Reading about the movements of industry greats is fun, inspiring, and a source of challenge. It should also be thought-provoking. Reuters reports on two new hires (both pulled from JP Morgan Chase) into Citadel, a $20 billion hedge fund run by Ken Griffin (who ranks fifth on the list of top-paid hedge fund managers in 2007).

Derek Kaufman ran Global Fixed Income in JPMC’s Proprietary Positioning Group, and will run Citadel’s U.S. fixed income business. Patrik Edsparr was head of fixed income at his old firm, and will be in charge of Citadel’s European division beginning in the summer. And hiring at Citadel has actually been busier than that, according to HedgeWeek.

As various recruiters interviewed in this space have pointed out, hedge fund comp structures are a strong attraction for star bankers. Reuters further notes: “The pull may be even stronger now that many hedge funds are considered to be financially sounder than many large banks that face problems from the credit crisis.”

Is it a good time to make a pivotal move? Perhaps to a strong overseas market? Time to dig in or position for the future - and if so, how? Later this week we’ll post hedge fund highlights from the 2008 Financial Services Career Forecast by Kathy Graham of Highest Quality Search, the very recruiting firm that placed Ken Griffin years ago.

Most estimates put the hedge funds universe at somewhere around 10,000 strong. Some new players made headlines this week, including funds of funds.

Investcorp’s Credit Opportunities Fund - Bahrain-based fund of hedge funds will invest in mortgage and credit sectors
EverKey Global Fund - long/short emerging markets fund to be launched by Jeffrey Everett
Galleon Group’s existing Asian long/short equity fund - may be moving operations to Singapore
BNY Mellon Enhanced Coefficient Select Fund - a global macro absolute return fund
Bank Street Global Advisors - global macro and statistical arbitrage fund will be launched next month by 20-year-old Kirill Evseev
The Arizona Public Safety Personnel Retirement System - is outsourcing management of its $7 billion assets to several existing managers
International Equine Acquisitions Holdings - is reinventing itself as a racehorse-focused hedge fund
Electranet Fund I - is a new a long/short public equity fund by Electranet Capital, focused on energy
Khamsa Fund - will focus and the Middle East and is expected to launch with $25 - 50m
UBP’s DCO Distressed Fund - fund of funds seeks to raise $300 million to invest in 20 to 25 managers
HFZ Capital Management’s Red Kite Fund - focuses on Asian futures and equity

Hiring a new analyst, looking for a new position, considering an offer, negotiate comp at one’s current firm — reliable hedge fund salary data is an absolute necessity for each situation.

It’s readily available in the Hedge Fund Compensation Report by Hedge Fund Search Digest. Here’s a recap of what went into producing the 2007 Report:

• Hundreds of survey responses narrowed down to 232 respondents representing 220 firms
• Household names include ABN AMRO, American Express, Credit Suisse, Deutsche Bank, Goldman Sachs, and Morgan Stanley
• 75% USA-based respondents
• 31% with 10+ years of hedge fund industry experience, 63% with 5+ years, and only 16% with less than 2 years
• Titles included Analyst, Trader, Portfolio Manager, and more specific titles such as Quantitative Strategist, Assistant Operations Manager, Head of Operational Due Diligence, and Quantitative Risk Manager

The 2008 Survey and Report isn’t far off. We’ll be posting more information here soon.

We were talking to Charlie Panoff from Objective Solutions International about hedge fund job interviews and he asked us this question - and, for the record, no we did not get it right. Hopefully, you’ll be better prepared and when asked this one, a lightbulb will go on.

Q: A windowless room contains three identical light fixtures, each containing an identical light bulb. Each light is connected to one of three switches outside of the room. Each bulb is switched off to begin. You are outside the room, the door is closed, you can not see anything inside the room. You have one, and only one, opportunity to flip any of the external switches. After flipping your chosen switch(es), you may go into the room and look at the lights. You may not touch the switches again. How can you tell which switch goes to which light?

A: Turn on switch #1 for a short while, then turn it off. Turn on switch #2 and immediately enter the room.

The illuminated bulb represents switch #2. The warm but turned off bulb represents switch #1. The cold, non-illuminated bulb represents switch #3.

Note: This solution works if at the beginning all bulbs are off. What if they are all on? You won’t be able to tell from the heat, so just guess. You have a 1 in 6 chance if they are random, however, most light switches/fixtures are not random. Your chances improve based on standard configurations.

Although we learned of this question in our interview with Charlie Panoff, we found it in written form in Timothy Crack’s Heard on the Street: Quantitative Questions from Wall Street Job Interviews. Buy the book for more questions like these.

Money from institutional investors and high net worth individuals may not flow into hedge funds as freely as a year ago. Nevertheless, the steady appearance of new funds is a clear sign that managers continue to see opportunity in the markets. Here’s a casual roster of newly- or recently-launched funds (or rumors of such) reported this week. We’re counting both hedge funds and fund-of-funds.

RAS India Absolute Return Fund - India-focused arbitrage-only fund of hedge funds
LRG Capital/Admiral Flagship Fund - opportunistic, convertible-centric multistrategy
Wegelin Multi-Strategy Fund - multistrategy fund of hedge funds
Haar Capital Management’s Tangible Commodity program - agricultural commodities, energies and metals
Josh Birnbaum of Goldman Sachs - will form a $1 billion hedge fund
Lehman Brothers - is raising a $3 billion fund of hedge funds
SPM Directional Mortgage Prepayment Strategy Fund - will invest in interest-only mortgage backed securities
Sequoia Capital - is rumored to be raising its first hedge fund
Aquila Capital’s Statistical Value Market Neutral Fund - “optimized exposure to assets that provide systematic risk premiums”
Merzbach Group - is raising a fund to invest in carbon markets
The Halsey Diversifier Fund - is a 12-15 manager fund of hedge funds
Jeffrey Larson formerly of Sowood Capital Management - may launch a new market-neutral fund
The Akeida Environmental Master Fund - focuses on trading carbon emissions

Unfortunately from a career perspective, most funds run a tight ship in the early stages, as long as funding is uncertain and strategies remain unproven. But now is definitely the time to network. Be in touch with hedge fund recruiters with whom you have strong working relationships, making them aware of your current skills and professional goals. If you haven’t developed those relationships - begin now. Neither over- nor under-assert yourself. An updated resume with a thoughtful email or phone call every few months is about right.

These interviewing tips from a hedge fund recruiter could make the crucial difference when you go looking for a quant job or, for that matter, any hedge fund job. Craig’s firm, Comprehensive Recruiting, is a financial shop in Arizona with a strong Wall Street practice.

Interviewing Tips & How To Differentiate Yourself
by Craig Stocksleger

It is one of the most highly recruited and sought after positions on Wall Street, the Quant Analyst. As a Quantitative Analyst you will be called upon to support one of the main profit centers of the Investment Bank or Asset Management firm, the Trading Desk. You possess an advanced degree and expertise in Numerical Analysis and advanced Mathematics as well as solid communication skills and the ability to work under pressure. You also have strong programming skills and have the ability to create and maintain complex pricing models in several languages (C++, VBA). The reality is in today’s marketplace these are the same qualities that 90% of your competition also possess. So just how do you plan on standing out from the pack?

(more…)

Amid prominent fund closures, we’ve suggested that nevertheless the news might not be all bad for hedge funds and the employment picture in particular. This article supports that idea and more, in interviews with multiple prominent recruiters who have also posted hedge fund jobs with Hedge Fund Search Digest or been interviewed here. The upshot: it’s an especially good time to be looking in accounting, sales, client services … support roles. And from analysts and portfolio managers, certain areas of expertise are in demand: emerging markets and distressed bank loans, especially.

JPMorgan: 26,000 employees in Investment Banking and Trading
Bear Stearns: 14,000 employees

That could be a lot of people looking for work - see Reuters’ recent article: “Bear Stearns employees flood Wall Street rivals with resumes.” A financial recruiter, The Options Group, reports receiving 10-15 resumes per day from Bear employees. Are there jobs for these job-seekers? Its chief notes, “[s]electively we are seeing demand from hedge funds, where we are seeing people who are looking for private equity-type bankers to come in and help them grow their businesses.”

With plenty of resumes circulating and the tendency of hedge fund job opportunities as yet unclear, this is a good time to be aware of and in touch with hedge fund recruiters. Read our archived interviews with several from preeminent recruiting firms, with their advice about how to get in touch, stay in touch, and stand out of a crowd.

One theme of a recent NYT article is that Wall Street layoffs may soon propagate to other areas: “Last year, the finance industry was responsible for nearly a third of all wages earned in the city, the highest in modern times. And each Wall Street job supports three workers in other sectors.” Mark Zandi, chief economist of Economy.com, is quoted: “[I]n ’01 or ’91, it was a much larger share of the back-office jobs. But in terms of compensation, the impact [now] could be just as significant. One hedge fund job lost today is worth 10 back-office jobs in the last downturn.”

And there is this: “Adam Zoia, managing partner at Glocap, another New York recruiter, said employers using his firm listed the same number of job openings in the first two months of this year as in the period a year earlier. But, he said, they filled 20 to 30 percent fewer of those positions because of uncertainty about the economy.” That’s from a major recruiter with a strong hedge fund practice.

Fund collapses are well-reported every week. Nevertheless, according to Jane Buchan, CEO of a $10 billion hedge fund of funds, although financing is tight and it won’t be easy, “[y]ou will see a large number of people with big names and reputations trying to start up hedge funds” (from a Reuters article; comments delivered at the Reuters Hedge Fund and Private Equity Summit). And while it’s no surprise that a launch doesn’t garner as much attention as a spectacular collapse, there does indeed seem to be a small but steady parade of new funds opening doors.

Interviews for hedge fund jobs … We don’t want you to get blind sided by this question. It’s a good one.

Q: Inside of a dark closet are five hats: three blue and two red. Three smart men go into the closet, and each selects a hat in the dark and places it unseen upon his head. Each man knows both that the closet contains three blue hats and two red and that the other two men have the same knowledge.

Once outside the closet, no man can see his own hat. The first man looks at the other two, thinks, and says, “I cannot tell what color my hat is.” The second man hears this, looks at the other two and says, “I too cannot tell the color of my hat.” The third man is blind. The blind man says, “Well, I know what color my hat is!”

What color is the blind man’s hat and how do you know?

A: If the first man saw the other two both wearing red hats, he would know his own hat was blue. Since he says he does not know its color, the second and third both know that between them, they are wearing both blue, or else one red and one blue.

Therefore if the second man could see a red hat on the first or third, he would know his own hat was blue. So, when the second announces that he cannot determine his own hat color, he effectively tells the third that his hat is blue.

Special thanks for this interview question to Timothy Crack, author of Heard on the Street: Quantitative Questions from Wall Street Job Interviews