From the category archives:

Hedge Fund Careers

It appears that the hedge fund industry, on average, will end 2016 on the wrong side of the S&P 500, the arbitrary benchmark, which in the eyes of many, heralds a successful level of performance. The S&P 500 is up some 10.5 percent year-to-date, while average aggregate hedge fund gains hover around 4.5 percent.

Another Year of Mediocrity

One can debate the merits of using the S&P 500 as a benchmark for hedge fund performance, but no matter how persuasive the argument, the fact is that many hedge fund firms are disappointing their investors. This is irrefutable, borne out by -$77 billion in net outflows through October 2016. This is the first time in recent memory that, taken together, hedge funds will experience negative annual growth in assets under management. Another unpleasant fact is that hedge fund closures have outpaced hedge fund starts in 2016.

Investor Backlash

After eight consecutive years of underperforming any number of broad market indices, investors are saying, enough is enough. Major insurers such as MetLife and AIG cut back their hedge fund investments in a substantial way. Public pension funds also expressed their dissatisfaction with massive redemptions. Underperformance wasn’t the only issue that irked insurers, public pension funds and other investors; it was that they were paying excessively for the privilege. Hedge fund fees have always drawn fierce criticism, but the combination of high fees, poor returns and/or losses, became a burden too heavy to bear for a significant swath of investors.

Winners and Losers

In all human endeavors, there are winners and losers. The hedge fund industry is no exception. Average returns in the industry are lackluster, but some hedge funds that have managed to exceed the S&P 500’s gains by two, three, and fourfold. For example, Cheyne Capital’s Total Return Credit Fund was up almost 43 percent for the year through October. It is reported that at least one-half of more than 11,000 hedge funds are in positive territory, if not up to the gains enjoyed by the S&P 500.

Hedge fund investment is not a spectator sport. The Chicago Cubs enjoyed a fan base that remained loyal to the franchise for generations. These fans were finally rewarded with a World Series victory after 108 years. Unlike Cubs fans, investors expect hedge funds, and their managers to produce wins each year.

It is realistic to speculate that the number of hedge funds will continue to decline if poor performance continues to be coupled with high fees.

Hedge Fund Jobs

The shrinking numbers of hedge fund firms do not necessarily signal a shortage of hedge fund jobs. While it is true that a percentage of this capital has fled the hedge fund industry for other opportunities, much of it has been reinvested into higher performing firms. As these firms swell their assets under management, they will likely be reaching out for the talent necessary to meet their obligations to their investors. Rather than despair, recognize that this is capitalism at its best. In a capitalistic economy, only the strongest performers survive and survive they will. So hone your skills, improve your network and redouble your job seeking efforts.

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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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Hedge Funds Suffer 3 Consecutive Quarters of Net Outflows

August 8, 2016

If the subject were recession, defined by the media as two or more consecutive quarters of decline, then one would correctly view the past three quarters of declining hedge fund assets under management as akin to a recession in the hedge fund industry. However, economists can find no common ground for defining a recession. Obviously, […]

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Are Hedge Funds Truly Failing to Attract Graduating MBAs?

July 25, 2016

While it may be true that fewer MBA holders are entering the hedge fund industry, it is certainly true that recent headlines suggesting that these students “scorn” hedge funds or that fewer MBAs “want to work” for a hedge fund border on fiction. Here Are the Facts The articles referenced above are inspired by Training […]

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The Goldilocks Principle and Your Hedge Fund Career

March 7, 2016

The Goldilocks principle states that something must fall within certain margins, as opposed to reaching extremes. As such, it is often associated with the search for life on other planets and explains the phenomenon of life here on planet Earth. In short, life is possible because Earth is neither too hot nor too cold, nor is […]

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Trump Defies Gravity and So Do Hedge Funds

February 22, 2016

Anyone following the primaries will recognize this phrase, used frequently in the context of Donald Trump’s foray into presidential politics. For example, in the recent South Carolina contest, the phrase was employed ubiquitously by talking heads in the mainstream media, who were largely incredulous regarding the margin of Trump’s victory in the wake of his […]

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What You Need to Know About Hedge Fund Bonuses

February 8, 2016

Bonus pay is a critical segment of one’s total compensation in the financial sector in general and hedge funds in particular. It is not uncommon for those in the highest pay bands to earn bonus pay that is many multiples of their base salary. Predictably, the percentage of one’s total compensation represented by bonus pay […]

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