Getting into Hedge Funds from IBD?

zMaverick's picture
Rank: Orangutan | 270

I'm starting FT at a MM investment bank in San Fran. I've got some experience investing personally and in a college club, and I have a close mentor who is a hedge fund manager.

If I were to take the hedge fund route, what would be the best path(s) (is going into PE and/or getting an MBA required)? How would that path be different for getting into a long/short equity fund vs. a global macro fund?

Region: 
United States - West

Comments (160)

Jun 13, 2014

MBA or PE are not required. Talk to your mentor as he will give better advice for you than anyone on here.

Jun 18, 2014

I cannot give you advice with regards to recruiting through headhunters (didn't go that route myself nor have any idea how it would work given your particular position), but do know that as TechBanking mentioned, MBA or PE are not required, and that networking is a good route to go in addition to others. Find out who you know in the HF industry through first-, second- and third- degree connections, and get talking.

Jun 18, 2014

I know a friend of mine who moves to HF after 1 year at a boutique/MM bank.

Jun 19, 2014

You can get into a HF straight from your analyst stint. My best advice, which I know is something you've probably already been told, is network as much as possible with people in the industry now. I know you'll be working a lot of hours but focus on making connections now and work on building them into relationships over the next year or two. That way you can leverage them when you're trying to break in. I got my shot from a relationship I made networking as a junior in college which I grew over the next ~3 years - you never know who will give you your chance.

Jun 19, 2014

Like @"TechBanking" said, if you have a mentor in the real world, ask him/her. You can get to an HF from banking but if you truly have a mentor in the biz he'd give you the best advice.

Jun 19, 2014

There is too much variance between HFs to make any sort of blanket statement. HFs don't generally use headhunting services like PE firms, so it will be up to you to network, market yourself, etc.

As for whether it is easier after PE, it really depends. Would it be easier after working at KKR? Sure. After working at a 1B fund in the midwest? Probably not.

After working for a restructuring focused PE firm, would it be easier to move to a distressed credit HF? Absolutely. To a global macro fund? Maybe.

Jun 19, 2014
West Coast rainmaker:

There is too much variance between HFs to make any sort of blanket statement. HFs don't generally use headhunting services like PE firms, so it will be up to you to network, market yourself, etc.

As for whether it is easier after PE, it really depends. Would it be easier after working at KKR? Sure. After working at a 1B fund in the midwest? Probably not.

After working for a restructuring focused PE firm, would it be easier to move to a distressed credit HF? Absolutely. To a global macro fund? Maybe.

A lot of HFs do use headhunters. Dynamics represents a bunch of hedge funds. I occasionally get emails about HF opportunities from Oxbridge and SG, as well. Amity has some as well (larger, tiger cub types).

Jun 19, 2014

Like the poster above said, depends a lot on the fund's strategy. I personally know a lot of former bankers at hedge funds, but almost 100% are at "fundamental" or "transactional" shops (value-oriented, distressed, event-driven/merger arb, etc). Distressed and fundemental credit make a lot of sense than say, global macro, commodities, or convertible arbitrage which require a different skillset.

    • 1
Jun 19, 2014
Kenny_Powers_CFA:

Like the poster above said, depends a lot on the fund's strategy. I personally know a lot of former bankers at hedge funds, but almost 100% are at "fundamental" or "transactional" shops (value-oriented, distressed, event-driven/merger arb, etc). Distressed and fundemental credit make a lot of sense than say, global macro, commodities, or convertible arbitrage which require a different skillset.

Thanks for the feedback guys.

Kenny - from the former bankers you know who are now at "fundamental" hedgefunds, did they go through a "typical" recuriting process or is it also variant like what Rainmaker described?

Rainmaker - do you have any tips on networking for someone who is not located in NY or other hedge fund concentrated cities?

Jun 19, 2014
Kenny_Powers_CFA:

Like the poster above said, depends a lot on the fund's strategy. I personally know a lot of former bankers at hedge funds, but almost 100% are at "fundamental" or "transactional" shops (value-oriented, distressed, event-driven/merger arb, etc). Distressed and fundemental credit make a lot of sense than say, global macro, commodities, or convertible arbitrage which require a different skillset.

Is trading the only option to get the skillset for global macro, commodities, or convertible arb? What about other strategies?

Best Response
Jun 19, 2014
Millhouse:
Kenny_Powers_CFA:

Like the poster above said, depends a lot on the fund's strategy. I personally know a lot of former bankers at hedge funds, but almost 100% are at "fundamental" or "transactional" shops (value-oriented, distressed, event-driven/merger arb, etc). Distressed and fundemental credit make a lot of sense than say, global macro, commodities, or convertible arbitrage which require a different skillset.

Is trading the only option to get the skillset for global macro, commodities, or convertible arb? What about other strategies?

From what I've seen it's by far the best. Tough to get the really in-depth knowledge of the various markets and products used to trade them otherwise. For example, one of the guys I work for spent a long time as a energy banker and he says he would be out of his element being an energy trader.

Common backgrounds in my experience:
Value/Long-short: Largely banking, equity/credit research
Distressed: Banking (esp. restructuring), sometimes lawyers
Global Macro: Traders, macro research, economists
Commodities: Traders
Convertible Arb: Traders, Mathematicians
HFT/Algo: Mostly software engineers/math/stats people
Structured Credit: Bankers (largely structuring), trader

This is just based on people I know/have met; I don't claim to be an expert-others may have a different experiences they can share.

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Jun 19, 2014

Are you in a group that does a lot of works w/ HFs? Most people (including myself) who I know doing fundamental styles ended up at a shop with whom they did banking work. Additionally, keeping in touch with the classes ahead of you is probably tied for the best option. Informal networks tend to win here.

Jun 19, 2014

Like KevinNYC said, maintaining networks with classes ahead of you helps (both classes from your bank, and your undergrad, if you are from a target).

bankbank is right in that a lot of the larger funds use headhunters; but the HF world is huge, and there are many opportunities at smaller funds.

Compensation is only loosely tied to fund size at the lower levels; the majority of profits go to the fund manager regardless of size. Working at a Soros/Paulson/Tiger fund will give you mobility within the industry, but you might not want to build your career there.

I would look into professional networks in your area. It's a longshot, but regional CFA and CAIA organizations may have people familiar with local hedge funds.

Jun 19, 2014

Thanks for this thread, a lot of good information I've been looking for as well.

Jun 19, 2014

Definitely not the end-all/be-all. I'm only a few years in and I only know what I've seen. There are definitely some unique backgrounds to all this stuff, and strategies can blur as well.

Part of the reason that traders are so essential for the strategies that were mentioned (commodities, global macro) is that it's a lot harder to put on a trade in those spaces than in a fundamental strategy.

There are subtleties to long/short investing (options strategies, CDS, employing leverage, position sizing, etc), but trading on macro ideas is so sensitive to timing and trade structure that it becomes a huge part of the strategy itself. Peter Thiel, for example, is widely accepted to be a genius and a visionary, but Clarium has performed poorly in part because his timing and trade structuring are lacking.

On top of that, the lines between asset classes, strategies, and trading techniques blur, sometimes by design and sometimes by necessity.

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Jun 19, 2014

Yes, I definitely get that and appreciate the insight, but over the past few months I've done as much reading as possible and pulled a ton of information off the web, this site, and what books I've been recommended or able to get ahold of and I've had to piece together a mental picture of my own that I wasn't sure about. While I understand the innate subjectivity, it's just nice to see something explicitly stated for once. I had an idea about l/s, value-driven, and fundamental shops correlating better to banking, but what took you 5 minutes eased a ton of mental torture in my head.

I'll PM you sometime soon with a bit more specifics on my end, hopefully you can help me out.

Jun 19, 2014

Interested as well. Thanks guys.

Jun 19, 2014

why would you go to ER? are you out of your mind?

Jun 19, 2014

Exits from BB ER seem to be more hedge fund focused and BB IB seems to be more PE focused.

Not sure if this is because ER is strictly analysis / projection (ie. direct value to a L/S fund) vs. IB which is more transactional, more geared toward PE.

Jun 19, 2014

totally depends on what kind of hedge fund you want to get into

Jun 19, 2014

Interested in this as well. Headhunters have been blowing up my inbox but I haven't even had the chance to update my resume for what I've done full-time. Would it be a bad idea to just reach back out to them a few months, or would I have missed the train?

Jun 19, 2014

Wait as long as you can to meet with recruiters so you're knowledgeable enough/have enough experience to talk intelligently. You're not going to miss anything big by doing those meetings in Feb. and you don't want to come across like an idiot because you only get one meeting.

Jun 19, 2014

Absolutely wait. Six months in, you might feel like you have a grasp of the industry but you are still a 1st year analyst. You only get one shot and these funds aren't going anywhere and will recruit next year and thereafter. Wait until you improve your industry knowledge, people skills and analytical skills.

Somebody who has a negative view on second or third years without a job lined up would be horrible to work for. I've definitely seen these guys, but they are few and far between.

Jun 19, 2014

Unless you're doing risk arb, it doesn't without an MFE or maybe an MBA.

Unless you hate it, keep focusing on PE or maybe VC stuff.

Jun 19, 2014

Reason I ask is I may have a possible opportunity to interview with a respected HF and would like to know if it would be a better place to start a career rather than an IB

What are the typical roles in a HF? Would it be trader/sales/research etc?

Would most here choose the HF route if they got in over an IB?

Jun 19, 2014

Typically trader/research/quant/IR/developer. Did the recruiter give you a job description?

Jun 19, 2014

Illini I sent you a pm if you don't mind

Jun 19, 2014
Paul.Allen:

Illini I sent you a pm if you don't mind

Did you email me? Didn't get a PM.

*Edit: sent a response.

Jun 19, 2014

I know a bunch of people who went from front office IB to fundamental hedge funds (L/S, etc)-more than from equity research in fact. I see why event driven/merger arb would make sense but not why you think it doesn't make sense in other fundamental strategies.

People go into M&A (or other top banking groups) and learn how to model like fiends and learn a company inside and out-those are the skills fundamental HFs value.

On top of that top banking groups get the best undergrad hires: Elite groups hire elite students (largely from elite universities), so funds have pre-screening done for them.

Jun 19, 2014
Kenny_Powers_CFA:

I know a bunch of people who went from front office IB to fundamental hedge funds (L/S, etc)-more than from equity research in fact. I see why event driven/merger arb would make sense but not why you think it doesn't make sense in other fundamental strategies.

People go into M&A (or other top banking groups) and learn how to model like fiends and learn a company inside and out-those are the skills fundamental HFs value.

On top of that top banking groups get the best undergrad hires: Elite groups hire elite students (largely from elite universities), so funds have pre-screening done for them.

This.

Don't listen to illionois programmer who never can get ibanking and is always bitter about being from a TTT state school who is doing a pathetic risk job in the MO. Almost 1/3 of the bankers I know at BB's go to HF's. Fundamental HF's are big yes but macro aren't hard to break into either.

Jun 19, 2014

^^^ Dude, just because I called you out as a college-aged troll doesn't mean you need to take it personally and respond to every post I make. The irony is that I work in trading, not risk management.

Boutiquebanker is just irritated that I embarassed him for picking on a recent college grad in this thread:

//www.wallstreetoasis.com/forums/is-it-crazy-to-take...

Jun 19, 2014

For the OP:

I've done IB and HF. So here is my view

I think you have to be really sure about what position you are getting into for HF. and it sounds like you still don't know what position you might be interviewing, so I wouldn't recommend taking the position if you end up having the interview and the offer. I would definitely say that the risk with HF is that your ability to move around is less. And if your fund is small, it will be even more difficult to move around.

Whereas IBD, you know you will get a standard skill set across most of the group. And you will have more options down the road.

It's simply assessing risk and return. The HF job might be really good, but you have to be sure what you are getting into. If it is a research, investment analysis related role, and HF is your long-term goal, then it will be worth it to take the position. If not or your aren't certain what the job entails, it's safer to do IB.

Jun 19, 2014

Illini, let me say I enjoy your posts for the most part and sympathize with your stance re: non-targets and saving money. Without starting any sort of argument about educational pedigree can you expand your point about IB only going to arb funds? I've seen bankers go to just about any non-quant fund strategy so I'm curious what your experience or opinion to the contrary is.

Jun 19, 2014

Didn't make any sense to me either.

Jun 19, 2014

Lev Fin --> distressed debt & high yield son.

Jun 19, 2014

Without starting any sort of argument about educational pedigree can you expand your point about IB only going to arb funds? I've seen bankers go to just about any non-quant fund strategy so I'm curious what your experience or opinion to the contrary is.

Well, my experience with the hedge fund world are run by former traders and you see a lot of short-term trading rather than longer-term investments. You see a lot of quantitative strategies, arbitrage, and bets on different events. I guess I'm not sure how putting together mergers helps you very much with that on its own. My old coworkers at hedge funds kinda wonder the same thing unless you're betting on mergers (risk arbitrage). I think what you really want for most funds I'm aware of is a background in market-making or experience working as a quant.

Jun 19, 2014

I guess it's all who you know; to me the "average" fund is one type or another of fundamental analysis-credit, deep value, GARP, distressed, even relative value tends to involve some fundamental analysis. PMs may have trading backgrounds but the analysts and CIOs are ex-bankers or ER people and the traders execute on their recommendations.

Jun 19, 2014

use the network

I'm making it up as I go along.

Jun 19, 2014

would passing the CFA level 1 look much better for hedge fund recruiting? or does it not matter?

Jun 19, 2014

i would imagine someone with 9+ years of m/a experience should know the answer to that question

Jun 19, 2014

no chance...Ofcourse you can transition, call up headhunters and interview

Jun 19, 2014

You've got to hit up the headhunters....although someone with 9 years of banking experience has to know people in the industry, no?

Jun 19, 2014

i think its quite quite tough. they often take people who are more "moldable". Have a friend trying to get into the industry and he has the same problem - he has become a career banker in their eyes... he's been doing it about as long as you...

Jun 19, 2014

Know a VP that had about 7 years experience that just moved to HF after struggling quite a bit. Actually tried to go the PE route but was denied. Also, know a 1Y VP former UBS LA move to a top tier HF, but he was brilliant and I believe he had some solid contacts.

Jun 19, 2014

9 years in banking? Aren't you atleast a VP by then?

Jun 19, 2014

What are you doing now / how far are you out of B school? I think the traditional entry points would have been after analyst stint or after B school. Depending on where you went to B school you could try to network with people from your school that are already at funds. It also depends on what kind of investing you want to do as hedge fund is quite a wide ranging term. If you're interested in trading then prop trading would help, but if you're interested in investing something more fundamental oriented would be better to get you in the door. You could also try going after long-only mutual funds as an entry point and work there to get experience and then try to move over to a HF

Jun 19, 2014

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Jun 19, 2014

These videos cover a wide range of trading strategies:

http://www.opalesque.tv/hedge-fund-videos

Jun 19, 2014

depends what type of HF you want to go for. first decide what you want to do (which strategy interests you most), then decide which dept. Lev Fin or Restructuring for distressed, although I've seen many M&A guys in DD too.

Jun 19, 2014

Great question. Seen it asked before a lot --- never answered. Maybe too specific to generalize or wrong target population.

Jun 19, 2014

if you are unhappy with IBD and are looking to switch to a different position... then maybe try a stepping stone, such as ER or ECM (like you suggested). Make sure you pick reputable groups if you want to end up at a good HF - such as GS ER.

Jun 19, 2014

bump

Jun 19, 2014

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Jun 19, 2014

what's the point of this?

Jun 19, 2014

Start networking now and jump ship as soon as you land a gig. Target M&A arbitrage funds...event driven funds you should have a good shot at those. i wouldn't waste time doing an MBA more like MS math finance

Jun 19, 2014

don't target m&a arbitrage funds. not a good strategy unless raj is your idol.

you definitely don't need an mba

equity long/short, event driven, distressed, or any other fundamentally-based strategies like bankers.

keep in cntact with the top headhunters and they should be able to explain the recruiting process pretty well to you

Jun 19, 2014

Thanks for the suggestions. What is a pretty standard time frame for switching over to HFs post banking? (i.e. 1,2, 3+ years in banking then transition to HF).

Additionally, does the same hold true for Private Equity recruiting?

Thanks

Jun 19, 2014

Not in the industry, but here's what I've come up with:
It really depends on the HF/PE firm. The megafunds will most likely have a more standardized process similar to I-banks for recruiting, whereas the smaller funds (ie- 100mm to 1bnish?) will recruit when they need someone, so be on the lookout for opportunities (for smaller funds) and make sure to get in touch with and build relationships with recruiters (for small and large funds). Keep in touch with your network and make sure people know where you want to go (subtly, you don't want to be talking to your MD/VP/Associates about how you're going to lateral to a HF after a year or two), which is how a lot of people get their jobs. Networking doesn't stop after your FT job offer, in fact, it gets to be even more important as you progress up the ladder

Jun 19, 2014

fairly difficulat from MM IBD to HF... also depends on the HF and prestige...

If you're in a M&A / LevFin group at a MM IBD (JEF)... im sure you can make it to a sub-$1bn HF...

from my knowledge / friends... SAC / Citadel / etc. recruit from BB top tier groups at random times. And even at that level, it's fairly competitive.

Jun 19, 2014

How does the recruiting work for these funds - is it mostly networking, headhunters...?

I like pickles...

Jun 19, 2014

it's mostly through headhunters, although networking does help.

If you are from MM IBD, or even the mediocre groups at BBs, you can pretty much forget about the top HF guys (tiger, etc) unless you have some killer connections or something to prove that firm will be better off hiring you over someone from GS (your own stock analysis, a profitable P&L over an extended period of time, some amazing stock/macro trend analyzing capability, etc.)

you will have a decent shot for the sub 1 bil HF guys. But do keep in mind that it's still an uphill battle due to the competition. You are still in the running with other BB guys and HF of that size tends to hire very opportunistically.

Jun 19, 2014

Happens all the time, but becomes exponentially more difficult as you move up the IB food chain (harder to get rid of sell-side mentality, you become more expensive to hire, etc).

It's harder than getting into PE, for the following reasons: 1) PE recruiting is much more structured, so you have risk-averse analysts locking up offers 6 months in the job, 1.5 years out. Whereas HF recruiting is typically ad-hoc, hire on an as-needed basis. So by going for HF, you risk missing out on PE recruiting and then potentially not landing anything in HF either. 2) Less spots in HF. 3) The junior-level IB skill set (deal execution, pitch book creation, sell-side approach to modeling) does not match up as well with HF as with PE.

In general, you'll find more ex-bankers in PE than in HF, although this is not always true, as there is so much variance in terms of funds/strategies in the HF world.

Jun 19, 2014

Bump. I'd like to know the same thing. Additional question (sorry for hijacking OP): do hedge funds prefer IB analysts who are/were generalists, industry specialists or product specialists? I'm aware it's largely a general question (for example. a special situations fund may prefer product specialists if the 'product' was relevant- correct me if I'm wrong- while an infrastructure fund would most likely prefer an industry specialist: I guess what I'm asking is do funds usually prefer recruiting generalists or some sort of specialist?

Jun 19, 2014

Also very much interested in this. Most of the input on IBD exit opps we see is for PE. If you're interested in say tech based places like Coatue or Tiger Global - what should you pursue?

Jun 19, 2014

Good question. I would like to add to this also. Would a Sales & Trading position be seen as stronger experience than IB when trying to break into a Hedge Fund?

Jun 19, 2014

Also very interested. How about if you do IB in a city that is dominated by MM PE and has little HF presence?

Jun 19, 2014

I am a little confused by this question. Hedge funds are not a homogenous group. We have different strategies and obviously recruit people with different kinds of backgrounds.

Instead of looking at exiting to a hedge fund, any hedge fund, as an end all be all...maybe spend some time and figure out what you are truly interested in. Then, look at the different strategies out there and see if there is a fit. You might ultimately not even end up at a hedge fund.

Jun 19, 2014

Specifically L/S as most of the others have pretty well defined recruiting areas

Jun 19, 2014

I prefer to hire people with IBD experience since I need them to be able to do a valuation model when needed, get info out of Bloomberg and prepare some nice slides, as well as being able to understand a company financials. Since we are a generalist fund I tend to prefer generalists, but as long as they are able to switch between sectors I don't really care

Jun 19, 2014

Thanks, helpful info.

Jun 19, 2014

This is obviously quite subjective, and consequently I can only speak from experience in the niche of funds that I am familiar with. Still, these particular funds are all long-term, fundamental, bottom-up investors of corporates, and so in that sense there is overlap with a few different strategies, I am sure. The vast majority hire from IBD industry coverage teams, relevant product groups (e.g. M&A, leveraged finance, restructuring), relevant trading desks (research analysts), and to a lesser extent private equity groups. They do not really like to take from ECM or DCM.

A note on industry teams: not all are seen as valuable as each other. The two which are usually shunned are FIG and real estate. This comes down to the fact that both are niches which require specific skillsets to work in, and these skillsets are different to those required to value a 'proper' corporate that makes a product which people buy, etc. I have heard the protests from FIG guys over and over: "Financials are more complex to analyse", "If you're capable of analysing a financial institution you're capable of analysing anything", "The work is more intellectually challenging than any other group!", etc. If it is any consolation, I probably agree with a lot of those perspectives, however unfortunately whilst you may be 'capable' of turning your hand to corporates, the fact is that you haven't for the past two years, so you are generally less relevant compared to those coming out of Industrials, for instance. These skills do obviously come into their own if a fund is looking to hire for a FIG or real estate specific role, just not so much for generalist positions.

Jun 19, 2014

All teams other than ECM/dcm are recruited, fig is still recruited just for fig funds/teams

Jun 19, 2014

Interested to know as well.....

Jun 19, 2014

What kind of bankers are you? It certainly depends.

Long/Short Equity Funds tend to hire Equity/FI Researchers.
Distressed, Risk Arbitrage, LBO tend to hire M&A, Sector, Restructuring types
While quant shops and high frequency outfits typically don't hire bankers (tend to lean to mathematicians and programmers), there is certainly a need for execution traders to monitor the various programmatic executions. These trading positions are usually staffed with bankers who have a couple years doing sell-side trading and broker-dealer backgrounds.

If you can provide more details on your background and skill set, I could probably steer you in the right direction....

Jun 19, 2014

Sponsors usually exit to PE. You're somewhat correct with your generalization, but don't forget this varies from firm to firm. Some banks have stronger coverage groups as opposed to M&A etc.

Jun 19, 2014

.

"I'm into, uh, well, murders and executions, mostly."

Jun 19, 2014

My school has a pretty great alumni network, and a lot of us were able to talk to some very accomplished HF managers during the recruiting season. I'm not sure about trading at a HF. That I would think should be left to traders. But the senes I got if you were interested in a reasearch type position or eventual portfolio manager at a HF is that banking is better preperation than research these days, because a great majority of the top research analysts have already been poached from BB research to HF's, leaving fewer mentors and good teachers. Additionally, we were also told that these top HF's are really interested in analysts from top BB's because a) as a whole, they're often much stronger than the research and asset managment classes, b) the valuation and modelling experience is top notch, and c)bankers can often be made into salespeople, but salespeople can't always be made into idea people.

Now all the guys running the show were ex-traders (usually prop from BB's) and all their research people where either ex research analysts from BB's or ex bankers, so it's kind of a skewed set and there are certainly parts that I don't necessarily quite see yet, but that's the older and wiser wisdom courtesy of careers services.

Jun 19, 2014

i've been browsing this forum for a while and one thing that struck me as odd was the advice that the best way to get into a hedge fund is through investment banking at a BB.

The reason you're getting this advice, is because this is an IB board. IB folks like to think that IB has the bext exit opps to absolutely everywhere, including hedge funds.

The fact is, very few second year analysts move to HF jobs when their stints are up; most go to PE.

Jun 19, 2014

Probably the best precursor to a hedge fund position is a prop desk at a BB bank, unless you can get hired right out of school. Prop desks engage in literally every strategy that hedge funds do. Unfortunately, every BB probably takes around five analysts from every class for these desks, with each desk taking maybe one analyst.

Now, you must realize many hedge funds run different strategies. A hedge fund that trades Global Macro, relying more on individual counties' economies, will probably not meet its recruiting needs best through IBD analysts. Additionally, a fund that runs quantitative strategies like Statistical Arbitrage will probably not hire those out of IBD.

Funds that do merger arbitrage or other event driven sort of investing probably can really use the skills of IBD analysts. IBD restructuring analysts can probably also help with funds that invest in distressed securities, especially because there might be a maximum of five analysts on respectable distressed debt trading desks across the street at one time. Also keep in mind that many hedge funds like DE Shaw and Cerberus now engage in PE activity, so I would assume that exbankers could assist them there.

Jun 19, 2014

IBD prepares the best for L/S equity strategies, which is the most common strategy among hedge funds. These type of funds mostly use fundamental analysis. IBD is also the best route for event driven funds.

For volatility, credit, fixed income, global macro, and commodities related strategies, a trading background is usually the best.

Jun 19, 2014

Working as an analyst at a BB also connects you with some of the large headhunters that are often hired by private equity and hedge funds. Most analysts focus on private equity and therefore are more likely to go there than hedge funds. However, if you tell the headhunters you are interested in hedge funds they will definitely set you up with interviews.

The only part that is difficult is that private equity recruits on a very early calendaraEU"interviewing around a year before the class would leave the bank (interviews for summer 2008 PE positions are going on right now). Hedge funds tend to hire people when they need them. So if a candidate is not sure if they want to work in PE or at a HF it is a difficult recruiting process because one would have to interview with PE well before one would interview with HFs.

Jun 19, 2014

difference is that you can be a relative dumbass and still master the accounting required to do OK in IBD/PE, or in the L/S equity funds. you have to a pretty smart person to do the fancy trading strategies; in equities, things like program trading/statistical arbitrage, or the quant. strategies used in fixed income/commodities.

Jun 19, 2014

mutual funds

Jun 19, 2014

For L/S funds, a guy from the equities trading floor is worth much more than an IB guy.

OP, I dont know where you picked up that advice from (I didnt really see it anywhere) but IB being the best route for getting into PE is unfortunately bs.

IB is not doubt the best (approaching close to only, barring getting hired from school) route for getting into PE. HF is very close to a pure trading play thing.

Just think about the kind of work you would do. And the transferable skills you gain. This is not an attempt to say IB'ers are dumb or anything but stuff they do is simply very different, as is their skillset, compared to what you need in a typical HF. No doubt, you have already realized that all people around your firm are ex-traders.

To altfp, interesting comment but mostly off track. Traders work WITH the guys at hedgefunds every day! The reason IB people target PE positions is because they know that is what they will make.

And if you think only IB'ers get is touch with large headhunters and the rest of the folks in the bank are fumbling around in the dark, you really need to go out there and talk to a few people on the trading side and widen your world view.

That said, these days anyones uncle with some money and rich friends is opening up a 'hedge fund.' I wouldn't be surprised if anyone got hired into those places (I know quite a few consultants who are working in 10-15 person strong 'hedge funds'). But if you want to get in the big traditional hedge funds, there is not better route than getting into trading.

Also, you dont need to be on the prop desk. Helps in the sense that your the universe of funds you can target is much larger but people on most desks pretty much work with hedge funds and from a specific desk you have a better shot at making it into a fund that focusses on that field. The most frequent departure from our place is to HFs and it happens across desks.

Jun 19, 2014

Some of the big HFs (Thinking SAC, somewhat DE Shaw) definitely hire ibd analysts (I can think of a handful that just left). These positions are most likely different than the ones a trader would get. HFs are structured in a billion different ways, but a lot of them will have trader positions as well as analyst positions. It is fairly common for the analysts role to come from banking and the traders from trading. There is one fund I have had contact with that actually recommends candidates do two years in banking and than two years in research before joining (although I canaEU(tm)t imagine a ton of people do this).

Bottom line, a lot of funds keep models of various companies up and running, and a banker is far more prepared to do this work than a trader. Especially as some of the big funds start acting a bit like PE firms at times (like a Perry Capital) I think there will be continued demand for IBD analyst at HFs.

That being said, a strong trader has been and always will be in huge demand by hedge funds. I am sure recruiters clobber all over them--I was just reserving my comments to what I see first hand.

Jun 19, 2014

I met the manager of one pretty decent HF run by a former Bear Stearns banker. Google "John Paulson and Hedge Fund" the guy just made a killing on bet against subprime. Every fund is different and it seems the industry is changing so that both skill sets could be useful in a HF.

Jun 19, 2014
McMo:

I met the manager of one pretty decent HF run by a former Bear Stearns banker. Google "John Paulson and Hedge Fund" the guy just made a killing on bet against subprime. Every fund is different and it seems the industry is changing so that both skill sets could be useful in a HF.

Man,4 years later this turned out to be ahead of its time....I don't think most people on here would have to google Paulson any more.

Jun 19, 2014

To quote OP again "the advice that the best way to get into a hedge fund is through investment banking at a BB."

The clear answer to that is NO. It is not the best way. Is it one of the ways? Sure. All the same it is most definitely not the best way. Heads of IB at the major major firms right now are lifelong traders. So is trading the best way to make it big in IB? Not at all. Is it one of the ways? Absolutely!

Jun 19, 2014

The whole concept of a "best" way is a bit limited. While both an investment banking role at a HF and a trader role at a HF are at HFs, they are completely different jobs, with different paths of getting there.

If you want to work at a HF but believe you would do better in banking, than the "best" way for you to get a great hedge fund job is to go into banking where you will do well. Banker or trader, no top hedge fund would be very interested in taking someone who was not a top performer. Considering very few people would be good at both jobs, I think its better as an undergrad to focus on where you will learn and impress.

Jun 19, 2014

I have heard the same thing, and I am baffled.

I had a recruiter tell me that even fundamentally driven long only hedge funds prefer IB analysts over Equity Research analysts. While I was on the phone scratching my head, the recruiter says, "what does equity research have to do with investing?"

Am I crazy to think that long only or value hedge funds would prefer equity research analysts? Why in the world would they prefer IB analysts over equity research?

Jun 19, 2014

hey guys, thanks for all your comments. i think it makes sense that some HFs would want bankers for analyst positions, especially if it's an equity fund. i work for a global macro fund, which probably explains why there's no ex-bankers on my team.

i really like what i do right now and am currently contemplating going into trading after college. my only concern would be that trading won't give me a lot of exit opportunities. what if i end up hating it and want to do something else? is trading the best way to get into a hedge fund (wouldn't sales be better since salespeople are the ones communicating directly with the clients)? other than hedge funds or asset management companies, what else can ex-traders do? if i want to go to business school, would i be at a disadvantage to people who come from consulting or i-banking background? sorry for all these questions, but i've only recently become interested in finance. thanks!

Jun 19, 2014

What is a salesperson's core competency? If you were in a hedgefund, would you want to hire a person who 'sells' securities to you or would you want to hire the person who 'prices' the securities you trade in? Is the your funds main aim 'selling' something or getting the prices right and trading on them? Would your clients be more interested in having a smart guy interacting with them or having a crazy person who understands managing risk and can generate high returns on their investment?

Think about the answers yourself. Which not to say sales people dont go to HFs. There are tons of really smart sales guys who understand the market really well and can switch to trading with ease. But once again we are talking about 'best' ways here, no any way.

Jun 19, 2014

yes, that post is great. What's even funnier is that the subprime trade had just begun when that guy said he had "made a killing". And he was right...paulsen had already made a killing...but there was alot more killing to come!

Jun 19, 2014

I think it really depends on the strategies of the fund

Jun 19, 2014

make the move if you like the buyside

Jun 19, 2014

Buyside you learn more provided you have a mentor, and one does not need expirence in investment banking if they can learn on the job. However in this volatile market, the $150 million AUM is very small.

Jun 19, 2014

move - you're still young and have nothing to lose even if the HF blows up. Fortune favors the brave.

Jun 19, 2014

I'd make the move, but that's only because I prefer to work on the buy-side. Tough decision, since you just started at the IB. Try and figure out what path you'd rather pursue long-term, IB or HF?

If you know anything about this particular fund, that can help the decision making process, as well. As was already mentioned, it's a small fund, so you need to be confident in it's long-term existence. Good luck!

Jun 19, 2014

Just tell them that you realized that you weren't as much of a markets guy, and that you miss the urgency of working on deals, that's where you see yourself long-term. You have 2 years of IB experience, I got plenty of interviews with less than a year of IB experience after making a similar switch.

What kind of HF is it ? Do you have a real interest in the markets or just a passing interest ? If its the latter, you might want to stay where you are.

Jun 19, 2014

No, I really do love the markets. The fund is event driven, so that would sort of play into my experience. I think it will be extremely interesting, I was curious if there's an out should I hate it and/or the people I work with.

Jun 19, 2014

Then take a chance if the comp is better, you like the team, and the firm is well capitalized. You don't want to regret this down the road when buyside opportunities will be even harder to come by.

Jun 19, 2014

Thanks SAC, I appreciate the advice.

Jun 19, 2014

One more thing, don't forget to ask if the capital is locked up for a certain period, and what the redemption rules are.

Jun 19, 2014

Don't have any advice, but wanted to say that I do know someone that went: IB-->HF-->IB. He's a VP now, and is without a MBA. The reasoning he expressed was exactly what SAC offered: discovered that he's not really a markets guy, and missed the deal environment.

Jun 19, 2014

People actually go back to banking?

Jun 19, 2014

There are forums on this website that have covered this in detail. Look for "Mr. Pink Money" and track his posts as he is in the HF industry. In short answer, IBD can get a HF that employ a long/short investment, risk arbitrage strategy, or some kind of strategy that goes with analyzing companies/ analysis in general (like distressed debt). You will not be able to get into a Global Macro Fund or something that is very trading heavy (trade in the short term, scouring the global for alpha, get in/get out, that sort of thing) because they are much more trading based.

Jun 19, 2014

I know UCITS funds have very low requirements, but not sure if that low. Check them out, very popular vehicles in Europe... I cover macro, but have always enjoyed reading Howard Marks' pieces, so could be a starting point.

The HBS guys have MAD SWAGGER. They frequently wear their class jackets to boston bars, strutting and acting like they own the joint. They just ooze success, confidence, swagger, basically attributes of alpha males.

Jun 19, 2014

sometimes the best way to start is by networking and interviewing. although I recommend going into these situations fully prepared, sometimes the best way to learn is to fail a few times.

I'm making it up as I go along.

Jun 19, 2014

Pretty much in the same situation here - BB IBD in London, trying to move to a fundamental value L/S HF after getting interested in it about half a year ago.

First book that really got me excited about investing was Einhorn's, so definitely check that out if you haven't already. From there, I just read more books - You Can Be A Stock Market Genius, The Intelligent Investor, Margin of Safety, The Most Important Thing, Financial Shenanigans, The Art of Short Selling. I think these are all quite mainstream books, and discussing them has definitely helped me come across well in interviews. Also supplemented the books with a few blogs that I enjoy following: market folly / abnormal returns / bronte capital, and the first two link to a lot of other good websites. Book-wise, currently working through this list http://www.marketfolly.com/2009/05/blue-ridge-capi...

In terms of the recruiting process, most junior HF hiring in London is through headhunters. Most of the larger buyside HH shops focus more on PE, so they only tend to cover a handful of funds, and most mandates are exclusive, so you need to build a solid HH network to cover your bases. As you will probably know by now since you're at a BB, most HH contact is via LinkedIn, so make sure you pimp up your profile. I find it useful to always network with the HHs even if they don't cover HFs, because buyside HH in London is quite tight, and if they like you, they will refer you to another HH who does. Also helps to network with HFers, but that takes time.

For interview prep / material, I have tended to lean quite heavily on the HHs in terms of what to prepare for each stage of the process - good HHs should be able to guide you quite a lot. Usually, I try to prepare a few long ideas and 1-2 short ideas that I can talk about in an interview, and just general answers to 'why investing / why public equities'. http://howtogetahedgefundjob.com has some helpful material in late 2009 / early 2010 about what to generally expect in first round / later round interviews, and case studies.

Jun 19, 2014

For some odd reason, they placed me on the HY and Distressed desk. Tips I've received:

1. Read Distressed Debt Investing by Moyer
2. Study for CFA level 1
3. Hang out with your friends

Jun 19, 2014

CFA is really that important? Moyer is definitely a must, though.

Jun 19, 2014

My guess is OP has already read Moyer given his background. CFA would be a waste of time for someone going into distressed investing.

I think a good read is the Gilson book, Creating Value through Corporate Restructuring. It is more of a case study book on distressed situations - it will be helpful in understanding investment strategies as well as goes more into detail on issues the company will face than Moyer does.

Solidifying your understanding of the legal aspects of bankruptcy could also be a good use of time. It's easy as an RX analyst to throw around complicated legal terms without having a precise understanding of what they mean.

I don't know if you have a PA already, but practical experience in evaluating investments and observing your thesis vs reality tends to be worth more than reading additional books.

Jun 19, 2014

If you can without getting in trouble, submit something to DDIC/VIC. It will get you in the habit of writing pitches and if you are accepted you will learn how to respond to criticism to your ideas.

Jun 19, 2014
Gray Fox:

If you can without getting in trouble, submit something to DDIC/VIC. It will get you in the habit of writing pitches and if you are accepted you will learn how to respond to criticism to your ideas.

What GrayFox said. Would prioritize VIC, as DDIC seems to be much less active than in the past. Although I guess you could just use the same writeup for both.

Personally, I regret having spent too much time on the CFA and not enough time working through my reading list. Would only put the CFA first if your background needs a boost to make yourself employable, which doesnt seem to be the case here.

Jun 19, 2014

Definitely read things that are relative to the investing style (Moyer, etc.) and make sure you understand the buyside perspective of your deals. However, don't stress too much - I honestly learned more in my first few months on the buyside than I did in my 2 years in banking. So above all, I would say make sure you take some time to enjoy your next 1.5 years - not sure if you will have a good break between gigs but, make sure you get aggressive with your vacation time, you won't get that time back.

Jun 19, 2014

risk arb?

Jun 19, 2014

Is that a guess or do you have direct knowledge? If so, it would help if you could describe further how 1-2 years in valuation experience prepares someone to pursue risk arbitrage.

Jun 19, 2014

where did aadpepsi end up?

The world has changed. And we must change with it.

I'm making it up as I go along.

Jun 19, 2014

Maybe this example will help you... my friend just moved from M&A at a bank to a HF. His day typically consists of researching companies, going to meetings to look at potential investments, and a good amount of modeling to figure out whether companies are undervalued or overvalued.

No, he is not creating merger models anymore, but at HFs you don't need to know how an M&A deal works - as long as you know basic concepts in finance, how to model, etc., you will be fine. They are mostly looking for people who are smart and motivated.

Obviously if you come from a DCM background, for example, you might be more inclined to work with debt investments rather than equities. But your specific background doesn't matter as much as people think it does.

Jun 19, 2014

That helps, thx

Jun 19, 2014

Remember, "hedge fund" is an all-encompassing term that refers to all kinds of strategies. Obviously hedge funds that focus on rapid trading or black box quant models don't have much use for bankers. HFs doing risk arb, deep value or private equity investing are definetly applicable to people with banking experience (especially more junior people).

Jun 19, 2014

they go into more research-oriented roles. as far as M&A specifically, they do well placing into merger arb funds.

Jun 19, 2014

or bankers could advise on PE investments

  •  Jun 19, 2014

PE is the best exit opp

Jun 19, 2014
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