Updated October 18, 2023
What is a Hedge Fund?
In this article, we will discuss an outline of Hedge Fund Jobs. Before that, we will understand what a Hedge Fund is.
A hedge fund is a place where every finance guy wants to be. Considered a desirable path in the finance domain, it provides tremendous opportunities to have an exciting work life and make piles of money which makes it enticing. You would want to know how and why?
We will try and reveal all of it, but before that, let’s understand what a hedge fund is. Simply put, it is a pool of money from large, wealthy investors. The fund reimburses itself for that facility by taking a hefty 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.
In this process, the hedge fund manager works to maximize returns. He is supposed to research and analyze a wide array of financial assets such as stocks, bonds, and currencies and then identify the best one for the portfolio. They then buy and sell these investments on behalf of the hedge fund. They are responsible for creating investment portfolios to safeguard against probable losses for corporations and individuals.
Pros and Cons of Hedge Fund Jobs
Hedge fund jobs permit greater individuality than other areas of the domain. As hedge funds are generally smaller than investment banks, it gives hedgies greater intimacy and control. Considering the advantageous career option, it is not unusual to see people in this field at significant funds pulling down $5 million a year. Like most financial institutions, a hedge fund is a job where one can easily measure the contribution to the fund’s total profit. That number is enormous over here; hence, it is a highly compensated job. But obviously, some people make much less than this, and many have failed miserably.
Looking at the other side of the coin, managing a hedge fund can involve a lot of pressure. This is because the investors entrust a tremendous amount of money with a promise of guaranteed return regardless of the market condition. Hedge Fund managers do this by using various hedge fund strategies. Hence, someone cannot start managing those funds.
Nevertheless, if you’re doing well, you get noticed quickly, but also, if not, you would become a guiding example.
Being a fund manager isn’t a role you can pick up after an MBA. The fund’s size and structure decide the positions where the candidate would be eventually placed depending upon the academic credentials and skills.
The positions in a hedge fund generally include junior trader, strategist, analyst, quant, software developer, risk manager, and various administrative roles.
You must be bright and one step ahead to survive and excel in this field. Getting a hedge fund job is an advantage over other counterparts from one of the top universities, and a degree in maths, science, and engineering could be helpful. There is a high demand for candidates with expert skills and advanced degrees, such as Ph.D. who are familiar with currencies and macroeconomics. Apart from these, professional designations such as Chartered Financial Analyst (CFA) could be an additional advantage.
Those freshers who want to join this field after college must have as much investing experience as possible. One should either own portfolios or work on a mock one. Read books on investments and securities and network with people. Be proficient in Excel and financial statement analysis and quickly and accurately develop decisions.
After having a relevant degree, the next step is hunting for companies. Getting information on this is difficult as hedge funds are unregulated and do not reveal much. Locating these jobs is quite challenging, and some funds may cease to have even a website. You need to go out, meet people in this field, and search for openings. They won’t be available at a fixed time during the year but would occur when the fund invites more capital or has had strong returns. You could find a suitable position by applying to funds that are doing well.
Regarding interviews, hedge fund companies have around two to three rounds of interviews over two to three days. Usually, 4-5 people judge the candidate individually over 20-30 minute intervals. After the candidate has cleared the initial rounds, the portfolio manager would have a round with them later.
A few years of work experience in trading and investing is a great bonus point because that would matter more than any degree. Many hedge fund managers come from the sell side of the investment banks. They are typically the persons who trade and analyze securities in research. These candidates are hired because they know the ins and outs of investments and require no training.
- High intellect.
- Strong domain knowledge.
- Consistency and attention to detail.
- Deep investing and finance knowledge.
- Strong quantitative and legal skills.
Apart from these, you must have a strong feel of the financial markets since the changes and act accordingly. The most critical quality expected is credibility, as you would be handling a massive sum of money from the public.
Hedge Fund Career Track
Hedge Fund Analyst
Those who just started their career in finance in 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 about 2-4 years, you would be promoted to a senior analyst position based on your performance. At this level, you are expected to have a thorough knowledge of the derivatives and financial products of the fund, directly reporting to the Chief investment officer.
Hedge Fund Trader
Traders are an essential part of a hedge fund firm. A decent educational background coupled with trading experience could get you this job. In the case of hedge fund analysts, 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, they might move up the ladder to become a senior trader. Within the trader’s clan, we have the execution traders who execute the trade or ideas of the research team, and others do both the tasks of generating and implementing ideas.
Hedge Fund Salaries
People with a few years of experience in Investment Banking usually start with a basic salary (excluding bonus) of 75-125 thousand USD. The compensation would vary according to your and the fund’s performance but is usually 2-3x your primary salary. The seniors in this profession earn between a couple hundred thousand USD to $1 million, $10+ million, or even more. These vast figures could be inspiring, but remember that your bonus depends entirely on the funds’ performance.
The other reality about the pay for hedge fund jobs is that the senior portfolio manager takes most of the money home. If you are aiming for that position, it will require loads of hard work, skill, and luck. So make sure the work excited you and not just the money. The hedge funds industry will get competitive and is undoubtedly here to stay. It will grow with time. But before getting into this exciting field, ask yourself if you would enjoy the work or if it is just the money. Get in only for the right reasons since this domain requires candidates who love investing and are passionate about the markets, not because they want to make a few million bucks.
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