The Clash hit of the same name topped the charts in 1982. More recently, it has become the de facto theme song of many an institutional investor. Of course, Clash did not have pension fund managers in mind when the group penned this tune, but it is descriptive of the dilemma these investors face. Should they stay the course with their hedge fund investments or follow the lead of those who have left for seemingly greener pastures.

The stock market has outperformed aggregate hedge fund gains in each year following the financial crisis. Lackluster performance, acting in concert with a punishing fee structure, is eroding the institutional investors’ will to stay the course. High profile exits by major players such as NYCERS, CalPERS and the Rhode Island State Investment Commission, make it difficult for those pension fund managers inclined to resist calls to exit hedge funds. It is an increasingly complex task for institutional investors to persuade the naysayers of the benefits of hedge fund investing.

The Argument for Staying

While it is true that equities have outperformed hedge funds in the years following the financial crisis (2009-present) if one were to gauge hedge fund performance over a longer period (2000-2016) the opposite would be true. Hedge funds outperform equities in this extended period.

The point being is that hedge fund performance can vary extensively depending on the period applied to the analysis. Couple this fact with the wide range of strategies hedge funds pursue and you begin to understand the importance of focusing on the role the asset is intended to play in one’s investment portfolio rather than zeroing in on period-dependent results.

The Challenges

Institutional investors face two major challenges. The first challenge is determining the appropriate role for the institution’s hedge fund investment within its broader portfolio of investments. Examples may include a willingness to accept greater risk in pursuit of gains or enhanced diversification.

The second challenge is twofold: 1) finding the appropriate strategy and, 2) finding the best-qualified manager to execute the chosen strategy.

Successful hedge funds will be those that make meeting these challenges effortless for potential investors.

What about Hedge Fund Jobs?

Hedge funds have an uphill battle in a bull market and this is the second longest running bull market in U.S. history. Add to this, the crushing weight of post financial crisis regulation and unprecedented meddling by the Fed (quantitative easing and persistent, record low interest rates). As a result, for the first time in recent memory, 2016 will likely see more hedge funds shuttered than opened.

To suggest that hedge fund jobs will be plentiful in such an environment would be ludicrous. However, the strongest hedge funds will survive and these survivors will flourish as never before, providing robust opportunities for those seeking a career in the hedge fund industry. In the short term, attrition will be painful but, long term, the industry will be stronger for it.

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Everyone that breaks into the hedge fund industry asks themselves that question. The education, the experience, the network of contacts, the untold hours spent writing and re-writing resumes/CVs and cover letters, interviews – it ultimately ends with the negotiation of a compensation package. Prior to the finalization of this key hiring element all one has are possibilities. If the negotiation goes poorly, you may well be hitting the bricks once more. Yes, it is that important!

What Can Possibly Go Wrong?

A number of things have the potential to derail a prospective employee engaged in negotiating a compensation package. The first one must recognize is that a compensation package encompasses more than an annual wage, particularly in the hedge fund industry.

Compensation includes salary, of course, but also bonus structure, guaranteed bonus and upside sharing, not to mention the vanilla details surrounding vacation pay and benefits.

How deeply the negotiations delve into these multiple factors will depend on the position the applicant has been selected for and the applicant’s experience level. For the uninitiated, negotiating a compensation package can be as great a challenge as landing the opportunity that placed him at this crossroads in the first place.

A Few Tips

1) This may be your first rodeo, but that is not the case for your prospective employer. The employer will almost never begin the negotiation with his best offer. Job candidates who negotiate in a constructive and well thought through manner will fare better than candidates who do not negotiate. Negotiating is an opportunity for the employer to evaluate your strengths and your weaknesses. In effect, negotiation represents an opportunity for the candidate to demonstrate the skills the employer is seeking. Management needs to see that you value yourself. Bear in mind that your demeanor during these negotiations offers the employer insights into how you will handle coworkers and customers.

2) Before negotiating, learn what you can about the salary range and perks within the industry for your chosen position. Research the firm thoroughly. Then consider how your expectations, in terms of salary and benefits, coincide with what you have learned.

3) Keep in mind that the employer has already decided you are right for the position. The main concern of the employer at this stage is to make it happen.

4) Usually, it is not prudent to accept the first offer the employer makes, even if it exceeds your expectations. The employer does not (should not) know your expectations. Your research should reveal if the offer is reasonable and where it falls in the range for the position you seek. If it falls at the low end, negotiate accordingly.

5) When a compensation package is offered, ask that it be put in writing and request time to think it over. Employers will understand.

Final Thoughts

Your best ally in compensation negotiating is confidence. Confidence is achieved through knowledge. In the tight-lipped hedge fund industry, the Hedge Fund Compensation Report is an invaluable source for the information you need to realize the best possible outcome.

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Little Rhode Island Delivers Devastating Blow to Hedge Funds

October 31, 2016

According to a recent article published in FINtech, the Rhode Island State Investment Commission has announced its decision to redeem $534 billion invested in seven hedge funds. This enormous sum does not include the $51 billion it plans to redeem from Viking Global. This reduces Rhode Island’s exposure in Viking Global by 50 percent and […]

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Who Will Make the Hedge Fund Industry Great Again?

October 17, 2016

Trump’s theme, “Make America Great Again,” has drawn its fair share of criticism. On the one hand, the slogan is interpreted as a slight by those who believe America is already great. On the other hand, many voters believe that America’s greatness is diminished and needs restoration. Parallels exist in the hedge fund industry. A […]

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Hedge Funds See a Looming Obstacle in the Gains Battle

October 3, 2016

Having struggled with an indecisive and opaque Federal Open Market Committee, chaired by the enigmatic Janet Yellen since February 2014, hedge funds and the broader investment community must now consider the possibility that the Fed’s purchasing options may one day expand beyond U.S. Treasuries and agency securities. The Interest Rate Debacle Equity markets have plundered […]

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Clinton vs. Trump on the Subject of Carried Interest

September 19, 2016

If any common ground exists between Hillary Clinton and Donald Trump, it is on the subject of carried interest taxation. Both regard the favorable tax treatment received by private and hedge fund general partners on carried interest to be grossly unfair. The politicians and many mainstream media pseudo-journalists make an uncomplicated argument—carried interest is taxed […]

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Have Hedge Funds Arrived at a Crossroads?

September 5, 2016

When Paul Tudor Jones says adieu to roughly 60 employees, Pershing Square Capital Management shaves its staff by 10 percent and Citadel trims its headcount by more than a dozen souls, this is a fair question to ask. After all, these are some of the largest and, most successful, names in the industry. What’s Driving […]

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