manager, this is an essential skill to have. Instinct is a skill that comes with a lot of repetitive practice. Suppose you are continually studying a subject (let’s say investment in gold) after a while. In that case, you will be able to connect various unrelated ideas into a concrete, recognizable pattern you can implement successfully in picking and choosing investments. Intuition will only be developed by repetition, and you will know when you will have it.
  • Quantitative Analysis: This is one of the essential skills to have if you want to do great work in the hedge fund industry. The best way to develop quantitative analysis skills is to go for a quant-related job where you need to do a lot of analyses and provide many recommendations regularly. You can opt for an economist position or a financial analyst position. Another way to build quant skills is to pursue higher studies and do a quant-specific Ph. D. to conduct in-depth studies of various quantitative models.
  • Investment management: This should be your forte. Knowing how to manage investments will fulfill one of the topmost requirements of small/significant hedge funds. To develop this skill, you can start investing independently (if you don’t have the background). Start early so you can have a few years of experience before stepping into a hedge fund career. Practicing investments on your own will teach you two things – first, how to mitigate the risk as much as possible, and second, how to maximize the return on your portfolio. These two skills will be invaluable when you apply for any hedge fund job.
  • Initiation: Most people think initiation can’t be measured. But if you work for a week in a firm, anyone would be able to tell you whether you have an initiation or not. If you’re genuinely willing to make a stir in the hedge fund, then you will have the initiative in knowing it all because people who are attached to any hedge fund are the most knowledgeable in the industry. Without initiation, you can’t acquire immense knowledge and master skills required in the hedge fund industry.

Hedge Fund Salary & Work-Life Balance

The basic rule of the hedge fund is to follow the “2-20” rule. According to this rule, any hedge fund will earn a 2% management fee on the total assets under management (AUM). The hedge fund will also get a 20% bonus on any gain during a specific period.

So the pay varies drastically. However, as you would be working under someone else, in the beginning, you need to know the compensation range you would get once you enter the hedge fund.

According to executive search firm Glocap, entry-level professionals would earn a basic compensation of around $90,000 to $125,000 per annum. But it’s possible to make the same amount in bonus and earn approximately $295,000 per annum as total compensation.

Let’s have a look at the compensation details of hedge fund professionals below –

Hedge Fund Job Salary

source: efinancialcareers.com

From the above data, it’s clear that hedge fund professionals earn decent money as they gain more experience.

But the trick to earning more compensation in the hedge fund is to stop being an employee and try to be a partner. As a partner, you will invest money into the hedge fund and usually make a discretionary part of the profit the fund will make.

When it comes down to the working hours in a hedge fund, you will work much less than in investment banking or private equity jobs. You don’t need to put in 100+ hours in the hedge fund. All you need is 70 hours of work per week. Most hedge fund professionals usually work 50-70 hours per week. That means hedge fund managers enjoy an outstanding work-life balance irrespective of earning so much at the end of the year.

Strategies to Get into Hedge Fund

Here are a few things you should keep in mind if you want to get into a hedge fund –

#1 – Get accustomed to the recruitment process

Hedge fund interviews are much different and extended than investment banking interviewsInvestment Banking InterviewsThe purpose of this Investment Banking Interview Questions and Answers is simply to help you learn about the investment banking interview topics.read more.

  • You will have general rounds – fit round, HR round, and partner round. You also need to go through a case study analysis session. You will be given a time of a few days, and you will be provided with an income statement, a balance sheet, and a cash flow statementCash Flow StatementA Statement of Cash Flow is an accounting document that tracks the incoming and outgoing cash and cash equivalents from a business.read more And then, you will be asked to prepare a one-page briefing on the company’s valuation.
  • Know what questions are asked during interviews in hedge funds. Four questions that are usually asked in a hedge fund interview are – (1) Brief about your background (Tell your structured story); (2) Why hedge fund? (Be specific in your answer); (3) Have you done any investing? If yes, what sort of? (Share your experience); (4) Which stocks are your favorite? And why? (Mention your preference and remark why these are your preference).

#2 – Do internships

The only way to learn about trade-secrets is to become an intern. If you are from a different background and don’t know a hedge fund, you can read a lot about hedge funds and then do a couple of internships. These internships should be in hedge funds directly so you can understand how things work there.

#3 – Network

Networking is the key. You may not have the required background or knowledge as of now. But if you know enough people from the industry, things will become much easier. Of course, you need to acquire the skills and gain the knowledge base, but you will still be ahead of someone who has never tried networking.

#4 – Stick and try to achieve a partner status

Don’t leave hedge funds if you face failures initially. The market is volatile, and the risk is on the higher side. But if you stick to it, eventually, you will gain partner status, and within a few years, you will be able to retire and start something on your own.

Conclusion

The hedge fund is not for the crowd. If you want to get into a hedge fund and make money and have an appetite for risk-taking, you have the perfect combination to become a hedge fund manager. However, the road is slippery and not always rosy. You must be steady and keep pushing yourself to become the best in the industry.

This has been a guide on how to get into a Hedge Fund Job. Here we discuss hedge fund jobs, education and skills requirements, hedge fund salaries, and top strategies to get an interview at the hedge fund. You may learn more about Hedge Funds from the following article –