Full disclosure, I'm biased to the HF path, but have friends at top PE shops. First things first, PE and HF are two fundamentally different career paths. Yes, they're both buyside gigs and both pay extremely well. However, it's the differences you'll have to pay attention to.
Hedge fund modeling and analysis
I would say HF is less modeling intensive than PE just BC at the top PE funds you're only going to be modeling as a pre-MBA associate, whereas at a top HF (fundamental value / long-short equity) you'll be doing some modeling to support an investment thesis but you'll also be screening for ideas, crafting the thesis, and defending it with valuation models, et al. Obviously this a blanket statement and realistically the real answer is that it depends on the shop.
At the top non-sourcing PE shops, dealflow is going to be driven primarily by bankers and the rolodex of your operating advisors and senior professionals. This means that as an associate you're going to primarily do LBO modeling with little work on the sourcing side and little work on the post-acquisition operations side. This is great because it'll make you extremely comfortable with modeling down to a very granular level and it'll help you understand swappable cap structures and HY debt. As mentioned in some other threads, megafund PE is very much banking 2.0.
At a top L/S fund, on the other hand, the place you want to aim to for will operate in the ex-Tiger tradition of PMs cultivating a culture of idea generation at the junior AND senior level. This means intensive fundamental research both bottoms-up and top-down. From a top-down perspective, how is the current turmoil in Japan opening up interesting opportunities in Asia? As a research analyst, one line of thinking could be: Earthquake in Japan --> billions of infrastructure damage in the region --> increased China-Japan trade over last decade --> long China cement producers --> which China cement producers are currently undervalued? --> identify opportunity and accumulate X shares at Y price and exit position at Z price. Each junction in that predicated decision tree needs to be thoroughly researched via reports, valuation modeling, diligence trips, etc. If your thesis is complete horseshit, your PM will chew you out but at least you'll learn how to identify value more efficiently. This is an excellent model as it teaches you to become an Intelligent Investor and is a crucial experience if you ultimately want to manage your own portfolio.
Hedge fund vs private equity compensation
Pay is roughly comparable, although probably skewed towards PE at the pre-MBA associate level (BC PE funds tend to be much larger than HFs) and then towards HF at a more senior level (where PMs are generally more predatory with comp vis-a-vis returns). The inflection point is highly dependent on the shops and their investment strategies, returns, management structures, etc.
Hedge fund career path
Can't speak to the PE side, but on the HF side, there's no set timetable to promotions. If you're a senior research analyst at Viking, for example, it could be years before you make it that next step to become a PM. However, what's common a lot of times is leaving a top fund with another PM, securing LP commitments, and starting your own shop. That way, you're making much more money and also in turn getting a promotion to PM. You see this a lot recently given the instability within banks and other large shops.
Markets or Deals?
I think this decision comes down to something all college juniors are asked when they think about IBD vs S&T: are you passionate about the markets? It's a simple question, but important. If you don't give a shit about where the VIX is at because you're an M&A banker and want to continue working on deals on the buyside, lever up a company, and exit at a higher multiple, then PE is the way to go. If you're an ardent follower of the markets, enjoy reading earnings transcripts, digging through K's and Q's, and coming up with investment ideas, then the HF route makes sense. Possible to do both, obviously, but most people have a leaning one way or another.
And to your addendum, most people do PE and then move to a fund after business school because a lot of top HFs require buyside experience. Generally, they'll move to L/S equity funds, but if you're coming from a LevFin or restructuring background, end up at a distressed PE shop, event-driven funds like Third Point are a good fit.
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