AMA: Joined a top Hedge Fund out of undergrad

hfboy's picture
Rank: Baboon | 144

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 AMA, 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.

Comments (71)

Oct 24, 2017

Thanks for doing this.
Can you expand on how you got your offers, from the initial approach, to the interviewing process?

Oct 24, 2017

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.

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Nov 3, 2017

This is great, thanks a lot for the outline. Can you offer any general advice on the best way to go about preparing pitches? Or recommend any good resources to look at for helping out with this?

"When you stop striving for perfection, you might as well be dead."

Oct 24, 2017

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?

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Best Response
Oct 24, 2017

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:

  1. It's a lot of money - 1st year pay is almost ~1.5 - 2x (assuming an average bonus) than 1st year banking and more than all 1st year consulting and most or all PE jobs. Scales better too if you are good. I usually always bet on myself to do well and the performance-based compensation works well with that mindset.

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).

  1. 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.
  2. 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.
  3. 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.
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814 questions across 165 hedge funds. 10+ Sample Pitches (Short and Long) with Template Files. The WSO Hedge Fund Interview Prep Course has everything you'll ever need to land the most coveted jobs on the buyside. Learn more.

Nov 1, 2017

Thanks a lot for doing the AMA. Could you give some thoughts and elaborate on how you found or screened for the 2 L/S midterm ideas and 2 L/S short term ideas. For me the hardest thing is finding worthy ideas that are high conviction and quality. How did you find the long term and short term ideas and what are some resources or processes you used?

Oct 24, 2017

Are you responsible for generating your own ideas & pitching or do you just work on models/things the PMs and senior analysts tell you to do?

Oct 24, 2017

Generating my own ideas and pitching. A good metric for judging this can be AUM / number of employees**.

**# of employees should be employees in charge of investing. There are many hedge funds with a ton of people in compliance, data acquisition, etc.

Oct 24, 2017

Good answer. So what would be a good/bad ratio?

Oct 25, 2017
ftorbust:

Are you responsible for generating your own ideas & pitching or do you just work on models/things the PMs and senior analysts tell you to do?

This may be different on the fundamental side but I've found that ideas are cheap. A PM or superior can give you an idea to research but there's so much more creativity involved in the process than just generating the basic idea. Need to look at the idea, the data, everything from different perspectives. Try different approaches, see which makes the most sense. Our head of research directs most of what we research but that doesn't mean there aren't a ton of ideas you have to generate under the umbrella that you're given.

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Oct 24, 2017

How do you plan on making the most of the opportunity in terms of expanding responsibilities as much as possible?

Oct 24, 2017

Really hard to say at this point, since right now I'm just focused on learning and providing good analysis. Being able to defend and effectively communicate ideas will position me well for being in more management-esque positions. Taking the initiative to look into answering questions without being prompted is something I plan to employ. I'll have to think about this more.

Oct 24, 2017

Do you think a non-target has any realistic chance of going to the buyside straight from undergrad? What experience did you have coming in?

Oct 24, 2017

I suggest doing due-diligence on LinkedIn. Look at all employees at a given firm, and see where they went to school, and what kind of experience they had before going in. A few places, especially MM PE and HFs like point72 recruit from non-target also. HFs especially care more about passion and perceived intelligence, so less weight is given to school prestige (which still matters to some extent).

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Oct 24, 2017

Can you provide an estimate of the AUM of the three funds? Also, did you do banking during junior summer?

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Oct 24, 2017

AUM for all 3 are in the billions.

Yes

Oct 25, 2017

Did you go to an EB/BB and get a return? Also how many buyside firms would you say recruited full time at your target? At my target (HYWPS) it seemed like there weren't that many PE or HF recruiting FT excluding quant or macro shops.

Oct 24, 2017

How long were your investment pitches generally (ie 1 page tear sheet or slide deck)? I understand that you should be able to explain your thesis in 3 mins or less otherwise you lose the person's attention

How detailed were the questions on your pitch?

Oct 25, 2017

Depends. My reports typically are ~5-7 pages. My pitch summaries when written out are around 2 pages (this includes both a long (1.5 pages) and a short version (0.5 pages).

The thing that really matters is how well you can defend your pitch. Predict what someone else would ask you and prepare answers to those questions.

Oct 24, 2017

Do you agree with the sentiment that hedge funds are a dying industry and does not equip one with transferable skills?

Oct 25, 2017

Mostly no. I can elaborate later but don't have the time atm. What I will say however is that you cannot look at all hedge funds as one. There are plenty of vastly different strategies and so the answer is that it varies.

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Oct 25, 2017

Hey thanks for doing this.

Could you share how you got into investing? What resources did you used (books/courses/website/etc.). Coming from a non finance major.

Oct 25, 2017

There are two components to investing that you should probably learn: the financial / accounting aspects and the process of researching/crafting an argument

For the former, your prep can be similar to IB: try to understand valuation and their limitations on a conceptual level. You can read value investing books, whose titles you can find online.

Ultimately, it comes down to how smart you are, your attention to detail, and how well you can distill complicated ideas in a pitch.

In other ways, it's more a mindset than it is something you learn from books. I think books have a lot of important lessons, but most people never internalize them in their investing. Try asking yourself what someone else would ask about your pitch. Be paranoid about any holes. Find strong supporting evidence. The basic tools for creating a research paper or a well-written thesis-driven essay are also used in great pitches.

Oct 25, 2017

Got it. How did you know this was the right career for you? I choose my paths through where I believe I can excel in. How would you know the would be something you can perform very well in? At least in IB, you don't need to be super skilled in anything and can still do fairly well.

Oct 25, 2017

Most people choose to do banking because it leads to better exit opps than the hedge funds that take undergrads directly. Does your fund have a track record of taking people directly from school, and how did you factor in the expected mentorship when making your decision?

Oct 25, 2017

I agree, but now there are funds reaching out to undergrads that are usually exit opps for people from top banking groups. Some of the people in the funds I got offers from worked at top BB groups and then moved over after a typical 2 year stint. Other people who joined as undergrads tended to have exceptional finance internship experience (work at other hedge funds / top banks etc.) and/or be from top-schools with a non-finance background.

My funds had an explicit undergrad recruiting process, so yes. I didn't get the job through an exception (connections, cold-calling).

Access to senior employees in whatever fund I would choose was definitely a top priority. I generally like working in small teams, having worked at a few startups in the past.

Oct 25, 2017

Hey man, thanks for doing this.

Landed a BB IB offer for next summer from a non-target, but ultimately want to end up on the public equity side in either L/S or event-driven. What tips would you give to a non-target kid with the relevant experience (I also interned with a L/S equity fund last year) to try and move to the buy-side out of UG?

Also, what's your take on the cyclical changes in active management (shift to passive, quant rise, etc.)?

Oct 25, 2017

Q1: Apply. University is for getting in, lots of funds take applications from non-targets. You've already 'done the job' and have the prestige-factor.
Q2: Sure, investment in passive management and ETF's is on the rise... but it's not a direct substitute for L/S equity which is, as such, unaffected. Frankly, the fact that you need to ask, given your supposed background, astonishes me.

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Oct 25, 2017

Figure out what funds recruit from undergrad. There are quite a few, to be honest. I'd only recommend making the jump if you find a really good fund. Otherwise, I'd stick to the BB IB. Reach out to anyone you know who may know people at hedge funds, try interning at one during the school year too, take quant finance classes, reach out to the professors of those classes (they usually know both fund and quant hedge funds in the area).

A lot of passive investing has to do with the S&P doing really well. I think as long as assets are still severely mispriced, hedge funds can make money. In fact, the shift to passive investing, probably in the long run creates more opportunities for HFs and this will definitely become the case when the markets stop doing so well.

In terms of the rise in quant, the most relevant aspect of that is probably the rise quantamental event-driven trading as it operates on a somewhat similar timeframe to a fair amount of non-quant hedge funds. However, the fundamentals L/S equities space is probably the most crowded/competitive.

Oct 25, 2017

To add to this, being open to working at more quant jobs really helped me, even though I didn't end up doing that. I could apply to around 2-3x the amount of funds recruiting at my school, since I was good at math/probability/etc.

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Oct 25, 2017
WineSpectator:

Hey man, thanks for doing this.

Landed a BB IB offer for next summer from a non-target, but ultimately want to end up on the public equity side in either L/S or event-driven. What tips would you give to a non-target kid with the relevant experience (I also interned with a L/S equity fund last year) to try and move to the buy-side out of UG?

Also, what's your take on the cyclical changes in active management (shift to passive, quant rise, etc.)?

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.

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Oct 25, 2017

Thoughts on global macro hf and their future?

Oct 25, 2017

Strong, especially in late-cycle economies like now. Economies has and probably will always be highly cyclical, both in the long and short term. Short term, macro strategies has seen relatively large inflows as a ratio to other hf strategies. I don't see anything challenging that. That said, global macro as a whole is increasingly a strategy in which technology is taking over (as opposed to e.g. L/S equity).

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Oct 25, 2017

I landed a 2018 SA offer at a BB IB, but my eventual goal is to get into HF employing fundamental strategies. Do you have any recommendations on textbooks/books/study guides I can use to best prepare for HF interviews? Thanks!

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Oct 25, 2017

Congrats on the offer. There's not too much to read in preparation. Review whatever accounting you studied to get the IB job in the first place.

Read some value investing books or at least the first 50-100 pages of books like Margin of Safety, Securities Analysis, Intelligent Investor, etc. You'll get the idea pretty quickly - the difficult part is implementing these ideas and constraints in how you think about companies.

In the interviews, focus on appearing not just intelligent/creative but also thoughtful, reflective etc. Interviews at HFs are highly fit based and you need to demonstrate traits necessary to being a great problem solver.

Oct 25, 2017

Can you talk more about the caliber of the funds that recruit - any specific funds you're willing to mention? (Definitely don't need to mention the one you're working for) I'm wondering as I also go to a top target and only know one or top elite hedge funds that come down and recruit.

I know you mentioned they reached out to your school - was this through your OCR platform, club emails, or some other way?

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Oct 26, 2017

I don't question the original poster, but the consensus at Wharton (where you go?) is that SPC is the only fund that is worth going to out of undergrad which recruits every year. Occasionally good smaller funds take a person, but the prevailing wisdom is that most of the funds worth going to only recruit from banking.

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Oct 26, 2017

Would add that P72 is probably another option for Wharton too. Know a couple of guys though that turned down P72 for banking at W.

Oct 26, 2017

accidentally replied twice

Oct 26, 2017

At Wharton, there's Bain Cap Cred, internal funds within banks, tiger cubs (unstructured recruiting), places like Scopia, Silver Point, P72, and probably a bunch more. For quant, there's your Citadels, two-sigmas, etc. I think every single one of these pays at least twice as much as a bank. Banks provide you with way more optionality.

Oct 25, 2017

What names did you pitch and what was your high level thesis?

What do you think differentiated yourself from other candidates?

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Oct 26, 2017

Not going to go over names, but the best way to differentiate your pitch is your ability to defend every point. Prepare answers to possible questions the interviewer might ask you, and make your arguments sound reasoned and logical.

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Oct 25, 2017

what did you major in?

Oct 26, 2017

Removed for anonymity

Oct 25, 2017

do you think your quant background was important in the interview process? would it be difference if you majored in the liberal arts?

Oct 26, 2017

What was your GPA?

Oct 26, 2017

3.9

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Oct 26, 2017

Hey thanks for the post; would you say markets based roles at BBs (on S&T side) has these exit opportunities to top equity funds? Or is that mainly banking

Oct 26, 2017

Not sure - most people I know in equities who worked at a BB did banking - typically M&A. I don't really know how much this matters, because banking doesn't really help you at all with investing, despite making you an Excel Wiz. The type of analysis you do on deals and in coverage is pretty rote.

In terms of placement, I think IB places better than S&T.

Oct 27, 2017

How did you manage to learn all the technical finance stuff when you had such a difficult course load? also how exactly do you pitch or write an investment thesis, is there a certain structure or template to follow?

Oct 27, 2017

Thanks for doing this. In your experience in L/S equity, how much worry is there in that part of the HF industry regarding the rise of quants replacing fundamental folks?

Nov 2, 2017
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You killed the Greece spread goes up, spread goes down, from Wall Street they all play like a freak, Goldman Sachs 'o beat.

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Nov 3, 2017
Nov 25, 2017
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