Although there are more than a few avenues leading to a job in the hedge fund industry, it can be argued that an analyst’s position is a typical entry-level position. Make no mistake; although the term entry-level often connotes the absence of a need for skills, education, prior experience or other attributes, this is not the usual scenario for an entry-level position in the hedge fund industry.

What They Do

An analyst is responsible for evaluating company financials, bonds, commodities, real estate, currencies and hard assets in the context of current (and future) economic and market conditions to ascertain their suitability as an investment in the hedge fund with a perspective to the fund’s strategy.

This requires the ability to analyze financial statements and prepare financial models to facilitate risk evaluation and alignment with a particular investment strategy.

What Are the Prerequisites?

The disciplines most valued are in the areas of accounting, economics, mathematics and statistics. It should be said that although there is a strong preference for these educational backgrounds, nothing is etched in stone. That said, aspiring analysts must demonstrate the ability to research, analyze and evaluate. The analyst must also possess excellent communication skills, an ability to work under pressure, meet deadlines, and multi-task in a fast-paced work environment. This requires a high degree of self-confidence, personal initiative and tenacity.

Apart from strong mathematical proficiency and quantitative skills, prospective applicants must be able to work effectively in a team environment. Analysts must also demonstrate flexibility and an innovative spark coupled with an interest in current affairs and insights on their impact on the markets. Equally important is a demonstrated commitment to further study, the pursuit of additional formal qualifications and a global mindset.

Clearly, computer literacy is essential, especially with respect to Excel, which is required for financial modeling and projection work.

Small vs. Large Hedge funds

Small hedge funds, generally speaking, seek candidates with broad knowledge bases. Large hedge funds are much more likely to seek a candidate with an industry specific or regional knowledge base. One example would be a knowledge base specific to the pharmaceutical industry.

What They Earn

According to the 2017 Hedge Fund Compensation Report, analysts in hedge firms with assets under management (AUM) of less than $100 million, earn a mean base pay of $110 thousand annually. In contrast, analysts in firms with an AUM greater than $1 billion earn a mean base pay of $157 thousand. The report also reveals mean bonus pay of $62 thousand in small firms as compared to mean bonus pay of $176 thousand in the larger firms.

Analysts are also going to earn a great deal of unpaid overtime, untold hours of telephone calls, endless meetings and inescapable amounts travel time in the bargain! These are the elements necessary for success.

For those willing to make the needed sacrifices, a hedge fund career can be extremely rewarding, which is doubtless the reason for the incredible level of competition encountered by anyone pursuing a job in the hedge fund industry.

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A child born in 2007 can look forward to a lifespan in excess of 100 years. Although this is marvelous news for those born in this millennia, it only adds to the woes of pension fund managers struggling with monumental shortfalls, estimated to be in the range of $400 trillion worldwide. The U. S. share of that $400 trillion is a staggering $137 trillion, more than one-third of the global shortfall. This sum makes the U.S. national debt look like a rounding error.

The solvency of pension funds is predicated on investment returns, which keep pace with future retiree demands and concurrently ensure reasonable contribution requirements for new members participating in the plan.

What’s Gone Wrong?

Several factors are in play, all of which have contributed to the crisis. First, as mentioned earlier, people are living longer, which increases the total payout for the pension fund.

Second, declining birth rates, especially in developed countries, have effectively reduced the numbers for those supporting an individual retiree. The ratio of those in the workforce to those in retirement is currently 8:1. However, by 2050 the ratio is projected to be 4:1.

Third, pension funds have over-estimated their future value because long-term investment returns have fallen short of historical averages. For example, 3 to 5 percent lower for equities and 1 to 3 percent lower for bonds. Because of smaller returns, future liabilities have increased, exacerbating pension shortfalls.

Additional contributing factors include a general lack of financial literacy and a lack of access to structured pension plans—globally, 48 percent of retirees have no pension.

What Is the Solution?

Policymakers are going to have to take the lead. Increased longevity and declining birth rates are not in the purview of the hedge fund industry. Pension funds, public and private, and the Social Security Administration must grapple with these issues. The most practical approach is to increase the retirement age to reflect corresponding increases in longevity. Life expectancy has increased 3 years per decade since 1947. However, no legislation has been passed in the U. S. regarding this issue since 1983. Other possible strategies include “needs” testing and raising the maximum earnings subject to the Social Security tax.

How Hedge Funds Can Help

To state the obvious, the best thing hedge funds can do for pension fund managers is to provide them with outstanding gains. Beyond that, hedge funds, many of which are staffed with some of the best minds in the mathematics field, are uniquely positioned to consult with pension fund managers regarding vesting, retirement age and other actuarial factors that affect the solvency of the fund.

Hedge fund firms might also consider funding seminars to educate young people on matters of finance, improving children’s overall financial literacy. In short, create public/private partnerships to foster better retirement outcomes for all. Not only would this benefit the public at large, it could also help to polish the tarnished image of the hedge fund industry.

What About Jobs?

The hedge fund industry plays a vital role in the overall economy and impacts far more lives than the average individual realizes. As the industry continues to evolve and innovate, the number and variety of jobs in the industry will grow.

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Hedge Fund Hiring in Quarter One

May 16, 2017

Many have the preconceived notion that jobs in the hedge fund industry entail hundred hour work weeks that wear down employees in a matter of months, not years. While it is true that a small percentage of firms may have this view, it is equally true that there are multiple roles in a hedge fund […]

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Trump Executive Order Puts Dodd-Frank in the Cross Hairs

May 1, 2017

President Trump’s executive order, signed January 30 of this year places Dodd-Frank squarely in the administration’s cross hairs. The impact of this executive order would not be so daunting if the legislative process had not been outsourced to the Federal agencies charged with implementing the legislators’ perceived wishes through regulation—a defect that future lawmakers might […]

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Hedge Fund First Quarter Gains Are in the Black

April 17, 2017

Hedge funds posted an aggregate 2.3 percent gain through the first quarter, which marks the strongest start for the industry since 2013. Long/short equity strategies lead the pack with composite returns of 3.2 percent. Back to Reality At first blush, this sounds terrific but, realistically, the industry is beating a very low bar—its own performance […]

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Hedge Fund Jobs and the Rise of the Machines

April 3, 2017

Robots, once the bane of blue-collar workers, may now threaten the livelihoods of hedge fund professionals. Taxi and Uber drivers are menaced by driver-less technology, fast food workers are marginalized by robots capable of making a burger in less than ten seconds, and BlackRock, Inc. is implementing data-driven, artificial intelligence (AI) programs that will ultimately […]

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Hedge Fund Numbers Shrink as Assets Under Management Soar

March 20, 2017

The suggestion that assets under management are soaring is admittedly a bit Trumpian, but the fact is that the number of hedge funds shrank to 9,803 (including funds of funds) while 2016 industry assets under management climbed to just over $3 trillion according to the HFR Market Microstructure Report. What Can Be Inferred From the […]

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