Mod Note (Andy): Throwback Thursday - this was originally posted Feb 2009
Since there aren't any decent/active discussions on the HF forum, I figure I start a thread highlighting the good, bad, and ugly aspects of working at a hedge fund. This is based on my personal experiences so don't take them as gospel.
Hopefully others will contribute with their own experiences over time to add more color to the discussion. It is my hope that those getting into this game will have a better understanding of what they are getting themselves into.
Life Working At A Hedge Fund
Before I get started, this thread is really intended for people already in finance (current banking analysts/buyside professionals) as a way to start an honest discussion about HF. I'm not going to answer "I'm an undergrad looking to break into hf" type questions in this thread. If I'm in a good mood, I'll start a separate "You're an undergrad and want to break into buyside...this is what you can do" thread later.
This initial post isn't comprehensive and I'll add more over time. There are plenty of thoughts I have on the subject.
Background of a Hedge Fund Manager
Work as an analyst at a multi-billion dollar fundamental hedge fund, and have been here 3+ years. I work in the special situations/event driven equities group, and specialize in long positions.
The Best and Worst Parts of Being a HF Manager
Good, Bad, Ugly, Random thoughts (in no particular order and hopefully it makes sense):
- Be happy with the fund's/group's strategy because you will get pegged. Some of you with restructuring/hy experience are already pegged before you even step foot at a hedge fund ("Jeez these recruiters are only calling me about distressed opportunities"). I would very much like to do distressed debt, short equities, and dabble in foreign securities, but those opportunities are limited for me since I don't have enough experience shorting/analyzing credit/foreign companies.
- 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. Keep in mind, some places don't care about developing your idea generation abilities and you're only there to grind through the numbers. Obviously places like Tiger were hedge fund manager factories, because analysts were trained to source ideas and defend their thesis. Hopefully, your buyside opportunity is with a place like Tiger.
- Pay is volatile. You can be doing to same task at different funds and be paid vastly different amounts. Obviously pay at most places are based on fund performance, so be comfortable with knowing your financial well being is heavily reliant on the skills of your PM. As I reach an inflection point in my career, I'm starting to yearn for a situation where I can play a bigger role in killing what I eat and not be so tied to decisions beyond my control/recommendation.
This is a good stopping point...
A Day In the Life of a Hedge Fund Manager
- 6:45am - Wake up
- 7:30am - In the office
- 7:30am to 8:30am - Breakfast, Check inbox/messages, Read paper/blogs/etc., morning meetings
- 8:30am to 1:30pm - Depending on the day, read transcripts/filings (30% of time), investment meetings/calls (20% of time), build models (40% of time), investment memos/emails (10% of time). This is a juggling act since I'm usually working on 1-2 new ideas and 2-3 portfolio positions during the week.
- 1:30pm - 2:30pm - Lunch/Pay Bills/ESPN
- 2:30pm - 8:30pm - Meet with PM (ranging from 30 minutes for brief updates to 3 hours for research findings) and more modeling/reading/conference calls rest of the day
- 8:30pm - Midnight - Go home, dinner, gym, read paper/blogs/etc., read more filings
- Sometime between Midnight - 1:00am - Bed
Benefit of Working at a Small Hedge Fund?
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 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.
Read More About Hedge Funds on WSO
- Stock Pitch Sample Template - Proven Examples To Help Ace Your Interview
- How To Get A Hedge Fund Internship
- Hedge Fund Careers: Getting A Hedge Fund Job Out Of Undergrad And Beyond
Looking to Break into the Hedge Fund World?
Want to land at an elite hedge fund use our HF Interview Prep Course which includes 814 questions across 165 hedge funds. The WSO Hedge Fund Interview Prep Course has everything you'll ever need to land the most coveted jobs on the buyside.
Hedge Fund Interview Course
- 814 questions across 165 hedge funds. Crowdsourced from over 500,000 members.
- 11 Detailed Sample Pitches and 10+ hours of video.
- Trusted by over 1,000 aspiring hedge fund professionals just like you.