Hedge Fund Career
A career in theis one of the most desirable careers in finance, and it's not hard to understand why. Money is undoubtedly the greatest attraction, with analysts making $150k and then some. Portfolio managers often make north of seven figures, which is why eventually running a fund is considered the optimal career trajectory for so many.
The job rests significantly on individual performance, a simultaneously appealing and frightening facet of hedge funds.
Hedge fund employees work an average of 50-70 hours a week, far less than their investment banking peers.
Everybody wants to be a rock star portfolio manager, but not everybody is equipped with the knowledge to get a hedge fund job in the first place.
Hedge Fund Job Out of College
Mostare obtained once you've "paid your dues." Paying your dues typically involves two years of investment banking, , or sales and . Among those, what you choose to pursue largely depends on what type of fund you seek to pursue.
- For example, if you want to join a global macro discretionary fund, you may be better off being a strategist or economist at an investment bank / big asset manager.
- The investment banking route prepares you for event driven and long/short as does equity research.
- If you want to be in a systematic hedge fund / CTA fund, you'll need to do some kind of programming research.
- It completely depends on the strategy of the fund on a best route. That being said, starting in an IB as a junior keeps a lot of doors open.
Luckily, getting a job at a hedge fund directly out of undergrad is not unheard of. It's incredibly uncommon because of the tremendously competitive nature of hedge fund recruiting, but it's possible, given you know what you're doing.
Just like in investment banking, internships are absolutely critical in getting a hedge fund job. You can start searching for internships as soon as the summer after freshman year.
- Securing that coveted hedge fund position without full-time experience starts with an
- The key to getting hedge fund internships is networking. There are three methods of networking to get a hedge fund internship:
- Connections of family and friends
- Cold calling
- Cold emailing
Getting an internship through connections is the easiest method. Unfortunately, most don't have this luxury.
Our method of choice is cold emailing. It allows you to reach out to the most people in the quickest amount of time (with a template email), and it quickly identifies who is willing to help you in your efforts. This is opposed to cold calling, which might result in you calling the same firm several times over for any indications of receptiveness.
Another distinct benefit of cold emailing is the ability to attach files, which gives you an opportunity to show off your investing chops. Plus, you can attach your resume if you feel it strongly portrays you. If you feel that your resume might hurt your chance - random university, poor GPA, lack of experience - then you can leave it off. We recommend including it because whatever weaknesses you have will come to light eventually.
The most critical aspect of your cold email will be the stock pitch you attach. You need to prove that you're a capable investor if you want a chance at the internship. They're considering including you on their team for three months, and you likely have little experience to demonstrate that you'd be a good choice over the other candidates. The stock pitch is what separates you - on initial contact - from the myriad of hungry students competing for a position. A quality stock pitch puts you miles ahead of your peers, and it will greatly increase the responses your email gets. The length of your stock pitch should be between five and eight pages.
- Preparing your email template is a simple task. Include:
- What year you're in
- Your major
- Your inquiry ("I would love to hear about your career and your experience at X fund. Would it be possible to arrange a short phone call to discuss your background and where you're at today?")
- Make sure to include your stock pitch and resume (optional but recommended) and mention it somewhere in your email. You can say something along the lines of, ""I apologize if this is too forward, but I've attached my resume and a stock pitch for your consideration." (@notbad4aquant).
- You might be thinking, no hedge fund professional is gonna read some kid's five to eight page investment recommendation. You're not necessarily wrong, but the goal isn't to get them to read your stock pitch cover to cover. If your stock pitch is clear, coherent, and well-researched, then the professional will respect your initiative and see your value as a potential intern.
- Now you have an email template that includes your stock pitch and resume (optional). Next step is to identify professionals to contact and find their emails. Once you do this, you can start shooting your email out. Don't contact more than one person at a particular fund at a time.
If cold emailing doesn't sound like your cup of tea, then you can try securing a hedge fund internship through cold calling. Find the phone numbers of hedge funds and call them with the intention of getting an internship. You'll probably face more rejection when cold calling. When you cold call, all you're showing is initiative. Through cold emailing, you can demonstrate both initiative and an aptitude for investing (with your resume and stock pitch).
You've blasted your email to every nook and cranny of your target city and you've landed yourself a couple of interviews, so how do you prepare for them? Fortunately, hedge fund internship interviews aren't incredibly technical. By including your stock pitch, you've already demonstrated your aptitude for investing, so the interview is to determine if you're someone the team wants to work with for the next three months.
Besides some basic questions on the markets and investing, the interview will consist of behavioral and. Come prepared with a few short stories you can adapt to answer some of the more typical .
Here's @masterplan on how to approach behavioral questions.
Behavioral questions can only vary so much. Brainstorm your answers, focus on the key points you want to deliver, and practice on your delivery.
So to answer the question you mentioned, "Tell me about a time when you had to face a challenging situation in a team," start by thinking about what interviewers expect to hear. Obviously you want to start off by telling a teamwork environment you were in. Choose a challenging situation, something like a disagreement of opinion. Then explain how you approached the problem to resolve the situation. End you answer by telling what your takeaways were, and this should make you sound smart enough.
Think about what the perfect answer to the question might be and modify your story to fit it in.
It's been a long road paved by your persistence. Through your networking efforts, you landed a few interviews. If you took heed of our advice on the behavioral questions, then you're a top candidate, and you've demonstrated that at every possible moment. The opportunity is now ripe for the taking.
At this point, your success is on your performance as an intern. When they say, "Jump," you say, "How high?" Find some way to add value to the fund. You need to make yourself as essential to the fund as possible. Ideally, you get a return offer for an internship next summer (or a full-time position if you're a junior).
Keep in mind how many analysts the firm hires each year and whether you're competing with any other interns. If the fund is indeed hiring analysts, that's your green light. Hopefully, conversations about whether the fund can/will hire you come up organically. Otherwise, you should bring that point to light.
Assess whether the firm will hire you upon graduation. If not, it's time to look for other opportunities. It's an unfortunate scenario, but you have good experience under your belt and hopefully a solid referral. If all goes well, then you'll have landed yourself a full-time hedge fund job out of undergrad.
The Typical Hedge Fund Career Path
Many students decide they want to pursue a career in the hedge fund industry relatively early. The large majority end up pursuing something else for a couple of years as a stepping stone into a hedge fund position.
The fields that will position you most successfully for a hedge fund job are:
- Investment banking
- Equity research
- Sales and trading
- Some sort of programming/quantitative position
Investment banking provides the most versatility regarding different fund types. Of course, business school is always an option if you feel it necessary to re-position yourself.
So how do you get your foot in the door once you've "paid your dues?" Here's @WallStreetPlayboys on how hedge fund recruiting works in those cases.
The best way to land a is through networking, but... a large portion of the recruiting process is outsourced to headhunters, who primarily target bankers and research analysts in their searches (management consultants are also successful).
The job responsibilities are not exactly the same, but the skill set and intelligence necessary to be a junior banker serve as a baseline for the kind of work that is expected of hedge fund personnel. Hedge fund managers are busy people, so they recruit from pools ofbankers for the same reason that bankers recruit from target schools.
Hedge Fund Interview
The hedge fund interview is a nerve-inducing affair. For many, this is the position they've yearned for as early as high school. Combined with the fact that hedge fund recruiting is incredibly competitive, the average fund only hires five to six analysts a year, and it can seem like an overwhelming hurdle to jump.
First, understand that you'll likely never jump that hurdle unless you use some sort of hedge fund interview course. Most candidates will use some sort of guide to prep for the technical aspect of the interview, so those who don't will get left in the dust.
One particularly critical moment in the interview is the stock pitch. Here's how you need to prepare for the stock pitch:
1) Tailor at least one of your ideas to the fund's strategy. (e.g., If it's a L/S shop, have a pair trade ready to go. If it is a Merger Arb fund, you should have a few pending deals in your back pocket... You get the idea.)
2) The second idea, that can be anything. It could be based on a recent deal you worked or something going on in your coverage area, or something you read in Barron's/a research report last weekend. Of course, the more work you do, the better off you are... The harder you work, the luckier you get.
3) Presenting the idea, you want to walk them through the process and explain your decision making at each step:
4) Inspiration / how you came up with the idea
5) Model the company (Details are better but errors can ruin your chances - a balance.)
6) Conduct background research about the company
7) Refining the original thesis based on research and model
8) Coming up with a valuation for the company
9) Making an investment recommendation based on that valuation (buy / sell)
10) Listing any possible downsides / risks, along with any mitigating factors
If you utilize the WSO Hedge Fund Interview Course and take heed of the stock pitch advice above, you'll be in good shape.
One last piece of advice: Start a personal trading account as early as possible. Here's why it'll set you apart, from @K3.
However, having a personal account has LITERALLY gotten me through many first rounds. I believe I have what most candidates do not have: A LOT of skin in the game. And I'm not talking about Google longs, more along asset rotation strategies, closed end fund logics, etc. Bottom line: open a trading account as an undergraduate with 1k and start trying to do some investing with your ideas. If you lose money, it's 1k you can write off in taxes OR consider it an education expense. Open a personal trading account ASAP.
Making Yourself a Great Investor
Investing is the foundation of finance, and it's the foundation of the hedge fund industry. Great investors will never be short of career versatility both within and outside hedge funds. If you have even the slightest desire to one day run your own fund, then you better have an even greater capacity to invest money wisely. These tips will hopefully give you an idea of what makes a great investor, which is critical if you hope to secure capital from limited partners (LPs).
The first tenet of great investing, to quote pop culture phenom Lavar Ball, is to, "Stay in yo lane." Find what strategy you excel at and stick to it. Inflated egos might lead some portfolio managers to believe they can balance the best of various strategies, but this is the quickest way to anger LPs.
You aren't going to find someone who is a phenomenal stock picker, master of buyouts, and distressed debt expert. If you do, report him to the SEC for fraud. The best investors stick to one investment strategy and are very good at it.
Another piece of advice: learn from your mistakes. If anything, focus on them as they are the greatest sources of learning potential. Just as failures define a human being, failures define an investor.
Often times we'll meet with two managers of similar strategies where recent performance is phenomenal for one and mediocre for the other. Going into the meeting, it is easy to assume that Manager A is the better investor based on performance, but this isn't always the case.
Let's assume Manager A continually talks about all the firm's big winners and how they just keep picking stocks that go up.
Next, Manager B talks about his firm's overall process of how they pick stocks, highlights an example of an investment that did well, follows with the worst pick in years that derailed performance the past few years, and then talks about what they learned from this mistake.
Who do you think I'm more likely to invest with? If you picked Manager B, you are 100% right. Just like no one is good at everything, no one is perfect.
One last tip for those of you who have yet to wet your feet: get started already! If you anticipate investing as a career, start now for a couple of reasons. First, you'll be able to decide whether you really see yourself investing your entire life. Second, it'll do wonders to put you ahead of the game. Here are some books to get you started:
- @thebrofessor) by Ben Graham (recommended by
- Margin of Safety by Seth Klarman (recommended by @thebrofessor)
- The Most Important Thing by Howard Marks (recommended by @thebrofessor)
- Competition Demystified by Bruce Greenwald and Judd Kahn (recommended by @Extelleron)
Success Story - Getting a Hedge Fund Job Out of Undergrad
Mod Note (Andy) - We're reposting the top discussions from 2015. This one ranks #17 and was originally posted on 2/15/2015.
The topic of getting hired at a hedge fund directly out of undergraduate compels many students. The response to the question, "Is it possible to get hired at a hedge fund directly out of undergraduate?" typically goes along the lines of, "It's a shot in the dark, but yes, [insert cliche explanation]". I hope, through this post, I can offer undergraduate students more specific insight into the process of how it can be done through sharing my own personal experience, as well as provide a beacon of hope to those desiring a hedge fund job directly out of undergraduate.
To start-off, let me tell you a little about my background. I am a 22 year old who recently completed my undergraduate degree and dedicates the majority of my time and effort to researching and finding compelling investment ideas because I simply love doing so. Not too long ago, during my sophomore year, I was a frat boy who focused his time and attention on partying. The summer going into my junior year I read The Intelligent Investor merely out of boredom. A light turned on in my head afterwards. In the semesters to follow, I went down an aggressive path of self-education, reading countless value investing and finance books and applying that knowledge in the theses I published on Seeking Alpha and my personal website.
During this time, I sacrificed my social life and school came second. I knew I wanted to work at a hedge fund out of undergraduate, but I was aware I do not fit the mold of what hedge funds look for. I went to a non-target school in the Southeast, had an okay GPA, never completed an internship, and didn't have a single connection in the industry. But screw it. YOLO, right?!
Despite all of the adversity, I managed to obtain a position as a part-time analyst for a value-oriented long-short equity hedge fund based in New York run by two Columbia grads, a job I started while still completing my last semester as an undergrad not too long ago. I also garnered a lot of attention from other hedge funds during my application process. Here are the individual steps of the process I followed that enabled me to get my foot into the door and ultimately get a job.
The first step is gathering a list of funds that you personally feel you can fit into. To do this, ask yourself, "What is my personal investment strategy? Value? Growth? Macro?" I've focused the majority of my learning efforts in teaching myself the fundamentals of value investing, so I gathered a list of 25 small value funds to cold call. Establishing the list was fairly easy as all I did was compile a list of funds/fund managers referenced in the many books I read or those who pitched at investor conferences. At this point, I didn't know or care, whether these funds hired or not.
The second step is creating leverage for yourself. Why do hedge funds almost exclusively hire individuals with years of IB experience? Because funds know they understand and can apply the fundamentals, eliminating the cost of training and minimizing risk on their part. For me, I've never even done an internship at an IB, but that didn't really matter because I was able to showcase the same knowledge and skill set sought after in seasoned IB professionals. How did I do that? I had a compelling cover letter, resume, as well as two research notes on both the long-side and short-side that demonstrated my ability to finding-generating ideas.
Let's begin with the cover letter. My friend Tom Beevers, a former PM atand current CEO of Stockviews.com, told me a fund manager will be most interested in three things:
1. Does this candidate have the drive and passion necessary to help me? Will he spend his days endlessly searching out great ideas that I can put into my fund?
2. Has he shown a keen interest in investment and does he have a willingness to learn? Would he fit with my personal investment philosophy?
3. Is he smart?
I had a generic cover letter template that answered all those questions. I then personalized my cover letter template for the type of fund manager and his/her philosophy. This tells them you've made the effort to understand their philosophy and flatters them at the same time, and allows you to pitch your skills as being complementary to their fund/process. Also, avoid convoluted or cliched business terms as small fund managers tend to value straightforwardness.
Lastly, emphasize your passion and your interest. For me, I wrote articles for Seeking Alpha, incorporated an investment research firm my junior year of college, and was a member of my school's investment club.
For my resume, I used WSO's resume service. It's a good service and I recommend it to all.
Next, perhaps the most important component of your cold call package are the research notes. Well-written reports will enable differentiation. Prepare two research notes, one idea on the long side and another on the short side. An actionable idea is preferred, but an old idea that worked out well is fine. If possible, find industry professionals to proofread. I was lucky to have a great friend and mentor in Tom Beevers.
Here is a link to Tom's blog on what fund managers look for in research notes:
Here are the links to the two notes I sent as part of my application:
Long Idea: http://metalogiccapital.com/uploads/VCRevisedLongI...
Short Idea: http://metalogiccapital.com/uploads/YODShortIdeaFi...
After sending off my application to my list of funds, the interviews began rolling in the next couple of days. (Yes, days! Smaller funds tend to respond quickly.) Out of the 25 funds I applied to, I interviewed with 4 (not bad).
The first question most commonly asked pertains to your background. Then comes the question they ALL ask: "What are you currently looking at in markets?" I just pitched them a special situation idea I just so happened to be working on. Finally, they end the conversation with: "Let's keep in touch", implying to continue finding ideas and sending them those ideas. Two of the funds requested I do specific tasks to gauge my abilities. One asked me to do an aptitude test, which I bombed...never heard from them since, lol. The other, the one I currently work for, asked me to do a five page write-up of a company they assigned.
I think I did fairly well considering I got a job! As a side note, during this period, I found a greater appreciation for value investors after some fund managers who weren't hiring took time from their busy days to reach out to me and complement my theses and/or offer advice, something I hold dear to my heart. I had an excellent 30-minute phone conversation with one manager about value investing. Others responded to my emails with suggestions on how to improve my theses and simple words of encouragement. One even sent me a well-written two-page email offering advice and resources including an article written by Whitney Tilson of Kase Capital on how to break into the industry.
Here is the link: http://www.fool.com/news/foth/2003/foth030122.htm
While the process is fairly straightforward, don't expect a job if your knowledge of investing only encompasses what you learned in school. For me, the means to the end were the result of long nights spent learning investing, economic, finance, and business fundamentals that they don't teach you in school and applying the knowledge in my analysis. During your journey, adversity is a given, seeing how the hedge fund industry is arguably the most competitive industry full of Ivy-League educated individuals. One fund told me not to get my hopes up as I was the first undergrad they've reached out to and hiring me was a long shot due to my lack of experience on paper. The PM that hired me told me he worked part-time for 9-months at the fund after completing his MBA at Columbia before getting hired full time.
So, I will continue working hard and learning until I can get hired full time. Ultimately, through this post, I hope to give students interested in working at a hedge funds both inspiration and valuable insight into the hedge fund job application process from the point of view of an individual who doesn't quite fit the mold, but somehow still got his foot into the door. Please come to me with any questions.
UPDATE (Feb. 22, 2015):
As of Feb. 1, 2015, I was no longer working at the NYC-basedmentioned in the post as the portfolio manager couldn't offer me a full-time position. Nevertheless, I left on good terms with him, and my experience working there was a tremendous resume and cover letter booster. I sent a second wave of applications (using the same process) to 40 or so funds and received compelling offers from three in less than two weeks.
Thus, as of mid-February, I'm currently in the process of evaluating my new offers and will most likely become a research analyst at a $300M+ hedge fund based in California. I'll keep you guys updated.
P.S. Thanks for all your kind words throughout this thread!
Interested in Hedge Funds - Breaking In
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