Why is it bad to join a hedge fund right out of college instead going the 2 years and out route?

Title is everything, I have seen countless of threads of people asking for advice to join hedge funds right out of undergrad without any IB experience but to get shut down saying its a completely bad choice.

Comments (34)

Aug 2, 2017

joining a hedge fund right out of undergrad isn't going to happen so don't worry about it

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Aug 3, 2017

LOLOLOLOL

Aug 3, 2017

Wrong, Bridgewater hires direct from undergrad.

Cheer up, Bateman. What's the matter? No shiatsu this morning?

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Aug 2, 2017

If you've seen countless of these threads, why ask again? The advice is always the same: investment banks have training programs that have been built and perfected over decades, while hedge funds and private equity funds are relatively new to the game (yes, there are a few that have had analysts for some time, but they are far and few in between). Your first two years out of undergrad are all about building a solid foundation on which you can build a long-term career in finance, and the investment banking analyst program has been proven to do this very well time and time again.

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Aug 2, 2017

Firstly, it's very rare for HFs to hire college grads (most top notch hedge funds don't do this to straight out of undergrad). Even if you manage to get into a good HF, there is no formal analyst programming. Who knows what you'll be doing as the one little guy in the firm with no training. Finally, exit opportunities are really limited if you go direct to hedge fund. Don't get me wrong though, there are a few who score high paychecks at these hedge funds out of undergrad. The highest paid wharton undergrads in 2016/15 i believe are in hedge fund or PE business but they're 110% committed to stay within the hedge fund and finance business.

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Best Response
Aug 2, 2017

For a disclaimer I did choose to follow this route.

  • You are an unknown quantity to employers. Most hedge funds don't run structured analyst training programs and the value of the firm from a technical skills standpoint isn't as clear compared to an IB program. Typically HF's don't need junior staff to do well so the quality of your training is highly differentiated between firms. If your fund is taking undergrads there is always a question of how many responsibilities you've been given and what possible impact you had.
  • Your firm is an unknown quantity to the market. The size, quality, and scope of operations between funds can be night and day. You can be a tremendously good analyst at a top program and few people are going to know because your group flies under the radar on purpose.
  • Technical and Business skills might be limited. Fund strategy can narrow your focus in a bad way if you aren't sure where you want to be in the long term. On the other hand, fund strategy can accelerate your career progression if you know for sure where you want to be. We want you to be able to add to the bottom line from day one so it is preferable for you to be an experienced hire.
  • This is not a primarily deal focused method of management. If you are at a micro fund or startup your experience will differ greatly from a large fund. Usually there is a low value add for the firm so you work on maintaining a market position in your early years. In investing, any fund with a good strategy is running as lean as they can to maximize their total comp. You begin to focus on narrow areas of expertise early. Value is up to you to decide.
  • Unclear career progression. I chose not to use the term exit opportunities for a good reason; a good HF which is scaling well will have headcount fixed in some way to their AUM. You can go nearly anywhere an IB analyst can if you leave but you face the challenge of educating employers about points 1, 2, 3 and 4 above. It's been a pain in the ass for every interview I have done.
  • Not everyone that makes a good HF analyst or IB analyst manages the move to the other well. Most people think they can but there is a difference between thinking like an advisor and thinking like an owner. This partially explains why PE/HF/VC is difficult to break into. There is a survivorship bias here. Nobody likes to think about being at a BB and recruiting for the buyside and then burning out at their new job because they weren't cut out to do well there, it can happen.
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Aug 2, 2017

Nicely laid out, well thought out reasons

Though I'll add another, really simple one: someone right out of college most likely doesn't even know if a hedge fund is actually a good fit for them, in terms of what they will enjoy most. In fact an undergrad likely can't even define what a hedge fund is exactly

I think a really good alternative that's not typical sell-side analyst programs (ER/S&T/IB/CM/etc) is working for an asset manager, especially one that's a bit bigger with some formal training and potential for internal mobility

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Sep 14, 2017

deleted

Aug 3, 2017

Point72 actually has an insanely in depth training program. Look it up.

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Aug 13, 2017

P72 is a scam

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Aug 14, 2017

I can't speak to whether its a good program or not. I just know that they spend a lot of time training people before they actually take on any responsibility.

Aug 29, 2017

why do you say that?

Sep 14, 2017

I'm in a similar boat, wondering the same thing. I envision my progression in the firm to be recommending ideas to my PM in my 2nd-3rd year, and then putting on small trades 0.01-0.1 bp for a year or so before getting a couple million I can run myself and if I'm good and lucky I'd have a sizeable chunk in 6-7 years.

Sep 14, 2017

if you start at a multi strat as an analyst to a PM, then it all falls on your PM to share his allocation w/ you.

Sep 14, 2017

Which means the PM is going to absorb your P&L and take an appropriate level of your profits as well.
So if the PM's take is around 16% off of his P&L then, you will most likely end up with 10% after PM takes your 6%.

Essentially your PM is sponsoring you... You propser within your PM's shadow for 2-3 years, you should be able to ask the firm for your own allocation. Until then, your best bet is for your PM to make you his sub-PM.

Sep 14, 2017

it totally depends and there is no "rule" or expectation.

Sep 14, 2017

actually at many top multi managers, what i described is the most common path.

Sep 14, 2017
Lexington55:

actually at many top multi managers, what i described is the most common path.

i am at a top multi-manager, and have many friends at other ones...there is not a common path, and many times people stay analysts for quite some time and do not get side pockets or get promoted to PM without leaving to go to another firm.

Sep 14, 2017

actually there is a common path. you dont simply get an allocation from the fund itself without a PM taking on your p&l risk.

im at a top mm too.

Sep 14, 2017
Lexington55:

actually there is a common path. you dont simply get an allocation from the fund itself without a PM taking on your p&l risk.

im at a top mm too.

Aren't you the guy that posted about what to wear to your first day of work just a few months ago? Either you haven't actually started working yet or you've just started so refrain from acting like you know what you're talking about.

patternfinder:

Of course, I would just buy in scales.

See my WSO Blog | my AMA

Sep 14, 2017

Yup that was me. I commented on this thread BC BC i switched firms to become a junior PM

What others have said can happen but for the most part, unless you were running risk elsewhere prior to landing a job at a MM fund, your best bet is to get a sub allocation from your PM who will initially take on the P&L risk.

Sure lots weird and surprising things happen in the HF space as a whole, but I found millennium and other top MM to be more structured and methodical in their approach to giving allocation than fund run by a single manager.

Sep 14, 2017

Xqtrack you edited one of your posts so here's a response to the part where ppl leave to become PM elsewhere..

What you said is true...but that's different from what OP is suggesting...which was how one receives allocation internally from the fund he's currently at.

Sure one can just leave if he never gets his book but for the most part, if you were ever promoted from analyst to PM within the same Mm fund, often times it started with your PM giving up part of his allocation.

Anyhow, good luck OP. There's a lot of different ways where you end up with your own book. I'm just sharing what I know is the common path. That is all. Good luck :)

Aug 3, 2017

For PE, the only firms I would ever do directly after college (without thinking) would be Bain Capital and Blackstone. They have a consistent undergrad recruiting operation and have been in the game for quite a while. Good training.

Can't think of a single parallel in the HF world. Unless you want to do one of those quant trading shops like Point72/Bridgewater/Jane Street/D.E. Shaw etc. But then why would you ever consider investment banking first?

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Aug 3, 2017

Why not KKR and Silver Lake? Both have recruited top undergrads for ages as far as I know. In your criteria those fall under the go to firms from college. I have people in my network who have enjoyed their times at those firms greatly and learned lots. Both lack IB experience since they went straight from undergrad to PE (other in UK, other in US).

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Aug 3, 2017

I wasn't aware that KKR and Silver Lake had accessible and public undergraduate recruiting timelines that competed with BB hires.

Aug 9, 2017

If I'm not mistaken, KKR killed their analyst program a few cycles ago (I can't comment extensively on quality as I wasn't in it but the whispers were that it wasn't that good).

Silver Lake tends to pull exclusively the 4.0 Wharton grad so it's not that accessible beyond that small pool of kids.

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Aug 13, 2017

The Wharton valedictorian will typically be poached by SL

Aug 22, 2017

Does Bain prefer mormons?

Aug 22, 2017

For what it's worth, and kind of already stated above, a few years in IB can help 1) build certain skills that you can transfer almost anywhere, 2) the firm's name can carry a lot of weight when you go to recruit for top HF/PE/other firms (you'll still need to know you're stuff and have good references) and 3) most importantly, you'll set yourself up for a much wider range of opportunities by coming out of a solid IB analyst program.

Aug 22, 2017

It's not. I don't know anyone who went straight to HF that regrets it.

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Aug 22, 2017

maybe those who get laid off with little transferable skill-set? HF industry isn't exactly growing anymore. These kids are not thinking long-term...

Sep 4, 2017

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Sep 5, 2017
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