There's a lot of mystery surrounding hedge fund internships. Are they available to people who don't have connections through family and friends? How do they stack up against other finance internships? Are they viable when the end game is investment banking? What's the pay like? What do you do during one anyhow?
Most websites supply vague and obvious advice - attend an Ivy, get a perfect GPA, solve world hunger - which is why there's a lot of confusion. The purpose of this post is to clear up any confusion and provide as much clarity as possible.
Versatility of the Summer Analyst Internship Experience
HF internships establish credibility with investments and understanding the markets, which is why they provide a decent deal of versatility. It's fairly common for undergraduate students to get one sophomore year and use that as a segue into an investment banking internship junior year.
Beyond providing a stepping stone, hedge fund internships are used to transition into full-time hedge fund positions right out of undergrad. Don't be mistaken, landing an analyst role with a hedge fund is extremely rare out of college. Most of the candidates have at least two years of full-time experience in finance. But with an internship, good connections, and demonstrable capabilities as an investor, landing a full-time position at a hedge fund out of college can be done.
Compensation for HF Internships
These internships, like many other internships, come paid and unpaid. You should always assess unpaid internships with caution. There are plenty of paid internships out there, and the pay is pretty decent. You can typically expect around $10-15k for the entire summer, including bonus.
You can check out detailed information regarding hedge fund salaries for internships through the Wall Street Oasis Hedge Fund Industry Report.
Hedge Fund Analyst Hours
In terms of hours, investment banking internships are notoriously brutal (70-80 hours a week) and reflective of their full-time positions. HF internships are similarly reflective of their full-time positions, only the hours in both cases are more like 50-60 hours (although it certainly gets north of that in some cases).
Securing a Hedge Fund Internship
There are three ways to get an internship: connections, cold calling, and cold emailing. Cold emailing is how most are obtained.
The majority of available internships are unpublished and obtained through connections. There are three ways these connections are made.
- Connections through connections (e.g., a relative introduces you to a portfolio manager; you meet and get the position)
- Emailing firms
- Cold calling
Ask anyone you might suspect of having relevant connections if they can introduce you to anybody who might help. This is the easiest method of the three, but not everybody has that luxury.
Cold calling and cold emailing is not easy, and it takes a certain ruthlessness to get the internship. It typically involves calling 100+ firms (usually smaller funds since bigger funds don't often take interns) to get a shot. You must understand going in that most firms will ignore you. Don't take it personally. Just keep your head up and eyes out for the next opportunity.
Here's @HedgeFundHopeful94 on how he went about cold calling.
In January, I pulled up the SEC EDGAR database and called over 250 funds in the NYC area. Practice cold calling. It is invaluable when it comes to finding unpublished opportunities.
I got calls back from some of them. Most ignored me. But there was one that looked past the non-target school, looked past my age. I had a few informal phone interviews with them and then was called to go into the city to meet with the CFO and Controller.
There is a weird feeling of excitement and nervousness that somehow gets all bundled together when you walk into the office and give the receptionist your name. I met first with the CFO, and he right away told me I had the position working in a variety of different roles for the summer.
Establish a database of numbers and get to calling. You should have an idea of what you want to say, but don't follow a script. That's an easy way to come off as disingenuous, and they'll quickly lose interest. You should be able to confidently answer questions about hedge funds and the markets - although that's more significant for the interviews than the initial call.
Know a little bit about the firm and their investing strategy. During the call, you might get asked something along the lines of, "Tell me about yourself." This is where you tell them why they should hire you. Give them your elevator pitch. What separates you/makes you a good candidate for an internship? Keep it short. No more than 30 seconds.
Cold Emailing Overview
Cold emailing is the same premise as cold calling. The main difference is what you include. Emails provide the luxury of being able to include a case (a five to eight page investment suggestion) and resume. This is where you demonstrate your interest in investing.
There are two ways you can approach the cold email. You can either try to arrange a phone call/meeting with the person you're emailing, or you can get straight to the point and ask for an internship. Certain people will appreciate one approach opposed to the other. Success comes mainly with persistence, and both of these approaches can work with consistency. That said, we advocate requesting a phone call/meeting before indicating you want an internship (even though it's quite implicit).
Our users share their thoughts below and you can also check out a detailed post about cold emailing on WSO.
Here's @vanillathunder on why asking for an internship directly hurts your chances.
Yes, they get it: you are reaching out to get some leads to internships, interviews, and jobs. Yes, you get it: you want to "learn about their careers and firms", but you really want a job. However, it's about reciprocity.
Networking 101 is about understanding, "What's there for them?" They want to see whether you even have the basic etiquette to earn the informational interviews and present yourself properly. If you can't do that, why should they hire you in hopes of getting you in front of clients to get deals down the road?
Overall, hit rates are higher with emails than calls, especially if your case and resume are solid. Here's a simple, short, and sweet email template from @chillinout. Keep in mind you should use this with your resume and case attached.
Dear (first name),
My name is ____, and I am a second-year student at (HYPS) interested in a career in finance, specifically at a hedge fund. I would appreciate the opportunity to learn more about your career path and your experience at ______. Would it be possible to arrange a short phone call with you to discuss your background and how you got to where you are today?
Thank you in advance for your help.
You can learn more about cold emailing and case study attachments in this detailed thread on WSO.
Hedge Fund Internship for Investment Banking
Many of you have intentions of pursuing investment banking out of undergrad, but investment banking internships are much harder to secure than HF internships. This poses a couple of questions.
- How do HF internships set you up for that coveted investment banking internship?
- Should you take an unpaid investment banking internship over a paid HF internship?
- How do they stack up against other finance internships (e.g., private wealth management, corporate banking, back office roles)?
Keep in mind, the internships you have before junior year aren't necessarily about what you do. Beyond summer analyst internships for sophomores - which are limited almost entirely to diversity candidates - internships with meaningful work are needles in a haystack. Firms that have you financial modeling are few and far between, with good reason. The key is to find the internships where you learn the most. Anywhere you go you'll mostly be doing grunt work, so the internships with the most value are the ones that teach you the most.
HF internships are a great learning experience, even with smaller funds. It provides you with proof of interest in finance and the markets, pretty much a requisite for networking and your investment banking internship hopes.
It's also less common than private wealth management internships, so it stands out more on your resume. Undoubtedly, it will draw the attention of the interviewer in the case of an investment banking interview, so if you had a good experience, this is a major positive during interviews and separates you from most candidates.
Compared to back office, a front office or middle office HF internship will always be better. That's more-so a universal rule that applies to any finance internship.
Corporate banking is far closer to investment banking than a hedge fund could compensate for, so a corporate banking internship is better if your end goal is investment banking.
Sophomore year investment banking internships often come unpaid, which makes them less attractive than a HF internship. In this scenario, we advise taking the latter for a couple reasons outside the pay.
- Unpaid internships are typically less organized. This can be a good thing with the right team if you take advantage of it, but the most common result is a slack work environment for you. Less work experience and fewer things to discuss come interview time.
- The hedge fund likely deals with investment banks to some degree.
- Many of the fund's employees will have backgrounds in investment banking. This plus the point above means that HF internships are a good opportunity to start leveraging connections and building your network for investment banking.
The one exception is if it's a firm where the interns are known to put in good work (e.g., working on deals, financial modeling, the works). A lot of boutiques are known to have good deal flow.
The Hedge Fund Interview Process
When it comes to getting the internship, we've established that you're pretty much on your own. When it comes to the interview, it's the same case. Because most HF internships are unpublished and lack the structure that most other internships have, the interviews aren't exactly the most proprietary affairs. They vary a ton by firm. Generally, the larger the fund, the more formal you can expect the interview to be. You're likely to get more technical questions and less behavioral questions.
Here's @Determined, a venture capital associate, on his interview experience with a smaller fund.
I interned at a small value hedge fund in NYC, so maybe I can give you some insight. I got the internship during my Junior year, so I faced mostly behavioral questions. The interviewer also asked me about a stock that I was interested in, but I didn't have to go into great detail pitching it. Most of the time, the senior guy was on his Blackberry the whole time and asked me to elaborate on past experience.
The one thing you should always be prepared for is a stock pitch. Notably, the stock pitch in the experience above was more surface-level. They used it more as a means to ensure interest in the markets and investing. Some funds will have you go more in-depth with your pitch, so you should be able to discuss your stock for at least a few minutes if necessary. In most cases, however, it'll be you mentioning a stock as well as some basic reasoning followed by some simple questions. You're in undergrad applying for an internship; they don't expect you to deliver a lecture on your stock.
You can read more about nailing the stock pitch component of the interview here on WSO.
You should do your best to make your interest in investing palpable without coming off as disingenuous or over enthusiastic. They're considering working with you for three months; make sure you demonstrate your passion and show that you aren't using them as a stepping stone to an investment banking gig - even if you are.
Here's @Determined on how persistence landed him the internship.
They didn't get back to me for two weeks, so I followed up with both interviewers asking about the status of the position. We talked a few times for a month until they had everything in order and offered me the job. The key was definitely following up and showing enthusiasm.
What Should I Read to Learn About Hedge Funds and Investing?
Investing is integral to hedge funds, finance, and life in general. A lot of kids watch a couple Wall Street movies and think this is the life for them, only to realize investing isn't their cup of tea. The earlier you gauge your interest the better. In the case that you've already found a joy for investing, the earlier you immerse yourself, the better. Here are four books to get your feet wet and prepare you for internships, Wall Street, and life.
- Intelligent Investor by Ben Graham
Skip Jason Zweig's commentary - same as above, if I were a high school principal, I would make this required reading before graduation. It's that important.
- Margin of Safety by Seth Klarman
I know, I know, it costs several grand on Amazon. If you do some sleuthing, you might be able to find a PDF." This and Intelligent Investor will develop your understanding of value investing and form the basis of your investing knowledge. Now we move on to some ancillary pieces.
- The Most Important Thing by Howard Marks
Newer book, but an instant classic. Compiled memos from Oaktree's Howard Marks, one of the smartest men to manage money that I've read.
- Competition Demystified by Bruce Greenwald and Judd Kahn
I think, if you've read Graham, then you know the basic concepts of value investing, as ^ suggested reading Margin of Safety by Klarman would be great to bring a more modern perspective and some specific examples. But I'd suggest branching out beyond basic value philosophy into understanding how to evaluate a business. You've probably heard of the concept of a moat/competitive advantage if you've been exposed to Buffett, but Competition Demystified by Greenwald is a great book which helps you understand how to identify a moat in reality."
We read to hone our investing minds, sharpen our knowledge, or provide a base where there was none. Once you've read The Intelligent Investor, you need to start reverse engineering great investments to get your own idea of the investment process. That, in addition to reading these books, will put you far, far ahead of your peers.
Here's @Simple As..., a hedge fund vice president, with more on that.
There's a great deal to be learned from investing books and so forth, but outside of actually learning through trial and error, the best way to learn is to reverse engineer the theses of successful investments by those in the industry you respect.
For instance, as great as Buffett's shareholder letters are, reading hundreds of pages of quotes like, "Buy good businesses at good prices" isn't all that useful. If you really look up to the guys at Lone Pine and want to invest like them, then pick one of their successful investments and go back to the filings from the time they initiated the position and try to look for what they saw during DD/idea generation that made the business an attractive investment.
What Do You Do during the HF Internship?
Disclaimer: Work varies by fund. The best we can do is give you a list of things interns do. Some do more; some do less.
Assuming that you landed the internship, its now time to consider what you will actually do when working with a hedge fund. Certain funds dish more responsibility to their lucky interns, who end up doing more due diligence. Others don't trust their interns as much, which means they end up doing more administrative work and coffee runs.
Here's a list of things a hedge fund intern will (likely) end up doing:
- Financial modeling
- Data gathering
- Reading 10-Ks and plenty of other materials as diligence
- Researching and pitching a stock (fairly uncommon but not completely unheard of)
- Administrative work (mostly at smaller hedge funds that don't have employees for this work)
- Data input and data gathering
Interns do some sort of combination of these tasks.
It's hard to predict what you'll end up doing, but don't let that scare you away from pursuing a HF internship. Even the unlucky interns walk away with at least some experience, a demonstrable interest in finance and investing, and a greater network. Every internship adds a little credibility to your name until, one day, you're getting analyzed for full-time positions.
These internships are just a stepping stone - and a fairly good one if you're considering working full-time at a hedge fund or investment bank.
Original Thread - Non Target, Hedge Fund Internship
I am at a non-target school, 3.85 GPA, major in Finance, analyst concentration. I'm going into my junior year. Since summer is pretty much already here, this will regard next summer. I'm looking to break into hedge fund internship in summer 2013. Assuming I stay at 3.85 (more or less), what hedge funds (small, large, strategy wise) would even consider a non-target applicant at 3.85 GPA? I know networking is a big part of it, but what's the picture look like for me? I've heard of a couple of people out of my school who have done well for themselves on Wall Street.
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