How I got my job in a Hedge Fund after graduation
Hi guys, after gaining a lot of knowledge from the many useful topics on WSO I thought it would justified to give back a bit, even with the little experience I have. Maybe how I made my way to a hedge fund job is not replicable by many people as it includes a lot of luck but anyways it's always good to hear as many stories as possible when you want to enter the industry. I apologize for my English, it is not my native language.
I am currently a 1st year analyst at a major multi-manager hedge fund (think Millenium, Citadel, Balyasny etc...). I am based in Europe and I do L/S special situations.
Masters and First internship in Equity Research
After my bachelor in economics from a relatively good University, I did a Master in Finance from top 3 European business school (most people in Europe do a Master right after their bachelor and don't do a MBA). During my studies, I did lots of internship and even did a gap year to gain some practical experience. In total before getting my current job I had 2 years of experience (only internships) as I did internships almost every summer + gap year.
My first internship was in Equity Research in a research boutique. I got this internship because someone from my family works there. The year after, as I am a lazy stupid brat, I did not have an internship 2 weeks before summer but was saved by an alumni in a main local bank who was looking for an intern in Equity Research. As I already had experience in Equity Research, I easily passed the interview and got the internship. Then I took a gap year before entering my Master.
Second ER Internship
I spent the first 6 months traveling and was supposed to work the rest of the year. 1 month before the end of my trip I had not searched yet for an internship so I started panicking. Fortunately, I found out that my boss from my last internship just moved to a bulge bracket bank. So I gave him a call to see if he was looking for an intern for the rest of the year. 2 weeks after he called back saying he was allowed to have an intern so I can come and work for him for the rest of the year. The next summer (before my 2nd year of Master) I did another internship in Equity Research but on the buy-side this time as I found out sell-side was not for me (I hate marketing and seeing clients). It was easy to find the internship as I already had 3 experiences in Equity Research. If I had that many experiences in ER it was more because I was lazy to find something different than because of a passion for ER (even if I liked the job).
During my buyside internship, my job was to look at the ideas of my PM for about 1 week per idea and then I would pitch to him my opinion on it. This buyside experience was by far the most critical for entering the HF industry as I managed to secure several investment during the internship (it was a small fund and I was directly working for the PM), including 2 of my own ideas which I would later pitch during all my interviews for HFs. If pay would have been good I would have join this LO fund.
Decided to go the HF Route
After my Master degree I decided to try to go into HF because pay is way better than in LO even though the career center from my business school tried to deter me from doing so because "HF do not recruit junior people with no full time experience".
How I applied to HFs
I tried to look for names of big funds and came across a list of the biggest equity hedge funds. I sent an email to almost every equity PM and senior analysts from this list (about 350 emails), direcly asking for an internship with them. I would say that it is the most efficient way to get into a hedge fund when you are out of college. PMs recruit people for their teams themselves and HR are usually useless in HFs. It's a number's game. Find the name and email of as many PMs as you can and directly contact them to see if they are looking for a junior. There is almost never public job offers for juniors in HFs, so you have to ask. Also, PMs and teams usually work independently so it matters to contact many PMs and analysts in the same fund. If you are just out of college, there is no risk of getting a bad reputation for sending lots of applications. I guess that if you already have a job you have to be much more selective and careful about who you apply to.
HF Interviews
After sending my 350 emails I got interviews for 2 funds and got 1 internship. What matters the most during an interview for an internship/junior position in a HF is that you got your pitches ready and near perfection because PMs are going to test you on these pitches. For me, I just had to pitch the investments I made during my previous buy-side internship. For the fund with which I managed to get an intership offer I had 1 interview with HR, then 2 with an analyst and then 1 with a PM. Luckily enough for me, one of my long pitch was a company that the PM knew very well so most of the interview was questions about this investment case (I found out later that the PM was short that stock and lost quite some money on it while I was long lol).
I did not like this internship at all. People did not give a shit about training me and I was doing the shit model filling work. Even though I interviewed with a PM, I worked for an analyst and I couldn't disagree with his opinion... And I was sectorised which I eventually found out is something I hate. To prove the analyst and the PM I was able to do smart work I even sent them some investment cases I did on the side of my stupid tasks but they did not give a shit (I was even more upset that I spent several weeks on each idea and that the few ideas I sent them performed quite well...). Even juniors were not doing very interesting tasks (Excel monkeys) so after 3 months I realized I was never going to do what I wanted so I started applying for other hedge funds.
Searching for another HF
I resent an email to the list of PMs I had gathered to find my internship saying this time I was looking for a FT job. I got 1 interview with a PM and got the full-time job I am currently working in. The interview was very similar to the one for my internship. I pitched my current ideas and the PM tested me on them and on my knowledge of financial markets. I quitted my internship 5 minutes after getting the answer from the other fund (I was desperate to leave that company, people were very arrogant, had no time for interns and juniors, and were not making good returns).
Setting foot in the industry
I would add that as a college graduate setting the foot in the industry is the most difficult part. It is a very closed industry where everybody knows each other and where people jump from one fund to the other (especially at multi manager platforms) so the most important thing is to get one HF name on your CV and then it's quite easy to get interview for other funds. Most people in my current fund switch every 3-4 years to other funds and turnover is quite high so funds are always looking to hire new people.
I got where I am thanks to a lot of luck but I was quite lazy by always applying at the last time. So I am pretty sure that for an person not as lucky as me but who is hardworking it might not be that hard to get into a HF. Just don't let people tell you what you can or can't do and do not feel discourage if you have to send hundreds of application before getting an interview.
I don't really know how to conclude this post and I am not sure it is useful to anyone so if you have questions on HF recruiting, please do not hesitate. I love my current job so maybe I'll do another post to explain what my daily tasks are as a junior analyst.
EDIT: I've written all this and I never spoke about graduate programs at HFs... Well, I was too late to apply for these programs and the 2 funds I work in do not run one so I don't know a lot about it. I would just say that if you are well before the deadline, it's probably the easiest way to get into a HF. However, very few funds run such programs.
thanks for posting! will frontpage
Great post! Just wondering if 2/350 cold emails is considered good response rate for HF, and what things do you typically pitch for yourself in a short email...? Might be a stupid question but genuinely want to know. Thanks!
Given the fact that I sent the same c/c email to everyone, I would say it is a good rate. Especially since I am sending mails to get interviews for a job/internship wherease there's >95% chance that the person is not looking for anyone. Including the negative answers I got 15% rate of anwers which I think is very good. But for my help, my CV was very good so this might have increase the number of people responding.
In my mail I would just introduce myself shortly (studies, experiences), detail why I am a good fit for HFs and then asking if the person is looking to hire someone soon. The email was pretty long but made so that just by looking at the first paragraph, the person would have a clear idea of who I was and what I wanted. I also said in which company I made my former PM invest in and the according short-term performance. And I joined my CV in the mail.
what template did you use for your cold emails?
Great to hear about your experience! Can you elaborate on what PMs would test you on when you say knowledge of the financial markets? Also what does your work day consist of typically and how around how many hours a week do you work? Thank you for doing this.
They would ask questions such as: What do you think about bying/selling that sector in that country? How do you know if you want to buy/sell a stock? Also a lot of fundamental questions but always open questions. No yes/no question. They wanted to understand what are the things I look in a stock, how I value it, how I know how the share price is going to evolve, how I look for a catalyst, how I forecast next quarter results etc...
I would say I work 45-50 hours a week. Pretty much like everyone in the team. I my previous fund people were working much more 60-65 hours maybe.
Typical day; in the morning I look at the news of my investment universe, tell my PM if there's anything worth knowing/doing. This usually takes me 30 minutes. Then I would usually prepare my meetings with sell-side or company management. I typically have 1 or 2 meetings per day. Depending on the meeting I can work 1 to 3 hours to prepare it. The rest of the day I analyse the ideas the sell-side gave me or the ideas I found myself and that fit in my investment universe. I would typically suggest a 1 or 2 idea per week to my PM. I also develop tools that help me track my investment universe. As I have many strategies with each having a small investment universe, once I am doing a good job with my current strategies, my PM gives me an additional one to follow (I am replacing someone he fired so I am getting back all the strategies he used to follow) so I have to build new tools, and do lot of reseach to be able to track the strategy and suggest ideas to my PM that falls into each strategy.
Thanks for the awesome write up. Would you be willing to elaborate a bit on the ballpark compensation range?
I don't know if it is my fund / my PM or all multi-managers pay the same way but I get 50k USD as first salary. Bonus is usually several times your fixed salary that, even as 1st year analyst. So if your team is making money, you can be payed well, but only at the end of the year lol... Salary was the same at the first HF I joined, however bonuses were shit (like 30k USD for 1st year analyst so it was another reason why I left) because the fund was not making much money.
My team is made of 5 people (including me) and my PM makes 5-10m per year depending on the year (our book is one of the biggest of the fund). But his salary is only an advance on his bonus (if he makes 0 P&L well he's fired because the fund paid him a non-deversed advance on his bonus) I would estimate people in my team make 200-700k per year depending on what they do and how much they contribute to the P&L. And for them too, most of the conpensation is paid in bonuses. To be honnest I am sure about my PM compensation, for the other people in my team it much more a guess.
That's valuable insight. I just wanted to know what expect if offers were extended. I have two more questions though 1- Were you paid as an intern? What do you think the trend for intern compensation is at smaller funds 2- How much bonus do you expect to make assuming the fund performs reasonably well?
SB'd for being helpful. Greatly appreciate it.
As an intern I was paid 40k USD. A friend of mine was a summer intern in a small HF (less than 15 people) and was not paid. In my opinion this is not appropriate. You should always be paid enough to pay rent + live decently, even as an intern. If a company does not pay interns I would be very scared of how much they give to analysts.
At my current fund, bonus depends on the team P&L, not the fund. If other teams don't make money it is not our problem. They get 0 bonus, are probably fired, and we get our bonuses accordingly to the team performance. Bonus is entirely at PM discretion, not the fund, and each team is different. In some teams, if you make 0 P&L and the rest of the team makes a lot of money you can still be paid a decent bonus or nothing depending on your PM.
Even if I do not trade directly, my strategies are in a separate P&L and it is the same for everyone in the team. So we all know how much we make. Then, depending on your negociating power, you get a small or big share of it. Of course the first years you can only shut your mouth when your PM tells you your bonus. Only good analysts can negociate and get % of their P&L guaranteed.
If I get less than 1x salary I would be really pissed, if I get less than 2x salary I would be disapointed, if I get 2x I would consider it fair, if I get more than 2x I would be happily surprised. All in all, I would get pissed if my total compensation is lower than an analyst in M&A at a BB. After a few years, I would get pissed if my total compensation is not higher than my friends at BBs (considering I make a decent year P&L-wise of course).
Thanks so much man. I get your point against the non-paid internships, but those are pretty much the only ones that I'm even close to getting an offer from. Hopefully the decision will pay itself off down the road where that experience might become valuable. +1SBd. Super helpful stuff for a college senior.
Hey Exdodus - thank you again for doing this AMA.
Would you mind sharing resources (books, blogs, videos?) you found to be useful for learing the general skillset for a HF analyst?
Also, if your time permits, could you explain your research process? Even breifly?
Cheers, MM
In terms of books, I just read the classics: The Intelligent Investor, Security Analysis, The Most Important Thing, The Little Book That Beats The Market, Fooled by Randomness, Black Swan. I would say my favorites are the ones from Nassim Taleb and Howard Marks. The other ones are more fundamental analysis classics. I also read lots of investment pitches from the Value Investor Club website. It clearly is a gold mine for someone who wants to understant value investing with catalyst (what most L/S equity funds do). All this is more for ER than HF. But I have never read anything specific to HF so I can't help you more on this.
Research process depends on the strategy I'm looking at, but let's say for a fundamental L/S strategy. - read initiation notes from brokers to understand the company business model. - read recent notes to understand the share price moves in the past 3 years. - do a quick market analysis, what is competition etc... - look at valuation vs. growth and margins among peers. - look for a potential catalyst for a share price move - read last conference calls transcript to understand what investors are focusing on. - build a simple model to check if what the sell-side is expecting makes sense. - check all the potential red flags (debt, receivables, provisions etc...).
There is no real order to these steps. If after a while I do not have a strong conviction on the idea, I just let it go and move to another one. I can work one day to a week on an idea, depending on what level of conviction I want (if it's a case on which we can put a lot of money, I want more conviction obviously).
thanks for sharing your secret recipe. It's really valuable for someone trying to break into hf. I have 2 follow up questions here:
1) You mentioned : " look for a potential catalyst for a share price move " . Can you be more specify in this? Is this "potential catalyst" a part of the event driven strategy? And "share price move" means price movement trend pattern?
2) You mentioned : "build a simple model to check if what the sell-side is expecting makes sense." You mean like remodelling the company's expected revenue and EPS ?
Thanks in advance
Wow, thank you for such a detailed response. Would you mind elaborating on 'catalysts.'
-Does your PM require you to have a catalyst in your pitch? -What are the potential catalysts? This is still quite a confusing subject for me, would you be able to list of some examples?
SB's in advance.
MM
Hi Exodus, thanks for sharing your story, as a first year european master student, i found it really inspiring. I have 2 question here:
1) Based on your description, can i conclude that the HF analyst are mostly fundamental if not in quant position? So it's much less quant than equity traders at Global Market-IB?
2) How to get prepare to break into HF? Previously i have 3 month ER experience on Emerging market-TMT sector, now i am trading my own portfolio, reading market wizards, took portfolio constructions theory class at school, learning python...What else can i do (i sound a bit desperate lol
About where do people come from before getting into HF, I can only speak for the 2 funds in which I worked. In the first one, everyone in equities came from ER. People from other strategies came from trading (volatility, bonds, FX...). In the second fund, only a few people came from ER. Most people come from trading, or are quant (so PhDs...). I would dare to say that in multi manager platforms like Millenium or Citadel, most people come from trading rather than ER but I am not sure. Also at multi manager trading platforms, as there is very high turnover, most people come from other HF and jump every 3-4 years. I never seen anyone coming from IB in a HF though. There are probably funds that hire lots of people from IB but I never came across one yet haha. As fundamental L/S strategies are struggling nowadays, I expect less people from ER getting into HF and more quant and traders getting in. But as always, each fund is very different and has its own preference in terms of recruiting.
I don't what else you could do except reading the FT or WSJ everyday and working very deeply on the pitches you are going to talk about during the interviews. Also, to get into a HF right after graduation, you need to be way ahead of your peers in terms of knowledge and experience. So don't stop working until you get the job because you might for now know a bit more on the industry and the job than your peers but in fact you need much more than that to get the job. In most HF you'll receive almost 0 training. They want people who can deliver day 1 on the job. That's why working on your own investment idea and be able to deliver a clear and smart investment case is an obligation. Also, during the interview, people are going to test if you think like an investor or if you are just a good student who learnt his stuff by heart. That's why reading books on investing is very important. Nassim Taleb and Howard Marks are among the best writers to give you the mind of a good investor.
thanks Exodus, I really appreciate you sharing these useful info. and your your suggestion are pragmatic and encouraging.
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