From the category archives:

Hedge Fund Careers

Let’s begin by saying that no one should be discouraged from pursuing an MBA. However, it is important that one is clear on the motive for doing so. If the motive is to fast track employment with a hedge fund, one might be in for disappointment.

Some Harsh Facts

According to the 2018 Hedge Fund Compensation Report, just 4 percent of MBAs enter the hedge fund industry right out of school. That percentage is equivalent to those entering from public accounting and broker/dealer backgrounds. Conversely, 14 percent enter the hedge fund industry from asset management, 12 percent enter from student backgrounds other than an MBA, 11 percent enter the industry from the sell side, and 9 percent enter from investment banking backgrounds.

What Does This Tell Us?

The take-away is this—experience is what matters. The great majority of hedge fund firms are small organizations with few employees, consisting in many instances, of a portfolio manager and a few analysts. This model is replicated in many large hedge fund firms, with multiple portfolio managers and analysts, each responsible for their own portfolios. The common denominator for firms, small and large, is the need to generate positive returns.

Small hedge funds do not have the resources, the time, or the inclination to train those they hire into the firm. Most large firms, because they are comprised of multiple, small groups, have a similar view. Rather, they choose to bring in candidates with a proven record and experience in their given role.

This is not opinion, but is in fact supported by data, as evidenced in the aforementioned 2018 Hedge Fund Compensation Report. The chart below illustrates the responses of hundreds of working hedge fund professionals on the subject of in-house training.

 

 

Fifty-six percent of the respondents identify their firm’s training as weak or non-existent, while a paltry 3 percent report an excellent training program. When you consider that the response of “average” mirrors an industry in which training is weak at best and non-existent at worst, then more than 8 of 10 hedge fund professionals must rely on the skills and experience they bring to the job to ensure their success and the success of the firm.

What about Hedge Fund Jobs?

Advanced degrees, such as the MBA, are no guarantee of a hedge fund job offer. Experience is far more important in securing a position in the industry. That, and a proven record of accomplishment in one’s area of expertise, will almost certainly be the greatest factors in securing a position in a hedge fund firm.

This does not mean that an MBA is unhelpful. In fact, the 2018 Hedge Fund Compensation Report makes it clear that MBAs earned about 18 percent more in base pay than non-MBA peers did. More to the point, in terms of total compensation, non-MBAs earned just 75 percent of the total take-home earned by MBAs.

So, while there are many valid reasons to take an MBA, increasing your opportunity to secure a hedge fund job is not among them.

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The January 2018 results for aggregate hedge fund performance have been published. According to HFR, the industry showed a 2.8 percent gain. In contrast, the S&P 500 gained 5.7 percent in January before plummeting in the wake of February’s correction. Year-to-date gains for the S&P 500 as of February 16 stood at 2.19 percent, 61 basis points short of hedge fund aggregate gains in January alone.

The S&P 500 as a Benchmark

Many in the financial media benchmark hedge fund performance by making comparisons to the S&P 500. The recent correction has demonstrated, among other things, the folly of using this index to benchmark hedge funds.

From the S&P’s high-water mark on January 26 to its low on February 8, the index was underwater by as much as 11.84 percent. However, that pullback has been trimmed substantially and it is with baited breath that we await HFR’s February result for average hedge fund returns.

The markets continue to rebound and log impressive gains signaling that correction lows have come and gone. Interestingly, there is a dearth of media comparisons between January’s hedge fund result and the current state of the S&P 500. Apparently, such comparisons are only offered in scenarios that make the industry look bad.

If Not the S&P 500…

There is no consensus on the appropriate benchmark for hedge fund performance. However, it is clear that the benchmark should not be the S&P 500. Moreover, it is equally unwise for any investor to put too much weight on an aggregate result, such as those proffered by HFR, Eurekahedge, Prequin and a host of others.

This is not in any way meant to disparage these providers. Rather, it is to point out that such indices are built on the aggregate of individual hedge fund performance results, and they reflect the measurement biases of these funds. More to the point, they fail to illuminate the diversity of individual hedge fund performance characteristics.

Until a benchmark consensus is reached, the hedge fund industry will likely continue to suffer the apples-to-oranges comparison the media makes with the S&P 500.

What about Hedge Fund Jobs

If recent market events signal a return of volatility, hedge funds are likely step-up their search for talented stock pickers and those possessing such skills will see demand for their talents on the upswing.

The potential of Federal Open Market Committee rate hikes beyond those forecast cannot be ignored as a factor for increased volatility. If the FOMC is forced to raise rates to cool inflation, volatility will surely increase.

Traditionally, volatility has been the hedge fund industry’s best friend, providing the industry the opportunity to do what it does best—hedge! Volatility will be a persuasive force, encouraging hedge fund investment. The resulting positive cash flows will be accompanied by an increased demand for hedge fund professionals.

Now, the stars seem to be aligned to favor employment in the hedge fund industry, particularly for those with proven stock picking skills.

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How Bright Is the Future for Hedge Fund Jobs?

December 11, 2017

As 2017 marches to its close, thoughts inevitably turn to the promise and challenge of the New Year. The hedge fund industry is on track to achieve its most successful year since 2013 in terms of gains and assets under management. Year-to-date gains, by most reports are 7.5 percent and assets under management have reached […]

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Can You Write Your Way into a Hedge Fund Job?

October 16, 2017

People of diverse backgrounds have found a home in the hedge fund industry – lawyers, computer scientists, investment bankers and public accountants, to cite a few. According to the 2017 Hedge Fund Compensation Report, the previous professional backgrounds of about 14 percent of hedge fund professionals are lumped into an amorphous category termed “other”, which […]

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NYC Job Seekers Need to Prepare for a Change in the Law

October 2, 2017

Have you heard? In an effort to close the wage-gap between men and women in the workplace, New York City Mayor Bill de Blasio (D) signed an amendment to the New York City Human Rights Law. This law takes effect on Halloween. Commencing October 31, no employer may inquire into the salary history of prospective […]

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Investor Confidence in Hedge Funds Continues to Soar

September 18, 2017

Prequin reports the hedge fund industry has achieved gains in positive territory for 10 months in a row, with aggregate August gains of 0.97 percent. This is the longest streak of month-to-month gains since the financial crisis, and suggests the hedge fund industry has finally found its feet. Investors Are Taking Notice As has been […]

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Are You a Woman Struggling to Snare a Job in Hedge Funds?

August 21, 2017

Male portfolio managers outnumber women 20 to 1. This might suggest gender bias on the part of hedge funds. However, it might also suggest that women aren’t seeking this line of work. How can the facts be known? For example, 34 percent of doctors in the United States are female, about one in three. According […]

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