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With headhunters likely beginning to reach out in December/January, I thought I'd put out a series of posts on making the transition from IB to HF. This one talks about getting that first interview.

If you're in a decent group, most--if not all--the major headhunters will reach out to you. The smaller ones are more sporadic/random in terms of who they reach out to and you'll need to proactively search for and contact these guys regardless of where you work. Most people who made the IB to HF transition got their first job through a headhunter, but there are also many opportunities available to those that are resourceful and proactively reach out to funds on their own.

Does pedigree matter?

Unfortunately for some, coming from a lesser firm puts you at a disadvantage. Your school also remains important. I was at a top group which collectively received every headhunter-driven interview out there. There were some funds that literally interviewed every one of the HF-pursuing analysts, but others picked only one or a select few. That minority tended to come from Wharton. It was not at all based on who the best analyst was, though our group as a whole didn't really have any weak analysts as far as I was aware.

The reasoning behind this is relatively simple: hedge funds often hire multiple headhunters to fill a position, as well as reach out through personal and professional networks. Because a headhunter is limited in the number of candidates they can refer, they tend to select the "paper rockstars"--eg, top bb/elite boutique, high GPA, top target school kids.

By no means am I suggesting that only those of highest pedigree can get these jobs. You may have an uphill battle, but it can certainly be circumvented.

Also, note that the pedigree discrimination is most prominent early in the process when headhunters still haven't had an opportunity to assess your interview performance.

What should you be doing?

1. Reach out to all of the headhunters, even the obscure ones that may not have many opportunities for you. Dynamics and SearchOne have the most post-banking HF clients, but there are many others that can help you. Use LinkedIn, Google, fellow analysts, and any other contacts you can for this.

2. Crush the headhunter interview.

Demonstrate an unbridled passion for investing. Talk about the PA you've run since early college, even if you've never touched a brokerage account in your life. They need to be convinced that you love investing and you are absolutely certain that you want to be a HF analyst. Even better, tell them you felt that way since your early interest in college, and time and experience has only helped solidify that initial gut feeling.

You need to convince them that you are a top analyst, which, as long as you're decent, will be easy enough to do because rankings at most banks don't come out until you've completed your first full year. At that point, even if you're second tier, it will be good enough. Do not do this if you think you're going to be mid-tier or lower, because if you haven't locked up a job by then, you will have some pissed off headhunters and they'll have no trouble deciding they don't want to work with you anymore

When they ask if you've considered PE, immediately respond with "no." There should be no thinking. No hesitance. If you're uncertain about whether you want to do PE or HF, 95% of the time you will fail the HF process and end up in PE.

Finally, get them to like you as a person. I swear each analyst class gets nerdier by the year, but for those of you that do have reasonable social skills, lay on the charm, be funny, and get them to develop a vested interest in you. This is racist, but if you're Asian and come in fitting the stereotype, you are likely fucked.

3. You need to go into your first real hedge fund interview way over-prepared (will highlight what you need here in a future post). You need to impress these guys because if a headhunter has taken a leap of faith on you and you bomb on the first opportunity they give you, then you'll have some difficulty winning their trust back.

4. If the headhunter route is relatively fruitless, networking and cold emails are another option. You'll get plenty of rejections, but just like going out and approaching girls, you know it's a numbers game. You will get rejected regularly, but with enough approaches you'll get enough "yeses" to make it worthwhile.

5. You should also speak with fellow analysts and friends at other banks to try to figure out where they're interviewing, and then send e-mails to those funds telling them that you're aware they're running a search process and you were hoping to be considered for an interview. Reword and include more than just that, attach a resume, and hope for the best.

6. Finally, you can look up to see what funds are launching or have recently launched and reach out to them to see if they have a need for analysts.

7. In securing a job, you absolutely need solid references. Have at least 2 people that will go to bat for you. Funds will sometimes call other random people they know at your firm, but hopefully you have a solid reputation and that's not an issue. As long as you're not a bad analyst, you should be fine. Furthermore, hedge funds may reach out to their friends at banks to figure out who they should proactively reach out to for interviews.

What do you need to know for the headhunter interview?

They may act relatively informal, but treat it like a real interview. This is your best and easiest opportunity to get a head start on the process. If they like you, you'll be among the first to hear about new opportunities. Know your story, convince them that you're passionate about the market and have no greater desire than to work at a HF. Also have a brief long and short pitch (this will be discussed in greater detail in another post).

Also have an idea about (1) what kind of investor you want to be (equity vs. credit) and (2) what kind(s) of fund(s) you're interested in.

Equity and credit guys tend to be very different. A credit guy once told me that if he had the same outlook in his personal life as he did on the job, he would never allow anyone in his life, save maybe a dog (under the belief that dogs love you unconditionally). As a credit guy, he sees the glass half empty, and he's expecting that at any moment some clumsy shit from the company will walk by and tip the damn thing over. Expecting that to happen, he tries to figure out exactly how much water will be left post-tippage, and makes bets accordingly.

What I mean to say is: credit guys are very concerned about protecting their downside and try very hard to quantify the risk/return of any investment with what they believe to be reasonable accuracy. After all, they're getting paid a coupon and have a specific maturity date when they're supposed to receive the principal payment. Furthermore, beyond understanding businesses, they get into the nitty gritty of credit docs, bankruptcy law, etc. These guys definitely develop a lot more legal knowledge than the typical equity analyst.

Equity guys, while also thinking about the downside, have to be a bit softer in their investment analysis. There is no coupon or principal payment. There is no maximum return. The most you can lose is the money you put in, but you can make 10x+ in return (obviously not your average investment). What I mean is: equity guys typically have a rosier picture of the world. That is, of course, unless you're Chanos.

Overall, equities are riskier, more volatile, offer higher potential returns (goes with the risk), and demand investors to have a softer view on investing than credit guys. There's more to it, but not worth it to go into too many details.

There are no pros and cons: some people are better at one than the other. It's a personality thing. I like working on the equity side more, so that's what I focus on. If I liked credit more, I'd spend more time there. I'm lucky to have that flexibility, but you usually don't have that opportunity. Before you commit to one or the other, try to figure out what your personality is like and go from there. Remember, credit guys focus on cash flow, the downside, and credit-specific technical knowledge (legal, for example).

If that's for you, go for it. If it's not, then you're probably an equity guy. Equities can be cut up into growth, value, etc, but I won't go into that now. Just keep in mind that most people venture toward value when they first start because that's all they know, but it may not be what they're truly best suited for. Keep an open mind.

2. Equity guys tend to gravitate toward L/S, while credit guys go to credit & distressed funds. There are also some event-driven and activist funds out there, but it's too small a space to exclusively set your sights on right out of IB.

My experience (and the vast majority of my peers would agree) was that it was far easier to get the interview is far easier than getting the job. Happy to answer any questions about this first step. Apologies in advance for any typos... wrote this up very quickly.

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Comments (28)

  • BTbanker's picture

    SB'd before I even read it.

  • APAE's picture

    +1 to you, thank you very, very much. This type of the thread is the reason I stay on this site. Appreciate the time you took to put this together.

    Most people do things to add days to their life. I do things to add life to my days.

    Browse my blog as a WSO contributing author

  • rpc's picture
  • kaorder's picture

    Nice work, I really appreciate the help. What other headhunters have people had success with?

  • WallStreetOasis.com's picture

    awesome...must read for people that want to go IB to HFs.

  • Newspeak's picture

    Fantastic post. I've talked to some analysts that are saying there has been a shift, where people are starting to want to go to hedge funds rather than PE. Would you say that has been the trend and, if so, why do you think that is? Also, you mentioned that if you fail the HF interview process, you'll end up in PE. Are you saying it's more difficult to break into hedge funds than PE funds?

    Also, you mentioned that GPA and school matters as well. Would a high GMAT score (750+) also be a big plus?

  • NewGuy's picture

    1. How many funds did you interview with and how many did you get offers from?
    2. What was the interview / offer ratio amongst your peers chasing HF opportunities?

  • In reply to Newspeak
    DontMakeMeShortYou's picture

    Newspeak:
    Fantastic post. I've talked to some analysts that are saying there has been a shift, where people are starting to want to go to hedge funds rather than PE. Would you say that has been the trend and, if so, why do you think that is? Also, you mentioned that if you fail the HF interview process, you'll end up in PE. Are you saying it's more difficult to break into hedge funds than PE funds?

    Also, you mentioned that GPA and school matters as well. Would a high GMAT score (750+) also be a big plus?

    I think there's definitely been a shift away from PE and toward HFs.

    1) It's considered a faster way to wealth. You hear all the time about guys in their late 20s pulling in millions. Also, who hasn't heard about Paulson's net worth rise meteorically to double-digit billions. Everyone thinks they'll be the next rockstar analyst & eventually PM and replicate this success. Reality, of course, is very different, but it's hard to convince people of that.

    2) More people are aware that many PE experiences end up being banking 2.0. Doesn't seem appealing to many after the burn-out. The HF experience seems more interesting and manageable.

    3) HFs have significantly stepped up formalized recruiting processes and are willing to extend offers well in advance. 5 years ago, HFs were nowhere nearly as active in post-IB recruiting, nor did they know their analyst needs a year + in advance like PE did... you weren't willing to forgo PE recruiting for just a CHANCE to interview at HFs unless you were fully committed to the idea of being an investor.

    I have never seen someone get into HFs if they pursued both PE and HFs at the same time. Why?

    1) PE recruiting all comes at once and it's easier to lock up an offer. Furthermore, it happens very early in your analyst stint. HF recruiting is long and drags on. You start ~6-7 months into your first year and can easily continue until almost the end of your 2 years, depending on (1) your success and (2) the availability of attractive offers. HF firms vary significantly more than PE... I've known guys to pass up seemingly attractive opportunities because they didn't feel the personality fit or investing style was right. Note that while some HFs have 2-year programs, the hope for the committed is to find a place they can see themselves remain LT.

    Note: The class of 2011 is an exception, as all megacap PE firms have coordinated to start recruiting analysts 1.5 years into their stint vs. just 6 months before. Guessing this will make star analysts who are recruiting for both HF and PE finally have some success with the former.

    2) The undecided tend not to be as committed to investing and are beaten out by better-prepared peers. Given that most people struggle to get even just one HF offer (vs. PE where it's feasible to get multiple), it's easy to default to PE.

  • In reply to NewGuy
    DontMakeMeShortYou's picture

    NewGuy:
    1. How many funds did you interview with and how many did you get offers from?
    2. What was the interview / offer ratio amongst your peers chasing HF opportunities?

    1. I had 2 offers out of interviews with 10+ funds (somewhere in the 10-15 range).
    2. Pulling this # out of my ass, but 5-10% offer rate seems plausible if you're committed to getting into a HF.

  • mappleby's picture

    Great post. Does all of this go out the window if you're an Associate instead of an Analyst?

  • In reply to mappleby
    DontMakeMeShortYou's picture

    mappleby:
    Great post. Does all of this go out the window if you're an Associate instead of an Analyst?

    I think much of it still applies: you still need to source opportunities from wherever possible, be passionate about investing, convincing with headhunters, etc.

    I think the transition tends to be more difficult as you're (1) more expensive (2) more difficult to mold and, I'm guessing, (3) won't have relevant investing experience (very few people go to IB after the buyside... and those typically do it because they got forced out of the buyside).

    On the other hand, (1) you're more mature and (2) probably have a better idea as to what you want to do with your life.

    Big differences:

    1) You have to be more discrete in your search process. When you're hired as an associate, people expect you to be there for a much longer period of time than the typical analyst. You also can't be as active in terms of interviews. During my search process, I was able to get out of the office frequently for interviews because my firm accepted that we would recruit. As an associate, you can't exactly do that.

    2) You have to sell your story well: why HF now? What took so long? Why are you doing IB if you're interested in being an investor?

  • In reply to Newspeak
    DontMakeMeShortYou's picture

    Newspeak:
    Also, you mentioned that GPA and school matters as well. Would a high GMAT score (750+) also be a big plus?

    Any positive data points are helpful. 750 GMAT isn't going to be a "big plus." Though, I'd question why you were taking the GMAT if you were indeed interested in wanting to be an investor. While some funds have MBAs, many don't like them all too much... they're considered conformists, and you can't be a good investor if you can't question assumptions/sentiment/what people tell you.

  • In reply to DontMakeMeShortYou
    mappleby's picture

    DontMakeMeShortYou:
    mappleby:
    Great post. Does all of this go out the window if you're an Associate instead of an Analyst?

    I think much of it still applies: you still need to source opportunities from wherever possible, be passionate about investing, convincing with headhunters, etc.

    I think the transition tends to be more difficult as you're (1) more expensive (2) more difficult to mold and, I'm guessing, (3) won't have relevant investing experience (very few people go to IB after the buyside... and those typically do it because they got forced out of the buyside).

    On the other hand, (1) you're more mature and (2) probably have a better idea as to what you want to do with your life.

    Big differences:

    1) You have to be more discrete in your search process. When you're hired as an associate, people expect you to be there for a much longer period of time than the typical analyst. You also can't be as active in terms of interviews. During my search process, I was able to get out of the office frequently for interviews because my firm accepted that we would recruit. As an associate, you can't exactly do that.

    2) You have to sell your story well: why HF now? What took so long? Why are you doing IB if you're interested in being an investor?

    Thanks. I'm getting out of the military and going to get my MBA. I have a passion for investing and would prefer to go directly into a hedge fund out of school but I have a feeling that will be very difficult. So my thought is a few years in IB after school and then trying to make the switch is more realistic. I would at least have a clear story of why the switch to a HF so "late" into my career and can talk to my passion.

  • In reply to mappleby
    DontMakeMeShortYou's picture

    mappleby:
    DontMakeMeShortYou:
    mappleby:
    Great post. Does all of this go out the window if you're an Associate instead of an Analyst?

    I think much of it still applies: you still need to source opportunities from wherever possible, be passionate about investing, convincing with headhunters, etc.

    I think the transition tends to be more difficult as you're (1) more expensive (2) more difficult to mold and, I'm guessing, (3) won't have relevant investing experience (very few people go to IB after the buyside... and those typically do it because they got forced out of the buyside).

    On the other hand, (1) you're more mature and (2) probably have a better idea as to what you want to do with your life.

    Big differences:

    1) You have to be more discrete in your search process. When you're hired as an associate, people expect you to be there for a much longer period of time than the typical analyst. You also can't be as active in terms of interviews. During my search process, I was able to get out of the office frequently for interviews because my firm accepted that we would recruit. As an associate, you can't exactly do that.

    2) You have to sell your story well: why HF now? What took so long? Why are you doing IB if you're interested in being an investor?

    Thanks. I'm getting out of the military and going to get my MBA. I have a passion for investing and would prefer to go directly into a hedge fund out of school but I have a feeling that will be very difficult. So my thought is a few years in IB after school and then trying to make the switch is more realistic. I would at least have a clear story of why the switch to a HF so "late" into my career and can talk to my passion.

    Definitely makes sense then. You'll be able to build that basic accounting/finance/modeling foundation in IB within ~6 months (give or take a few) and then could look to begin networking (if you hadn't been already) and recruiting. Don't worry about loyalty to banking. Get out when you feel prepared/are able to

  • Hfhopeful's picture

    As an equity analyst how important is capital structure analysis? I worked at a credit firm as an intern where literally analyst discussions were entirely about cash flows through the different tranches...as the end recipient of this trickle-down do equity analysts spend a great deal of portion on cap. structure?

  • In reply to Hfhopeful
    CaptainJapan's picture

    you won't spend a ton of time on cap structure unless it is already in a distressed scenario. Equity markets have a totally different participant profile and significantly more volatility. It sounds liek you may have been looking at relative value on different tiers of same issuer. In equities, you might do that in a severely distressed situation or where there is a refi catalyst (like MGM a couple of days ago), but primarily the analysis for equities will be about WHY things are where they are and what is in the price. In credit you have the natural catalyst of maturity or some light at the end of the tunnel, so that type of analysis really matters. Most people that invest in equities would struggle with standard bond math because that type of analysis does not really make money in stocks.

  • West Coast rainmaker's picture

    This is incredibly helpful, +1 SB. Thank you for contributing.

    Any thoughts on how the transition might differ coming from ER? Headhunters have been less than responsive so far.

  • nontargetPSD92's picture

    Nice post. What are your thoughts on analysts getting fired for interviewing at PE/HF shops before their 2 year stint is done? Does everybody interview anyway, how many people actually get caught/fired, etc.

    "Success means having the courage, the determination, and the will to become the person you believe you were meant to be"

  • finance1989's picture

    Excellent post, thanks. Any suggestions for a global macro hedge fund interview straight out of undergrad?

  • In reply to Hfhopeful
    DontMakeMeShortYou's picture

    Hfhopeful:
    As an equity analyst how important is capital structure analysis? I worked at a credit firm as an intern where literally analyst discussions were entirely about cash flows through the different tranches...as the end recipient of this trickle-down do equity analysts spend a great deal of portion on cap. structure?

    Depends on your coverage universe. If you're a tech analyst, odds are you're not too concerned about debt. Much of the space runs a net cash position. On the other hand, if you're looking at real estate and/or gaming, you're going to need to know the cap structure very well, as the companies are much more leveraged and bankruptcy is a much more likely possibility.

  • In reply to West Coast rainmaker
    DontMakeMeShortYou's picture

    West Coast rainmaker:
    This is incredibly helpful, +1 SB. Thank you for contributing.

    Any thoughts on how the transition might differ coming from ER? Headhunters have been less than responsive so far.

    The issue with ER is that your experience varies significantly depending on the work style of your analyst. Furthermore, someone could be training you to look at stocks the "wrong way" (the average sell-side analyst isn't the best stock-picker). HFs know what to expect when they hire an IB analyst: he knows modeling & financial statement basics. With ER, on the other hand, it's hard to tell how involved a junior guy has been unless they actually interview him.

    It's a little harder coming from ER, but personally I'd rather hire someone from ER than IB. At least in ER you're exposed to the markets constantly vs. IB where it seems like you live in a black box. I know most of my peers in IB didn't look at or care about the markets whatsoever.

  • In reply to nontargetPSD92
    DontMakeMeShortYou's picture

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