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In the wake of countless glowing articles touting hedge fund gains through the first half of 2017 as well as new industry records for assets under management, hedge fund managers can’t help but be pleased—and who can blame them?

Here Are the Facts

Hedge fund gains have been in positive territory for the past eight months, with cumulative gains through the first six months of 2017 reaching 4.87 percent. Looking at the most recent twelve months, we see average hedge fund gains in double-digit territory…10.91 percent! Hedge Fund Research reported that this eight-month run of positive gains as being the longest since early 2004… and that’s not all!

According to eVestment’s recent Assets Flow Report, the hedge fund industry gained $20.65 billion through the first half of 2017, which brought industry assets under management to a new record high of $3.12 trillion.

Here Is the Pushback

No one will argue that positive gains are not a good thing. However, 4.87 percent through the first half is not a number that excites when one considers that the S&P 500 was up 8.2 percent, the DJIA was up 8 percent and NASDAQ was up 14.1 percent in the same period, according to MarketWatch.

Another troubling fact is that although asset flows were indeed positive through the first half, investors withdrew almost $7 billion from hedge funds in June.

Finally, the number of hedge funds closed in the first half of 2017 outpaced the launches of new funds for the sixth consecutive quarter. However, many hold the opinion that this is actually a positive for the industry, recognizing that poorly performing hedge funds should shutter, thereby improving aggregate gains for the industry.

Regardless of your take on this matter, the fact remains that the total number of hedge funds and funds of funds stood at 9,691 at the close of the first half, down 4.45 percent from its previous high of 10,142.

In spite of all this good news, the Illinois State Board of Investment has dropped hedge funds as a separate investment.

Will the Bloom Return?

Only time will tell! However, there are many reasons to be optimistic regarding the future of the industry. Asset flows and gains are the primary concerns. According to HFR, mid-July gains stand at 0.73 percent, and if asset flows remain positive as well, the hedge fund industry could reasonably expect increased inflows from institutional investors, pension funds, endowments and high net worth individuals. Some suggest this is already occurring. If true, the bloom will indeed have returned to the rose.

What About Hedge Fund Jobs?

Positive returns and positive inflows can only be positive for hedge fund job seekers. However, we cannot forget that annoying problem of hedge fund closures outpacing hedge fund launches. The industry will require time to adjust. While it may not be the best of times to be seeking a hedge fund job, it is certainly not the worst of times. Demand may be somewhat diminished and competition may be heightened, but this is not to say that genuine talent cannot find a way through the door.

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Contrary to popular opinion, earning an MBA will not necessarily earn you a spot in the hedge fund industry. According to the 2017 Hedge Fund Compensation Report, just 4 percent of those surveyed were hired by a hedge fund as students graduating with an MBA.

This is not to minimize the value of an MBA in the industry. In fact, the report revealed significant salary advantages for MBA holders, with MBAs earning about 17 percent more than non-MBA peers in terms of base pay. The size of an MBA’s bonus also exceeded his non-MBA peers, in some instances by 73 percent!

However, the MBA cannot be realistically portrayed as a path to a job in hedge funds.

What Is the Path?

While there is no single answer to this question, one thing is clear; experience is a major factor in landing a hedge fund job. Those with investment banking, asset management and sell-side experience accounted for 35 percent of the hedge fund professionals participating in the survey. In short, experience seems to trump the MBA.

While it is demonstrably true that experience in investment banking, asset management and the sell-side will increase your odds of securing a position in a hedge fund firm, the actual appeal of the hedge fund industry is the extensive variety of backgrounds that enjoy the opportunity to make it into the industry.

The report referenced earlier demonstrates that people enter the hedge fund industry from a wide variety of backgrounds, including proprietary trading, public accounting, information technology, management consulting and a host of other fields—including the legal profession.

One may correctly infer that the hedge fund industry is open to applicants with diverse backgrounds, and, while it is true that certain backgrounds are more likely to result in hedge fund employment, the possibility of work in the industry is open to all.

The Internal Career Path

Hedge funds are shining examples of meritocracy. Experience, successful experience, is the key to advancement within the hedge fund firm. For example, if you are successful at landing a position as an analyst, it will take around three to five years to become a senior analyst. To reach the level of portfolio manager will require, on average, another three to ten years…if the opportunity presents itself.

This period is fairly well established in large-sized hedge fund firms, but less so in small to medium-sized firms. Consider acquiring a CFA to accelerate the path to portfolio manager.

Hedge Fund Jobs

The competition for hedge fund jobs is fierce. For those a couple of years out of college, recruiters, job boards and, most critically, the ability to shine in the interview process are the shortest road to a junior role in a hedge fund. Go to your interview focused on developing long and short ideas. Demonstrate industry knowledge and, of course, an understanding of what is happening in the markets.

Hedge funds are packed with alums, so any failure to tap that networking resource will be to one’s detriment. This is especially true for MBAs.

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What Will Be the Upshot of MiFID II on Hedge Fund Jobs?

June 26, 2017

Just as the regulatory mists were beginning to dissipate under President Trump’s Sharpie and the House’s legislative action, a new fog is rolling across the financial sector—MiFID II. Although driven by European regulators, it cannot be ignored by any financial organization that engages the European markets, and this includes the hedge fund industry. What Is […]

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What Does an Analyst Do and What Do They Earn?

June 11, 2017

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 […]

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Can Hedge Funds Help Pension Funds Meet the $400 Trillion Challenge?

May 29, 2017

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 […]

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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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