Hedge Funds requiring IB experience... why?

Please, I just can't wrap my head around it. I'm sure there is some semi-rational reason why a hedge fund would hire an investment banker but I just don't see it. I would say that if you're in the business of attracting actual talent you might as well go as far away as possible from M&A guys.

So yes... I'm clearly an ignorant close-minded idiot. Please change my mind!

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Comments (17)

Jun 30, 2019 - 6:18pm

Exactly! Is it because they have no specific hiring strategy? Is it so HR doesn't need to go through as many resumés? The only reason I could see is that at the very minimum you have someone who knows how to work long hours and can deliver simple jobs without screwing it up. Hence, I don't see how HFs could differentiate themselves by hiring IBers. I'm just wondering if I am missing something. It just all seems a bit strange considering competitive nature of the HF industry entirely based on human capital

Jun 30, 2019 - 10:03pm

Well, to begin with, IBers know accounting and modeling, which are critical to a HF analyst role. Also to PE, and thus why they also hire from IB. HF and PE are not huge on training people abt finance/accounting, so they rely on IBs to train their hires. On top of that, IBers are likely to have a good work ethic and will have gone ro a good school.

I didn't do banking myself so it's clearly not an absolute requirement.. but to question like that why an IB analyst would be a potentially suitable candidate.. dont know man, sounds like someone has a chip on their shoulder.

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Jul 1, 2019 - 12:59pm

I realize you're just a college kid that's a compsci major but your question is very weird, especially because you have so much embedded doubt for something that's so crystal clear obvious. Furthermore you imply that M&A bankers lack talent, when again, you're just a college kid. Step one, come back to earth.

HFs are a huge sphere, clearly a more quant oriented fund wouldn't hire an banking analyst. For more traditional value, credit, fundamental based shops there are a few reasons. For starters, training people is a huge time suck, unless you are some huge mega fund you're not going to want to spend the time and resources to train. So when you get a banking analyst, you get a kid that at a minimum has gone through a banking training program and then grinded on the job for 2-3 years. Also being in the flow of banking allow you to understand the deal process, capital markets, etc., which is also helpful. From a technical standpoint, certain banking groups like M&A and restructuring will have pretty strong modeling skills. In regards to differentiation, a jr analyst at any fund isn't driving returns so its a moot point. Ideally, just like in any profession, if you have enough people come through the system long term some of them will work out and become stars within the firm.

Jul 2, 2019 - 2:42pm
The only reason I could see is that at the very minimum you have someone who knows how to work long hours and can deliver simple jobs without screwing it up.

Correct. You fail to realize how important this is in the business world. Finding people who work hard, can figure out problems themselves, and have extreme attention to detail is rare.

I hate to admit this, but one of the most valuable things that I've taken away from my IB experience is checking work 3 or 4 times, auditing every cell in a spreadsheet, double checking the sources for any input. It's the mentality that's valuable.

I would honestly hire a former IB analyst for almost any role regardless of experience because of that mentality. It's similar to the reason people hire former Navy SEALS. It's not because climbing rope and jumping out of helicopters is very applicable to the work place, but rather that someone with that sort of mentality can accomplish whatever you need done.

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Jul 1, 2019 - 3:01am

I think if you look into what most fundamental (L/S, SS etc etc.) funds actually do, you realise that the skillset learned in banking is very helpful. Where would they hire from otherwise? I think the ER argument is a valid one (although my view is that ER people come with too much baggage) but otherwise where else do you find people with the skillset required? I don't understand your question really because you don't really link the day-to-day work to skillset. Is your perception that bankers do not learn the technicals on how to assess a company? Im sure most junior bankers have not learned to form a view or develop a thesis but they bring the toolset to analyse which is really all they need to do in the beginning. How would the perfect candidate look in your mind?

Jul 1, 2019 - 9:02am

Agreed, most top funds only hire from Wendy's or other large QSRs. The hectic skillset and multi-tasking required at such restaurants is relevant to most funds and PMs.

Jul 9, 2019 - 2:28pm

While I understand the satire, I was hired for my first "grownup" job in part (per my hiring manager) due to me having retail and customer service experience. It was for a role with lots of deliverables to a ton of clients (external and internal) and he wanted someone who had been in those sorts of situations and knew how to deal with clients who at times would be unreasonable and ridiculous.

I'm in a totally different sphere now, but if I was hiring kids out of school (especially as i'm in a sales environment now), I'd look at retail/customer service experience as a positive. Sometimes things will 10000% be the client's fault and they'll be an asshole to you anyway - can you keep your cool and still guide everyone to an effective outcome? This obviously doesn't outrank the ability to make a pro-forma but it's not nothing.

Jul 1, 2019 - 10:47am

I think the banking (especially M&A people) understands the transaction process very really from financial / legal / what-not angles, which is valuable for event-driven shops.

Otherwise, I guess at the post-undergraduate level, you just don't have to train the ex-bankers at least on the modeling and reading financial statement front. I do fail to see the value of modeling deep as a differentiator though. The greatest investors are focusing 99% of their time thinking about the business, industry structure, management, and all the qualitative and then do the numbers last, usually a very simple financial model or back-of-envelope calculation will do.

Jul 3, 2019 - 5:23pm

Agree. Modeling is not value-add.

I also work with a Columbia / NYU Finance professor who went to Wharton undergrad and got a PhD from Harvard. He said Aswath Damadoran starts off every Finance intro class at NYU Stern by asking the crowd who did IBD, then remarking that bankers "price" assets, they don't "value" them. Subtle academic distinction but worth noting in the context that, according to him, six lines on an excel sheet with a multiple slapped onto EBITDA is mathematically just as accurate as a full NAV / DCF... bankers just have to justify those hard-earned fees.

Also, now that I'm in PE, there's a concept in stats and machine learning of overfitting... bankers haven't learned this yet...

Jul 4, 2019 - 7:09am

modelling and valuation are different things. Any numerical problem is better answered if you create an analytical framework. Modeling experience helps you in precisely presenting your answer to "why is an investment into car tires in SEA a good investment" as it does in proving whether a valuation is right or not. Modelling does not mean building models for the fun of it and then claiming you are precise.

Jul 2, 2019 - 12:44pm

-Folks from IB generally smart
-Paradigm is that a lot of folks that are passionate about HF are going into IB as a stepping stone (this bullet is a self fulfilling prophecy)
-IB gives folks an option to take a high level view of the business stuff going on around them. FT kids I know that we're successful at HF recruiting used every opportunity they had in IB to get biz insights. E.g drawing pages on pitch books, reading and trying to add to what pm writes on merger rationale pages, asking tons of questions, taking first shot at DD lists
-lots of overlap on modeling and reading financial reports

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