From the category archives:

Hedge Fund Jobs

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 operation, which offer the opposite experience.

Hedge Funds Are Like Snowflakes

Each hedge fund is unique, established in its own way. As a result, one should use caution when making generalizations. For example, the responsibilities associated with job titles can vary considerably from one firm to another. This is typically a function of the firm’s size, with smaller firms folding in higher levels of responsibility in single job title than one would see in the identical job title in a larger firm. This is why there can be widely disparate salaries when comparing job titles in small vs. large-sized firms. For this reason, smaller firms pay typically pay higher salaries and bonuses for a particular job title in the firm when compared to a larger firm. For specific examples and further clarification, read the 2017 Hedge Fund Compensation Report, which covers the topic in greater depth.

First Quarter Trends

According to the HFObserver, which tracked more than 1100 hedge fund job moves in 2017’s first quarter, Ken Griffin’s Chicago-based Citadel led the pack by hiring more than fifty staffers, while Bridgewater Associates and Balyasny Asset Management, each added between 30 and 50 new hires.

The bulk of Citadel’s hires were front-office investment roles comprised of analysts, portfolio managers and traders, with most being senior hires. Citadel’s hires ran the gamut, from conventional financial and research analysts, to analysts with strong quantitative, market data, and machine learning backgrounds and software developers.

In contrast, HFObserver reports that Millennium Management hires were weighted in favor of the usual finance and research analysts with sector-specific experience.

The Surprising Trend

The surprising trend is that there is no trend. As was said earlier, hedge funds are not snowflakes. Each hedge fund makes its personnel decisions based upon unique needs, strategies and cultures. Hedge fund managers, administrators and analysts do not share a common background. Hedge funds are acquiring staff with the skills, background, and education that best suits its unique needs.

What This Means for Jobs

Anyone looking for one of those hundred hours per week jobs can surely find one. However, there is hope for those who seek a position in a hedge fund that offers more opportunity for work/life balance.

For example, a position in administration has little to do with trading. Such positions focus on client relations, accounting, reporting and myriad other functions that keep the firm humming. Make no mistake, these positions are not easy jobs, but they are often less stressful than the work of a hedge fund manager or analyst.

The takeaway is that the hedge fund industry is wide open to a vast variety of skill sets and backgrounds. Never sell yourself short—no pun intended.

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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 record. The unvarnished truth is that hedge fund performance continues to compare poorly to the S&P 500 Index, which returned 6.1 percent in the same period, almost three times hedge funds’ aggregate gains. Even the wildly successful long/short strategies posted gains that represent only about one-half the S&P 500 gains.

According to Prequin, the quarter breaks down as follows: January saw gains of 1.46 percent, followed by February gains of 1.01 percent and ending with March gains of 0.68 percent, which totals 3.15 percent, a more generous result than the 2.3 percent reported by eVestment. Regardless of the disparity, one thing is clear, the direction is wrong with gains diminishing each month during the first quarter.

Cause for Concern?

Actively managed funds of all stripes are under pressure. Blackrock’s actively managed equity portfolio lost $42 billion between 2013 and 2016. More broadly, actively managed equities lost $442 billion in the past twelve months as $542 billion flowed into passively managed index funds, representing a nearly trillion-dollar shift.

Hedge funds have seemingly countered by adopting an “if you can’t beat ‘em, join ‘em” strategy. Hedge fund investment in ETFs have surged 77 percent, rising to $43.7 billion while the actual number of hedge funds investing in ETFs have risen by 17 percent, this according to Deutsche Bank’s 2016 Guide to Institutional ETF Ownership.

One can’t help but be concerned about the motives behind hedge fund investment in what is arguably a rival investment vehicle—an investment vehicle that has attracted $1.44 trillion from about 3,500 institutional investors, representing 59 percent of EFT assets.

What Is the Answer?

Hedge funds do not invest in EFTs as a core asset building block. Rather, such investment provides quick, efficient asset class access and to provide liquidity. This liquidity can then be leveraged to provide the fund with the ability to execute large trades without significant market impact. In short, hedge funds use ETFs as completion strategies, as tangible satellite positions, for cash management, for liquidity access, and risk management.

In the hedge fund industry tradition of innovation, hedge funds are using ETFs to their greatest advantage.

What is the Relevance to Hedge Fund Jobs?

The Deutsche Bank report offers palpable evidence that hedge fund investment in EFTs is on the rise. It follows that individuals with a background in ETFs may have just the credentials required by hedge funds exploiting ETFs for the purposes outlined above.

More to the point, it is instructive to learn that the spirit of innovation is an important attribute for anyone that seeks a position in the hedge fund industry. How “outside the box” is a strategy that sees hedge funds investing in a competitor?

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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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Surprisingly Investors Remain Bullish on Hedge Funds

March 5, 2017

After an inglorious 2016, many pundits jawbone about a continued investor exodus from the so-called overpriced and underperforming hedge fund industry. However, the facts are in stark contrast to the rhetoric. January 2017 redemptions total $5.2 billion, about one-quarter of the $19.3 billion outflow the hedge fund industry experienced in January 2016. Furthermore, a substantial […]

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Hedge Funds Face-Off with the 4 Horsemen of the Apocalypse

May 31, 2016

Who are these four horsemen? Pitiful performance, available alternatives, reduced fees, and impatient investors. Abysmal hedge fund performance has been the norm for the past five years. Hedge Fund Research reported the global hedge fund composite to be down almost 1.2 percent when averaged over the past five years. Contrast this with the S&P 500, which is up […]

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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 Is the Best Professional Background for a Hedge Fund Job?

January 4, 2016

Many aspiring to a career in the hedge fund industry ask this question in the broader context of career path. It is an excellent question but, like so many others, has no single answer. The truth is there are many paths to a career in hedge funds. Hedge fund employees come from a multiplicity of […]

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