Fund of Funds Career Path?
So I had a quick question about Fund of Funds. There is not a whole lot of information on this site about how to break in. Is there any kind of boiler plate path into a FoF? I find the idea really interesting, and I was wondering if anyone had any experience in the day-to-day role of an analyst. Also is it possible to break in from undergrad? Or would this be a post-MBA kind of goal?
I'm an undergrad and I interviewed at a hedge fof for an internship which was supposed to lead to a full-time job. That's followed by MBA or whatever after a couple of years. This was for a research/quant research position.
I don't know much but it seems the paths in and out of hedge fund fofs are much more variable than in other areas. I have the impression that PE FOF is much more boilerplate (i.e. IB and then PE FOF, etc)
A good place to gain experience in a FOF role, and one that is often overlooked, is your university (assuming you are in college). A lot of universities do not take direct investments and instead hire a small team and let them manage a portfolio of funds. If you can talk them into an internship, it would probably help you beef up your resume in an attempt to exit to or interview at another fund.
Thanks for the advice God of Wine ill have to look into that.
Khansian, do you mind giving a little more info on the internship? It sounds like you may not have gotten it, but what would the job have entailed?
God of Wine is correct if you simply want exposure to the industry. For example, I am currently interning full-time at a fortune 100 firm's finance dept. focusing on the pension plan assets (see my thread I started about my background).
The plan assets are essentially 15 different FOFs; we have three PE FOFs, many equity and fixed income FOFs, and a HF FOF. The HF FOF has about 15 managers across 8 different strategies. I would say the topics I have learned most about are asset allocations, macro analysis, yield curve analysis, investment manager due dilligence, and some portfolio theory that is specific to pensions/endowments (think LDI, de-risking).
It's neat but the learning curve leveled out pretty quickly, maybe because we don't really go in depth in our analyses. If, however, you ultimately want to manage FOFs, an internship like mine would be a great addition to your resume. I think I saw an opening for one at Disney just a week ago, if you are interested (I don't work at Disney).
This is interesting to me just as an amateur investor. Don't those management fees kill performance? Your department gets paid, then the FoF and the hedge fund managers themselves take a cut. How much more could it cost to hire a few ex-HF guys to just run a small, low risk, internal fund? What sort of returns does the current setup get, after fees?
I understand where you're coming from. The problem with running a small low risk internal fund is that 1) it'd probably be against some sort of diversification mandate in pension plan regulations (this is the argument I always hear) and the company feels uneasy about having all the responsibility internally. Besides we also have a 3 PE fofs and a commodity fund. I don't think a few ex-hf guys could handle it all 2) the plan is pretty large (over $3b cum) so fees don't even make up 1% of the assets overall.
Awesome. Thanks a ton for all the advice!
Actually, I did get the offer but I had already accepted another internship, not in the FOF industry. The position was originally a regular research associate role, where I'd be involved in doing macroeconomic analysis and due diligence among other things, like wannabeahfdude explained above.
The internship offered ended up being a little more unique because they decided to make it a cross between that traditional role and a quantitative research role, due to my background in math. I'm not sure exactly what that would have entailed, though I believe they rigorously test funds' strategies and scenarios using their models.
I know quite a bit about this field if you have specific questions. For comp at a reasonably sized FoF, at the more senior level you can probably expect to make more than ibanking, less than HFs. At the more junior level, some FoFs pay well (in line with junior comp at HFs), while others pay really low. The day-to-day work involves a significant amount of writing (as you need to write about what HFs say at meetings for the rest of the team). The work is generally less stressful, with less hours than ibanking/HF/PE. There is a bit of modeling, but significantly less complex than banking/HF/PE. To break in, some come directly from undergrad, some from HFs, some with a bit of banking experience, some other areas of finance.
Also when thinking about a career in FOF - most FOFs haven't performed well (taking into account the financial crisis). As a result, the industry is probably going to be shrinking somewhat over the next ~5 years.
I work at a PE FoF and know a lot of hedge FoF people. For analysts we typically hire undergrad but once in a while hire off cycle from investment banks or other related experience. Please pm me with any specific questions. I think generally the responses above are accurate. There is modeling but it's not crazy. Hours are reasonable when compared to direct PE and IB. On the macro level several FoF did disappoint investors which has resulted in a bit of a consolidation. Firms that have done well will continue to be in business but I would be hesitant to join a group that is new to the space.
Last I would add there is more to FoF than simply blind pool commitments. Many FoF will also engage in co-investments alongside their managers and secondary purchases (buying already constructed portfolios from other investors requiring near term liquidity). Often these two categories can be between 50% - 20% of a given FoF portfolio.
Following from the above discussion, I would like to seek some help regarding a FoF opportunity. To give you some background, I used to work for a BB in Hong Kong and I recently left the firm due to internal restructuring and had some thoughts how should I position myself in my next job. My head hunter called me yesterday asking me if I am interested in a FoF opportunity based in Hong Kong. After doing some research on my own, I realize the technical skills that FoF requires are a lot less than PE or even traditional banking. However I need to convince them why I would want to make a switch to FoF given my background and what would I fit in a FoF role. Let me know your thoughts. Thanks.
Following from the above discussion, I would like to seek some help regarding a FoF opportunity. To give you some background, I used to work for a BB in Hong Kong and I recently left the firm due to internal restructuring and had some thoughts how should I position myself in my next job. My head hunter called me yesterday asking me if I am interested in a FoF opportunity based in Hong Kong. After doing some research on my own, I realize the technical skills that FoF requires are a lot less than PE or even traditional banking. However I need to convince them why I would want to make a switch to FoF given my background and what would I fit in a FoF role. Let me know your thoughts. Thanks.
Be careful with jumping into FOF too early. It's not a great first job because it doesn't really proivide you with a portable skillset and can be very hard to jump into other areas of finance. As mentioned it's not very rigorous in terms of modeling/hard skills. Having said that, it can be a very cushy gig later in one's career. It is low stress: no need for quick decisions, rarely long hours, and lots of CYA for performance ("the manager had style drift so underperformed").
Agree with you the exit opportunity is not as good as a traditional PE house, however PE shops here in Hong Kong/China is very biased towards hiring PRC candidates and given my background is Canadian Chinese, I lack the language capability to even being invited for an interview. The closet thing would be a FoF opportunity given the everyday language medium would be in English.
I have read some posts regarding the comps in FoF is not as prestigious but like you said, hours are a lot easier and life is much more predictable (i.e. no fire drill). My head hunter said the comp for this opportunity is around 80 to 90k USD per annum and looking at maybe 6 to 8 months of bonus depending on the market performance. Having said that pay is slightly lower than what I was paid in banking but hours should be a lot easier.
Do you guys have any ideas what kind of questions they would be asking, my HH mention they actually ask for the methods of evaluating a fund performance, so IRR should be one method but do you have any ideas what other industry standard methods that FoF uses. Any relevant materials or links that can help me understand the industry more is highly appreciated. Thanks all.
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