Q&A: Joined a top Hedge Fund out of undergrad
Hey guys, Just made a new account - been primarily a lurker on these forums on my other account. WSO has been super useful to me, so I wanted to give back. There is a growing trend of buy-side jobs recruiting straight from undergrad, so I thought this post may be useful to the community. I'm a non-finance major at a top school (HYWPSM) and ended up with 3 L/S hedge fund offers. Feel free to Q&A, but I don't intend to go into detail about the fund whose offer I accepted. I think some of the lessons I learned apply to anyone interested in working at a HF, even if they don't come from a target.
Initial Approach: Hedge funds either explicitly reached out to my school, or had publicized openings on LinkedIn etc. that were open for undergrads. I simply applied online - networking isn't really needed. (This is not to say that family connections, etc. don't help - they definitely do and few of my friends got jobs through that route which is totally fine). Hedge funds just don't have as much of a network-ey, face-time based culture as banks, etc. Because I am a non-finance major, my resume probably seemed unique. However, my prior banking experience probably did de-risk me by perceptually confirming my interest in finance-related jobs.
General Preparation: I spent a lot of time preparing pitches - two L/S on 3-5 year horizon and 2 L/S on a 3-9 month horizon. Usually, when asked to pitch, you want your pitch to match the investing strategy of the respective firm. This, I thought, would cover most of my bases. In terms of constructing good pitches, I can go into more detail if you want, but at the end of the day, it is all about crafting a thesis and supporting it logically with evidence.
How to value a company using the 3-main methods is required to know, in addition to the pros and cons of each. Be prepared for basic IB accounting questions. Be able to talk about every single experience on your resume in detail. When asked to compare hypothetical businesses, it usually comes down to which businesses generate more FCF and what their long-term growth prospects are.
Interview Process: First and second round interviews were either on-campus, by phone, or by skype/hirevue/other video-conferencing. Final rounds were similar to superdays at banks and PE firms. One notable difference is that final rounds tended to be highly fit based, where displaying a passion for investing and well-thought out reasons as to why investing out of undergrad at the specific firm is a logical career choice.
Feel free to ask more specific questions.
What was your reason for why you wanted to do investing out of undergrad? Do you plan on staying at your fund for the long term or lateral after a few years?
The biggest reason I want to do investing, is that the operations of the job fundamentally mature you in temperament and weighing competing arguments. Besides that, these are my most generalizable reasons that probably will apply to most of you:
2 - I'd prefer going straight to a buy-side job versus doing two years of banking first. I think the world is changing and and many really good buy-side places are recruiting straight from undergrad including some PE mega-funds and elite hedge funds. At my school, few/almost none of the top students who are interested in finance choose to do banking full-time. Typically, its the above average / middle-of-the-road ones that do banking full-time but the best students go straight to buy-side (this is based on anecdotal information, and obviously there are many notable exceptions to this rule).
I like self-directed research and working in a HF gave the the opportunity to do just that. I perform like a science/engineering researcher but get paid way more. I want to understand how things work, and my job should be about loving the questions that I am trying to answer. After interviewing at HF, PE, and banks, I found HF firms and the people there to just be a better fit.
I chose my fund because out of my options, its the place that I could best see myself stay long-term fit-wise and it met my personal requirements regarding prestige/compensation/mobility. Doing well at the fund I'm in is my focus - not lateralling out.
If anything, I would exit out of the HF industry entirely and go the entrepreneurship route, or start my own fund (assuming I turn out to be a good investor). I think working at a HF gives me a solid amount of starting capital and helps me pay off loans - this enables me to take risks in the future.
Can you provide an estimate of the AUM of the three funds? Also, did you do banking during junior summer?
This needs to be the major point of emphasis: You still did BB SA, and got an offer.
That's why these funds are interested in you out of undergrad, combined with your top HYPWSM pedigree. That's why you can just "apply on Linkedin" and get a call back.
You are an immensely special case. Others HAVE to network.
In terms of shift to quant, you have to remember that quantitative funds are generally invested in a much larger number of stocks/securities than fundamental HFs. Quants do not generally invest in individual stocks but rather group of stocks that share certain characteristics that are deemed to be favorable by the model being used. Because of this, quant funds tend to have more consistent returns and lower volatility and higher sharpe ratios as a result of lower volatility. The performance of fundamental HFs varies much more widely. The best performing fundamental funds are bound to outperform the best quant funds because of greater volatility.
The reason that an LP would want to invest in a L/S fund vs a quant fund are pretty different. An LP may really believe in the investment hypothesis of a particular L/S fund and choose it. LPs choose quant funds because of superior risk adjusted returns, not for the absolute returns that many fundamental strategies are seeking by laying down a few big bets.