Realities of the recruiting process ,headhunters, and starting your career:
Be happy with the fund's/group's strategy because you will get pegged. Some of you with restructuring/high yield experience are already pegged before you even step foot at a hedge fund ("Jeez these recruiters are only calling me about distressed opportunities").
Movement between funds can be very hard. Buyside is great, but it's really not easy to move around. Over time, you're going to be very particular with what you want to do, and the funds are going to be very particular with who they want to hire. Trying to find a fund that matches your preferred strategy, salary, location, culture, and career trajectory is a HUGE task. Most funds don't like paying recruiters so opportunities are usually found through the network. This is why when people move it is usually the result of a senior member branching out and taking junior people with them or networking with a past co-worker. B-school is also another avenue used to move to another fund.
Most new hires (ex-IB analyst) are initially hired to grind out models and help "flesh out an investment thesis" (i.e. read the footnotes) for senior guys. You become really valuable when you start to develop an investment identity and begin sourcing ideas.
Size Matters:
The main benefit with smaller/newer funds is you can sling shot up the value chain if you do well. The main drawback is the fund sucks and you can't land anywhere else when it implodes (you can mitigate this somewhat if you worked at a big fund beforehand).
Real example: There was an analyst that worked at my fund a couple years ago. He could have stayed here and slowly move up the chain (bigger funds tend to be a little more bureaucratic/institutional). Instead, he jumped over to a much smaller fund to take on more responsibility and is now a PM. This is HUGE. Instead of just being another analyst at a big fund, he has a track record of managing a portfolio and a quantifiable track record to hang his hat on. Having PM experience obviously makes him much more valuable. On the flip side, if the small fund failed, he has the experience of being a large fund analyst to land somewhere else.
Most hf professionals I know go through the same learning curve. Enter the industry with basics (learned from banking, school, etc.) -> Step 1. Master the art of valuation/fundamental analysis -> Step 2. Master how to source/defend ideas -> Step 3. Master how to effectively manage a portfolio (knowing when/how much to buy and sell is fucking hard)
Big/established funds are a great place to learn Step 1. Smaller funds are great for Steps 2 and 3 once you have a good idea of what you want to accomplish. Think of big funds as a workshop to fine tune the fundamentals (and to meet other talented people). Think of small funds as an apprenticeship...the investment approach of your PM will probably end up being the investment approach you use the rest of your career.
Type of Funds: The funds that are hiring these days seem to fall into three categories: The Newbie, The Opportunist, and The Philanthropist.
The Newbie The Newbies are the new funds that were lucky to raise some capital and are building out their bench to take advantage of current market conditions. Newbies can also be new funds/strategies launched by a mega fund. Launching new funds/strategies gives these mega funds an opportunity to hopefully collect performance fees while they get back to high water marks in other funds. The fund is approaching an inflection point and could be at a point where they will grow very fast ($100 million funds can turn into a $2 billion fund over the course of 1-2 years).
The Opportunist The Opportunist are taking advantage of the talent available on the street and leveraging their winnings to add to their bench. Baupost is known to be opportunistic with their hiring.
The Philanthropist The Philanthropist (in reference to a founder's tendency to become philanthropists) are funds that are 100% employee/founder money. They typically have little or no redemption pressure and the funds with fundamental strategies tend to take a longer term view on investments and are willing to invest in talent if it'll be beneficial over the long term.
So what's the common denominator? None have high water mark issues.
In 2009, the hiring market was non-existent because the type of funds that are willing to pay headhunter fees were licking their wounds. 2010 might change things as funds use 2009 gains to bounce back from 2008 losses.
Employee Development:
Developing the careers of your analysts is not a high priority for most HF managers. It's get paid (hopefully) and get out. There are some who care about employee development, but most of you aren't in a position to wait for the right "apprenticeship". And to be quite honest, these analyst friendly funds have low turnover and few openings. I've rarely seen an analyst get equity, but I have seen managers seed the superstars when they decide to launch their own fund.
What funds look for:
Most of the big, institutionalized are looking for some combo of ex-IB/consulting, ivy, CFA, ex-athlete (I'm partially kidding), and MBA. The more entrepreneurial/smaller (daresay old school) places will take non-traditional backgrounds through networking/relationships.
I find it strange that many funds pride themselves on their original/thorough research process, but are incredibly lazy when sourcing talent. A lot of it has to do with alma mater and headhunter bias, but you're also making the safe bet hiring from "traditional" pools. With that in mind, I can't tell you how many times the top performer ended up being someone who came from solid (i.e. UVA, UT, Michigan, USC, NYU, etc.) but not spectacular backgrounds. Of course, they end up going to Harvard/Stanford for their MBA and get their pedigree later lol.
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