Thanks for visiting! The hedge fund career path is one place where our usual analogy — a fraternity house — does not quite hold up. The day-to-day work and responsibilities change as you advance, but not quite as much as they do in other fields.
Hedge funds are investment funds that raise capital from institutional investors and accredited investors and then invest it in financial assets — usually liquid, publicly traded assets. Unlike mutual funds , they target absolute returns rather than relative returns, and unlike private equity firms, they do not buy and sell entire companies.
Hedge funds might use a wide variety of strategies, most of which are unavailable to mutual funds: short-selling securities, using derivatives, or going activist on a company to force change, for example. They earn money from a management fee , based on a small percentage of assets under management AUM , and a performance fee , based on a percentage of annual returns.
What aren’t you telling me? Major discrepancies in hedge fund performance reporting
However, funds have been forced to cut fees ever since the financial crisis and their poor performance afterward, and the average fees are now closer to 1. This fee structure gives you the potential to earn a lot of money if your fund performs well — far beyond what bankers or any other sell-side role could earn.
For more, see our overview of the hedge fund industry and our hedge fund vs private equity discussion. You work with smart, ambitious people, you can study a new global issue or market each day, and you can be more creative and independent than in sell-side roles. You must be passionate about the public markets to do well read: you trade stocks and research companies and financial assets for fun in your spare time.
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On the negative side, the hours are still long and stressful though better than investment banking hours , job security can be low, and your exit opportunities will be limited. We covered these points in the article on how to get a job at a hedge fund , but to summarize:. If you have these experiences, qualities, and skills, see our hedge fund recruiting guide for the step-by-step process to winning offers. There are other areas as well, such as Risk Management and Investor Relations, which may be separate or part of the ones above.
It is not common to break in as an undergrad, but some of the bigger funds, such as Citadel, Bridgewater, Man Group, and Brevan Howard, are increasingly recruiting undergrads. Hedge fund work is more specialized than private equity or investment banking, so you have less mobility. If you win an offer right out of undergrad, this is your level. You perform some of the same tasks as full Analysts: financial modeling, data gathering, due diligence, idea generation, and monitoring existing investments.
Hedge Fund Compensation - Job Search Digest
But the difference is that you have less independence, and most of your tasks are assigned to you by the Analysts. Yes, that is a discount to investment banking analyst pay. You complete many of the same tasks as Junior Analysts, but you have more independence and spend more time working on specific investment theses. PMs are General Partners who hold significant equity interests in the fund, so the pay ceiling is much higher as well. The challenge is similar to what traders at investment banks deal with : they must split up larger orders and find buyers and sellers in such a way that minimizes price disturbances.
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As for the transition to Portfolio Manager, some funds like to limit the movement between ET and PM roles because they want traders to view the job as a long-term career — but some funds are more flexible, so this is not a universal rule. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.
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Which positions are most satisfied with their compensation?