Best Response

There have been several posts recently about this, but I'll recount some of the basic points.

A FOF analyst is very different from a regular analyst at a hedge fund or private equity firm. Analysts at HF/PE are analyzing companies using financial statements, market data, forecasts, etc. Analysts at FOF are analyzing other hedge funds and PE firms. They look at historical returns of funds versus each other, market indices, etc. They calculate the risk and return profiles of HF or PE funds, and use this information to construct a diversified portfolio of managers.

HF A buys stock in Apple. Hedge FOF B invests $1m in HF A. Apple's stock price goes up 10% in Q1 2011. HF A takes 20% of the profit and passes the rest along to investors. Hedge FOF B makes 80,000 gross profit. They charge their investors management and profit fees as well - say 5% total - so investors in Hedge FOF B makes 76,000 in profit net of fees.

This is obviously just an example... the numbers are different for every fund, but I think you get the picture.

The reason FOF exist is twofold: (1) to provide greater access to HF and PE funds. The minimums for some of these funds can range from $1m - $50m. For some institutional investors, these amounts represent a larger % of their overall portfolio than they would like to have in these asset classes, and this prohibits them from investing in these managers. Minimums for FOFs are much lower, and therefore can grant an investor access to a number of quality managers with much less capital (2) Certain institutional investors are wary of HF/PE, and they are looking for someone to vet and monitor all managers. Some people look at FOFs as the lower risk alternative to a direct HF/PE program.

There is a difference between HF FOF and PE FOF. The investing styles, timelines and philosophies are different, but the general process of manager selection and due diligence is comparable.

Analyst spots at HFs and PE shops are typically not exit opps for someone with experience in FOFs. Investment consultants or working directly for an institutional investor (Harvard Endowment, Ford Foundation, etc) are more likely. Usually an MBA or CFA is needed to progress in rank at these places.

 

Great post. I have a similar opportunity to summer at a respected FOF. My ultimate goal would be to work for a hedge fund or PE shop. What can I do to leverage this experience into a future roal in hf or pe. For instance, if i go to a top business school after accepting this offer full time, is it possible? Also if you could shed light on the compensation for this position as the others you have discussed. Again great post

I Got a dollar and a dream...
 
BankMonkey21:
Great post. I have a similar opportunity to summer at a respected FOF. My ultimate goal would be to work for a hedge fund or PE shop. What can I do to leverage this experience into a future roal in hf or pe. For instance, if i go to a top business school after accepting this offer full time, is it possible? Also if you could shed light on the compensation for this position as the others you have discussed. Again great post

Depends on what summer it is. If this is anything other than your Junior summer, I would tell you to go for it if your end goal is HF/PE. The skills you learn will not be applicable to working at one of these places, but you will learn a lot about the types of funds (which will be helpful some day when you are considering joining a fund), and depending on your role as an intern, you could develop a pretty solid contact list. You'll spend a ton of time listening to HF guys talk about their investments - which they love to do.. and is extremely interesting. You will have good stories for interviews.

I have not gone to business school, but I think your story upon exiting business school could be pretty compelling after a 2-3 year stint at a HFOF: "I started my career at a HFOF, and i really got to know the different managers and their strategies. I knew that it was what i wanted to do someday. Without the necessary skills to make a direct leap into an analyst role, i pursued the CFA and also went to a top B-school. Now I believe I am ready to take one of these roles full-time." I'm not saying people who work at FOFs are incapable of doing HF/PE analyst work without bschool, I'm just saying it's very difficult to convince someone else of that.

As far as compensation... I don't have wide-reaching market data at my fingertips... but I'll guess this: It depends greatly on the fund. Entry level salaries could range from $50k - 70k, and bonuses could be $10k-$30k. If anyone reading this works at a FOF please chime in... but my sense from the people I do know who work in these roles is that it does not pay as well as a FO IBD job.

Feel free to PM me if you have any more specific questions.

 

if the PE FOF does secondary investing and co-investing, which both require analysis of specific companies, the exit opportunities for an analyst are usually pretty good if you want to go to traditional PE. there aren't a lot of exits for HF FOF

 

Post-MBA buyside roles are hard to get even if you have pre-MBA buyside experience. They are really hard to get if you came from IB pre-MBA. If you dont have pre-MBA buyside or IB experience you need to be at H/S/W to have any sort of chance. If not its virtually impossible.

I think your time would better be spent pursuing other opportunities.

 

Thank you so much for your feedback. Would you say that trying to transition from my current role to an investment banking position and then to the buy side would be more feasible or equally challenging? I recognize that my background is far from ideal, but am trying to figure out the best way to position myself for future opportunities.

 

Went through this dilemma as well. You're not really analyzing securities, but analyzing certain hedge fund managers and building relationships with the PM's. Is it a big fund? What's your background, what year are you in school, etc.

message me.

-- "Those who say don't know, and those who know don't say."
 
nutsaboutWS:
Went through this dilemma as well. You're not really analyzing securities, but analyzing certain hedge fund managers and building relationships with the PM's. Is it a big fund? What's your background, what year are you in school, etc.

message me.

What exactly do you mean by analyzing managers? I have an interview for a FoHF internship next week, and have no idea what the job entails :/

You know you've been working too hard when you stop dreaming about bottles of champagne and hordes of naked women, and start dreaming about conditional formatting and circular references.
 

I have worked for a FoHF.

You will have to analyse other hedge funds, this may involve reading their letters, making quantitative analysis on their returns, performing due-diligence on the managers...

It is a first step into hedge fund world, but you will miss the excitment of really doing the deals you read about on the monthly letters...

If you need more info please let me know

absolutearbitrageur.blogspot.com
 

the transition from FoF to FO HF is very difficult. if your long term goal is HF, i wouldn't recommend FoF. again, it does happen, and i personally know two people who have made that switch, but it is very hard. both of those people ended up at small, lesser known funds, and effectively worked more years than they had to pre-HF. if you're good enough to get into a good FoF (which is not easy to get by any means), you should be good enough to get into other tracks that would better position you for the ultimate jump to HF. just my two cents. good luck.

 

FOFs are discussed on here all the time, you can find a number of threads with good info.

Pros: Cushy lifestyle Industry connections with investors and managers

Cons: Doesn't usually involve investment analysis

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

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