Despite heavy attrition after the 2008 credit crisis, hedge funds have managed to regain much of their former glory. Traders and brokers all over Wall Street have been piling into these attractive and open firms. With fewer constraints than mutual funds, hedge funds have used their trademark tools – leverage and hedging – to reap huge rewards.
Hedge funds are notorious for holding minimum wealth requirements for prospective investors and institutions to ensure their clientele are kept as elite as possible. Access to this kind of money allows them to trade more than just your typical stocks and bonds, but currencies, commodities, and derivative securities that you sometimes need a PhD in mathematics to understand. And it isn’t all that uncommon for their analysts to have one, using their clout on Wall Street – not to mention their high salaries – to pick up some of the best in the business. With extravagant wealth and a talented team, hedge funds have the option to play out some of the most complicated trading strategies.
Where the Cash Flows
Though hedge fund performance suffered in 2008 overall profitability bounced back strongly in 2009. In fact, the average fund had an ROI of about 20% according to data from Hedge Fund Research, Inc. If profits continue to increase, as they did again in 2011, money should start to flow back with even greater intensity in 2012-13.
However, as David Kochanek, publisher at Hedge Fund Jobs Digest, noted, “We are not out of the woods yet. We’ll continue to see funds close their doors – especially smaller the funds – it is the nature of the beast.”
Carving Your Own Path
Analyst and manager positions will likely remain as competitive as ever as more candidates come seeking hedge fund profits and prestige. However, credentials and financial savvy are not necessarily enough if you aren’t quick on the job. Since hedge funds are so diverse it’s important to make sure you can learn fast and make as much profit as your coworkers on the same trades.
How might you get the opportunity to show your worth like that?
There’s no straightforward path to working in a hedge fund. Many analysts, traders, and portfolio managers have come from other Wall Street firms. Others have come into the industry after completing a PhD in economics, math or physics. Some even come from corporate law firms. What drives people from such diverse backgrounds into the industry? Base salaries are relatively stable, with portfolio managers earning about $150,000-300,000 with expected bonus payouts around 15% of the investment-portfolio
So stay sharp, and no matter what job you’re aiming for always, always do your homework. Know precisely what the hedge fund you’re applying to does. Is it trading commodities, debt instruments? Does it generally hold longer-term investments or work with intra-day movements?
These are important questions that will help you assess both your ability to excel in the firm and whether it’s right for you generally. Once you’ve done that, remember to put on your game face.