Everything You Need To Know About The Hedge Fund Career Path

In this article we are going to talk about the good, the bad, and the ugly of the hedge fund career path. Investment and Hedge funds are being mentioned hundreds if not thousand times in the Financial World. However, landing your first job in the industry, by all means, is not easy.

Establishing a successful hedge fund career path requires a massive amount of determination, specific personal qualities, intellectual properties, as well as high level of networking skills.

Nonetheless, the key benefits of working at a hedge fund entail a high paying salary, in a range of six figures, and the time to collaborate with some of the most brilliant minds in finance.

Actually, these are the reasons why admittance into this field happens to be extremely cut-throat and incredibly exclusive. As a matter of fact, a successful speculator employed by a top trading company might not even get hired for a trading position at a hedge fund. And this might happen despite the fact that he, or she had incredible trading accomplishments in the past.


What The Heck Is A Hedge Fund…Hedge Fund 101

image of people trying to solve the hedge fund career path problems

To fully understand what a hedge fund is, first it would be more helpful if we grasp the concept of the hedging itself.  Essentially, “hedging” implies minimizing the risk.

That is what various of the hedge funds are structured to do, but unfortunately not all of them are successful in achieving this goal.

Even though, a portfolio manager has all this methods to cut down on risk without affecting an investment income, getting consistent returns is a very hard gig.

Hedge funds are considered to be private investment vehicles, thus bearing the mark of a risky venture. Especially, this is true in times of a major financial crisis, when the majority of the hedge funds are going through “the reset” times.

For example, Jesse Eisinger wrote in his article…“The hedge fund mystique died with the crash of 2008. Youthful traders and big shots from investment banks won’t soon be given billions to invest based on their résumés.” “As many as half the funds that existed earlier this year, when the industry topped out at 10,000 funds in business, could fail or be wound up in a year’s time, industry watchers estimate.”

Hedge Funds, as opposed to Mutual Funds, have little to none Industry regulations and usually are associated with higher returns. Conceptually, they have been the same as mutual funds, in a sense of pooling the investment capital, but vary in flexibility, as well as strategic approaches.

Hedge funds have a wider investment period, with the minimum requirements of one year on asset management. They can invest in pretty much anything; stocks, real estate, currencies, commodities.

Also, utilize a variety of derivative instruments, capitalize on interest rate differences, put on some carry trades, make use of covered/uncovered interest rate arbitrage and deploy a range of other complex strategies. The investment strategies can be influenced by Value, Momentum, or Carry approaches, which will depend solely on hedge fund’s comfort and preference.

A typical hedge fund charges its clients two kinds of fees – management & performance fees. This depends on a hedge fund, although the overall industry standard is 2% of the asset management and 20% of the capital gain fees.

Mainly, the hedge fund investors consist of high net worth individuals. You’ve got to pass the minimum income requirements just to have a peak at the investment proposal. One thing is certain, these people are not your average “Joes.” They are well funded, financially literate and intelligent people. Indeed, a very tough crowd to please.

The goal of any hedge fund is to show its clients the maximum rate of return with the minimum risk possible. That is why sometimes hedge fund managers participate in shady speculative transactions in order to achieve this goal, at times, completely disregarding the second part. Usually, as we mentioned above, the majority of these funds invest in Bonds, Equities and Commodities markets on a local, as well, as International levels.


Skills & Qualification You Need to Possess For a Successful Hedge Fund Career Path

some books and a graduation hat for a successful hedge fund career path

Typically, a hedge fund researcher, or a research specialist has got to have a solid educational level and possess certain personal attributes of even being considered for getting hired.

In a perfect world, you spend several years as an analyst, then move to senior analyst position and in about three to five years become a PM – portfolio manager. In the real world, though, the process of becoming a PM differs from hedge fund to hedge fund, but the structure remains the same – you need to pay your dues.

One needs to have a Master’s degree, preferably in Economics, Finance and/or have a CFA credentials. Having a deep knowledge of the Hedge Fund industry is a big plus.

Here is a “small” list of responsibilities and personal qualities:

have an accountability as well as responsibility

demonstrate analytical qualities

showcase attention towards details

have an excellent writing skills

ability to handle clients

possess an exceptional social and communication skills

be a team player, and work with investment managers

being able to work independently

inner capacity to be multitask and embrace new projects

Now, as you move up in the hedge fund career ladder, the responsibilities may include; generating your own investment fund ideas, finding ways to improve sector performance, leading the investment team, creating your own network of management teams and buy-side analysts, being accountable towards investment plans, actively participating in senior team meetings, remaining thoroughly updated on assets that impact your investment fund, taking the initiative to think outside the box.


Investment Hedge Fund Hierarchy and Their Roles

Junior Analyst/Research Associate

young kid by the laptop thinking about his future hedge fund career path

Research Associates, or Junior Analysts traditionally have been the beginners,“the ground zero level” of the Investment world, coming directly out of university or college.

Fortunately, for the newcomers, the hedge fund career path has become extremely saturated over the past decade, and now the Junior Analysts might come with only two, or three years of real experience.

However, despite the seeming easiness, the Research Associate still requires to have a high level of quantitative knowledge. This includes a deep understanding of financial markets, financial analysis and statistics, along with knowledge of accounting and reporting standards.

Usually, Junior Analyst starts to work with an Analyst, or a Senior Analyst to help with investment research. Junior Analyst does all the dirty-work, such as, creating reports and presentations on companies, sectors and asset classes. The lion’s share of the research work goes into answering market specific questions that Senior Analysts might present.

You are also expected to build competence over a specific market sector, which in turn requires creating proprietary research tools, making sector surveys, engaging in macroeconomic studies.

During the first couple of years as an analyst, it’s important to be involved in fundamental research projects. This may include attending the industry conferences, conducting field researches and working on various financial models.

Financial modeling typically involves gathering information from data services, company conference calls as well as assessing financial reports. Certain hedge funds, allow the Junior Analysts to be engaged in trading and marketing. These generally include booking the actual trades, compiling overall performance reports, and assisting in putting together promo presentations.

One thing is apparent at this stage, you have to be detail-oriented and insanely passionate about the financial markets.


Analyst/Research Analyst

image of a man by the desk solving some hedge fund career path task

The Research Analysts generally come with three to five years of Investment banking experience. Some Investment funds that appreciate the MBA’s may even recruit for this position straight out of top business colleges, which in fact happens very rarely.

Usually, the hiring in private hedge funds happens on a referral basis. More or less, the Research Analysts and Junior Analyst can be grouped in the same category, because they pretty much share the same responsibilities.

However, the Research Analysts have a much wider asset coverage and are mainly concentrated on investment research and financial modeling. A big portion of the time would be focused on monitoring the sector, the industry and specific company trends to predict positive, or negative financial outcomes. The Research Associates on the other hand, are able to perform a variety of different jobs.

Typically, they are involved in daily operations and trading. Research Analysts are continuously interacting with management, clients, and even business suppliers to evaluate the healthiness of the company that they are assessing.

As an Analyst, you always should be able to answer specific market queries from Senior Analysts, or Portfolio Managers. And this my friends, necessitates to have a strong tactfulness and a great deal of patience. Moreover, Analysts must be full of energy, persistent in their daily tasks and reasonably curious.

Probably the most challenging thing for a new Research Analyst, actually, is the time period spent under the senior mentorship. Senior Analysts and PMs simply do not have the patience nor the time to manage the financial specialists that are regularly inaccurate in their assessments.

For the newcomers, this is the reason that presses them to work exceedingly hard in building the trust with their seniors. One thing is certain, the successful relationship with “the upper echelon” can go a long way, and help to advance rising hedge fund career path.


Senior Analyst/Head of Research

image of an afro-american man with the laptop working on his hedge fund career pathIn larger hedge funds as well as traditional asset management companies, there could be found an extra link in the chain of command between the Research Analyst and the Portfolio Manager.

This extra link job title is, Senior Analyst; Head of Research and sometimes they are even called Sector Heads.

In ever-changing global environment, ability to showcase a successful track record and consistency in making the right recommendations, can land a Senior Analyst in a Portfolio Manager’s seat in no time.

In about three to five years, to be exact. Yes, the game has changed, especially in the Era of ultra-low interest rates. If you are able to deliver low-risk/high-net returns, then the green light is on. The Sector Head is extremely experienced in economic projections as well as financial forecasting. It is up to him, or her, to decide on which stocks to analyze and how much funds to allocate in a particular asset class.

The majority of Senior Analysts choose to become experts in a certain industry, or become specialists in a particular area of the Global Economy. Senior Analysts additionally devote a significant amount of time going to industry conferences, participating in company management meetings. Furthermore, they analyze industry supply/demand shocks and keep a closer eye on global, political and economic developments.

Another very important aspect lies in the interaction with Portfolio Manager. A pressing issue here is, how convincingly to present the recommendation without going over your head. The Head of Research has to be conclusive and influential in his beliefs in order to earn due recognition within the organization. In other words, you have to be an expert in your niche, firm-handed in your proposals and authoritative among the peers.


PM/Portfolio Manager – “The Big Dog”

image of a hedge fund career path boss

Portfolio managers generally are considered to be the adepts of the Industry. These are very skillful  professionals with ten to fifteen years of investment experience under their belts.

About ninety percent of them likely have been a PM, or a Senior Analyst at a bigger firm.

Which means, they have built relationships with the clients and, when they go solo, are capable of assembling their own team of hungry investors without significant struggle. Ability to raise funds is extremely vital to the success of the endeavor. In the Industry, this is considered to be a half won battle.

Usually, Hedge fund portfolio managers tend to be general partners – GPs. This also means, they have a significant monetary stake in the fund. Thus, they think and act along the lines of…“Don’t mess in your nest!” Obviously, investors prefer to see a hedge fund manager that is committed to the fund. They favor the ones that have their skin in the game, so to speak. A PM that is not invested in the fund could be viewed as a red flag, signaling a lack of confidence in the firm.

The success of the “nest” is completely in the Portfolio Manager’s hands. During the course of the day, PMs examine reports, consult with internal analysts, talk to company management, observe industry and economic developments in order to make necessary changes to their holdings.

In some larger hedge funds, typically, there is another link in the chain of command between the senior analyst and PM – the Associate Portfolio Manager (APM). Basically, they are senior PMs helping hand.

The Associate Portfolio Managers are responsible for ensuring that portfolio strategy is applied to individual accounts. The APM is trusted with Investment strategy execution by making use of various quantitative portfolio management tools, including portfolio optimization techniques.

They also have to have a deep understanding of investment products, operational policies and procedures. The Associate Portfolio Manager will work closely with senior investment managers along with other departments such as: Legal & Compliance; Sales & Marketing; Operations & Accounting.

The responsibilities may include:

Reviewing and applying account guidelines.

Addressing client requests, or issues.

Managing client cash flows.

Implementing investment decisions for individual accounts.

Daily monitoring of portfolio positioning.

Now, depending on the track record and, most importantly, the firm’s ability to raise new funds Associate Portfolio Manager could be promoted to the portfolio manager within three to six years. The goal of any APM is to learn the ropes from a senior mentor and get the opportunity to manage a multi-asset portfolio, or to run a new fund down the road.

Also read: 

Is Part Time Trading Worth Its While?

How To Make Sense Of a Global Macro Hedge Fund?


How Much Money Do These Guys Pull In…

a pile of hundred dollar bills that are symbolising a successful hedge fund career path

We all can agree, working at a hedge fund could be very challenging, but at the same time, very worthwhile. A seven figure salaries are paid more frequently than everyone thinks otherwise. However, the first thing to realize is that there are two major factors which stand above all  in establishing the compensation – the fund size and its overall performance.

These factors affect both, junior employees and an upper echelon, all across the board. Common sense dictates, the better the fund performance, the greater is the return. Hence, the greater the return, the greater are the bonuses that make the bulk of the compensation. Nonetheless, with having more assets under management, there is much greater expense and certainly, more employees to pay.

Let’s not kid ourselves, the bottom line of having a hedge fund business is to make the moolah. Therefore, if a hedge fund management sees the opportunity to pay out less, he, most certainly will – every dollar counts! Usually, smaller funds are more generous towards their employees, because of the reasons mentioned above.

Here is a typical example of how a small Hedge Fund generates the returns:

If you are running a one billion dollar fund, generally you’ll have 3-8 analysts and 1-2 portfolio managers “the architects.” In total, you’ll have about 10-20 working personnel, including back office employees. Off the one billion investment capital you are getting 2% = $20mill in management fees. Which, by the way, covers the overhead expenses without problem.

For the simplicity of the example we’ll use a 20% mark on yearly profits. Hence, if you generate 20% in profits for the entire year, you just earned yourself a nice pile of cash – 40 mill to be exact. Here is the math, 20% off of the one billion is 200 million. The fund’s share is 20% of the profits made, thus arriving at 40 mill, with the analysts and managers claiming the biggest chunk of it in a form of bonuses and deferred compensation.

– Not too shabby, if you ask me!

The bitter truth is, unless you are a PM, it’s very unlikely that you’ll make seven figures at a hedge fund. The average entry level pays a combination of base and performance bonus. A junior analyst can safely anticipate anywhere between $90-120k base salary and a discretionary incentive of a certain percentage of the base. Now, a junior coming directly out of undergrad can probably expect a base salary of $60-80k with a discretionary bonus of 0-100% of the base.

The important thing to mention, getting picked up by a hedge fund right out of undergrad is incredibly rare. Hedge funds typically require to have two to three years of real experience before even considering you for the job. In case if you do get hired out of undergrad, expect to have a bunch of variances in compensation. These variances are going to depend on the size of the fund, overall performance and specific to the workplace nuances.

Compensation for the undergraduate additionally may differ from the role within the company. The higher end being the people who receive bonuses, manage the trading and finance-related activities. For the tech guys you have roughly 58-72k, and, about in the same ball park are the back office employees.


The Pros of a Hedge Fund Career

image of a woman in a dress with a hedge fund career path logo

First and foremost, you get paid really well in comparison to other industries.

Once you move up the ladder and get into a managerial position, you will get paid as per your individual performance in contrast to mutual funds where, in fact, the performance is weighed against the overall economic performance.

Another strong point, you get to rub shoulders with really smart and brilliant people. Imagine, how amazing it is to always have someone to learn from. Be in the environment, where you get intellectually challenged. This is how you grow and get better!

You’re getting paid for reading, researching and learning about the Industry, about the World.  You also get compensated for resolving complex problems, and for thinking outside the box. If these are the things that turn you on, there is probably no better job.

If you are one of these individuals that like to spend time reading about economics, behavioral finance, markets, you might as well get paid for it. If this is what you are really passionate about and spend all your free time researching and reading about the markets, you perhaps do it throughout the week. The flexibility of an industry is also a huge benefit. In our opinion, the field is mainly flexible enough that anyone can find something that suits their individual needs.

Depending upon the type of firm, your busy life can be as structured, or unstructured as you want it to be. Meaning, the atmosphere can be as academic, or as ordinary as you are comfortable with. For example, you might spend all day in a room by yourself doing some research, or you could be on the phone, or on the road meeting clients.


The Cons of a Hedge Fund Career

man sitting on his knees and thinking about his hedge fund career path

The number one on the list is – stress, and a lot of it. Yes, we have stress in other areas of our lives, but the one we’re talking about is different.

We are talking about the stress that doesn’t let you breathe fully, it holds you hostage even in your spare time. You are constantly thinking about the open positions and the risk exposure.

Constantly thinking about controllable and uncontrollable events that might affect your holdings. This is a different kind of stress, it’s like a program that runs relentlessly in the background. The kind, that can make you jump off of the cliff, and we mean, literally.

The very same stress can cause other psychological issues. For example, you might start feeling empty, with no purpose. Watching numbers change all day, making  faceless clients rich, constantly dealing with other desperate market participants. All this can get pretty mundane and boring after a while.

Other times you might feel powerless, because you couldn’t deliver the desired returns to the investors. The second on the list, the “occasional” unfairness of the business. Here is the thing,  analysts are generally considered to be a replaceable material in comparison to PM’s who know how to manage risk, how to speculate in the markets, how to deal with clients and etc.

We’ve heard some bizarre stories about the analyst playing a major role in generating large amounts of money for the firm and getting fired, so that they can’t get their fair share of the profits. Other times, in some firms, instead of getting fired you just get a laughable bonus and that’s it!

Simply put, portfolio managers are far more valuable to the firm than the analysts, and it takes more than just simply channeling the investment ideas, to succeed in these positions. The larger is the firm, the more they can hassle the analysts. It is a very competitive and a cut-throat Industry so, be prepared to factor in some unpleasant moments in your hedge fund career path.

Even if you are a PM as a general partner – the owner, there still is a huge responsibility and a lot of stress to cope with. You have periodically to deal with; compliance, business meetings, auditor conferences, accounting events, managing issues with fund executives and much more.

The truth to be told, it is not all rosy even for the big guys.


The Bottom Line

a bunch of women and men looking happy with their hedge fund career path jobs

Nowadays, hedge fund career could mean a multitude of things, anything from risk management and operations, all the way up to marketing and customer care.

Higher wages, fat bonuses, as well as awesome incentives attract lots of candidates, however, only a few can meet the requirements.

A prospect trying to get a hedge fund job should, in a first place, go after the right education, study the industry, seek the related internship. Also, network to build the right contacts and follow experienced mentors.

Furthermore, hedge fund job applicants need to make sure that they have certain personal qualities and the necessary attributes in order to be hired and, most importantly, succeed at a hedge fund.

Even though, the work is full of stress and the hours can be really long, Junior Analysts are actually acquiring a great deal of learning experience from the veteran analysts. Collaborating with a seasoned Analyst might bring forward massive dividends.

Larger funds usually are a good stepping stone for a career as a result of the direct exposure to multiple markets, assets and strategies. Meaning, it provides an opportunity to find your expertise, your specialty. After that, you either realize success with that expertise at the very same fund, or move to a greener pastures to find your niche with a smaller firm.

The compensation in the Industry is linked to fund’s overall performance. Which means, it doesn’t conform to any sort of set standard. Whenever a fund performs remarkably well, the workforce is provided with an awesome monetary reward.

It is a performance based Industry and if you are passionate about the markets, are smart enough, ambitious enough, and most importantly, take pride in making the right decisions, then the hedge fund career path could be yours for the taking!