How does a 33-year-old afford the $12 million home formerly owned by Lloyd Blankfein, head of Goldman Sachs?

The Financial Post recently tried to answer that question as it looked at the meteoric rise of Bryce Markus, a senior portfolio manager with BlueMountain Capital Management LLC. BlueMountain is a privately owned hedge fund sponsor, which is similar to a fund of funds manager.

Was it family money? Hedge fund profits? Connections? Turns out, it was all the above and more. Markus started out with a pedigree in finance. His father was an investment banking vice president in municipal finance at Goldman Sachs. His wife worked at Credit Suisse. After graduating from Wharton, Markus also joined Goldman, where he rose to vice presidents of Goldman’s Fixed Income Currency and Commodities Division. His current profile says he traded corporate debt and credit derivatives at Goldman.

While at Goldman, Markus met Alan Gerstein, a senior portfolio manager at BlueMountain, perhaps opening the door for his move into the hedge fund world.

At BlueMountain, Markus has managed structured credit strategies, a flagship investment vehicle at the firm. According to a description from HedgeWeek, BlueMountain manages US$4.5 billion across eight different absolute return funds and US$1.4 billion across three collateralized loan obligations.

Since hedge fund portfolio managers take home a small percentage of the total funds managed, having a large portfolio like BlueMoutain’s means more money at the end of the year for managers. Markus is also involved with the firm’s risk analytics, capital allocation and balance sheet management. More responsibility like this typically means greater compensation.

So it’s simple. To afford a $12 million home at age 33, it helps to 1) have connections 2) work at Goldman Sachs 3) be a portfolio manager at a fund of funds. And work hard. Any questions? Add your comments below.

Several high profile hedge fund managers have decide to throw in the towel and leave the industry, citing growing frustration over increased regulations, higher taxes on profits and disappointment with returns.

The latest is Stanley Druckenmiller, who managed $12 billion at Duquesne Capital Management, reports Reuters. His decision was reportedly due to “burnout”, after amassing a personal fortune pegged by Forbes at $2.8 billion.

He joins Renaissance Technologies’ founder Jim Simons who retired last year, and Highfields Capital co-founder Richard Grubman, who has told investors and colleagues that he plans to step down to focus on personal matters.

Many hedge funds have seen relatively flat returns in 2010. Flat returns mean smaller paychecks for hedge fund managers, especially on the 20 percent portion of their fee based on performance.

Of course it’s easy for a billionaire fund manager to cash out after earning their fortune. But what about other managers who may not have experienced the same level of success quite yet? Do you think these departures will make room for hungry, young hedge fund managers and others looking for hedge fund jobs to take their place? Add your comments below.

Hedge funds may benefit from money managers unhappy with the current direction of their big bank employers, reports the Financial Times. Many are once again thinking about leaving to start their own firms.

The reasons vary, from being forced to alter cherished and time-tested strategies that have worked for them, to being told to cut back on analyst resources to simply having to dance to the tune of a big parent company.

Hedge fund start-up activity slowed during the 2007-2008 financial crisis, with the pace of new investment start-ups falling from 70 in 2007 to 32 in 2009, according to data from eVestment Alliance. But the pace has picked up, due in part to improved markets and a greater willingness by large institutional clients to invest in a smaller firm with a good track record.

During the crisis, it was the old “nobody ever got fired for hiring IBM” tried-and-true approach. Institutional investors went for the safety of big name managers, regardless of their performance record. But recently, some of the bigger money managers have had lackluster returns, prompting a new interest in boutiques.

In fact, quantitative data from Northern Trust reveals that smaller managers earned higher returns with lower volatility during the five-year period ending in 2008, according to the Times article.

Many start-up firms are now big success stories, such as Turner Investment Partners, founded in 1990, with $19bn in assets; LSV Asset Management in Chicago, founded in 1994, managing $58 billion; and Oaktree Capital Management in Los Angeles, founded in 1995, with $76bn.

What’s your opinion? Do you think the financial environment has turned around sufficiently to make this a good time for starting a new hedge fund firm? Add your comments below.

Hedge funds may be the answer. Here’s the problem: The gap between what many U.S. public and private pension funds have in assets and what they’ll need to cover their pension obligations is like a “heart attack waiting to happen.”

That’s the news according to a recent article in Finalternatives. U.S. public pension funds are $500 billion to $3 trillion short in the amount needed to cover promised benefits. And private sector pension funds have roughly a $450 billion deficit, according to figures from Mercer.

The recent financial downturn in the markets, plus pension funds using out-dated return assumptions and governments dealing with growing budget deficits all make it unlikely that pension funds will be able to make up the difference, if they continue the same course. The problem isn’t acute right now; but as millions more Americans hit retirement age, the pain will begin.

Hedge funds may be the solution, according to Don Steinbrugge, managing partner and founder of Agecroft Partners, a hedge fund consulting and third-party marketing firm. Right now U.S. pension funds allocate roughly 3% of their investments to hedge funds. While that translates into a hefty $180 billion out of a $5 to $6 trillion defined benefit plan marketplace, Steinbrugge feels that pension funds could erase the shortfall by allocating more of their assets to hedge funds.

He believes the average allocation will rise to between 10% and 20% over the next decade, driving growth and possibly hedge fund jobs in the hedge fund industry.

Pension funds are relative newcomers to the hedge fund market, versus university endowments and foundations, which began to increase their allocations to hedge funds back in the 1980s. Some now allocate as much as 50% to hedge funds.

Hedge funds could help insulate pension plans from the kind of shocks that rocked the equity markets in 2008. And they could provide a counterbalance to fixed-income volatility that investors saw in 2001 and 2002.

“When they’re run properly, [hedge funds] are conservative vehicles that offer better risk-adjusted return for investors. That’s something that pension investors – in the U.S., Europe and elsewhere – desperately need because they’re underfunded,” said Steinbrugge.

The lengthy Finalternatives article also discusses what hedge funds need to do to attract the conservative and risk-averse pension fund managers to their funds.

What’s your opinion? Do you think the major pension funds can head off disaster? Will hedge funds play a larger role in this rescue? Add your comments below.

The code monkeys who create the algorithms for Wall Street’s high-frequency hedge fund trading shops are demanding a bigger slice of the pie, reports Forbes. And while some are getting hefty raises, others are deciding to go out on their own in order to get a share of profits.

The article cites one programmer, Jeffrey Gomberg, 32, who left his low six-figure job writing code to cut a deal with HTG Capital Partners in Chicago. HTG provides the office space and access to regulated futures exchanges. In return, Gomberg gets to keep 40% to 80% of net profits, with the percentage rising with profits. Even more importantly, the programmers get to keep ownership of the code they write.

Another programmer, who preferred to remain anonymous, said he left his $150,000 a year job at a firm that was generating $100,000 a day from the high frequency trading software a group of programmers was writing. Together with a partner, he’s now getting 50% of the profits his software generates, with no limit on the upside.

The big firms and hedge funds are upping the ante, offering raises and total compensation of $200,000 a year or more to programmers in an effort to retain key talent. But that often pales in comparison to the profits the firms are raking in with their high-frequency trading programs.

However, now that these renegade coders are taking on risks similar to the traders themselves, it remains to be seen whether it will be a long-term improvement over the security of a six-figure salary.

What’s your opinion? Should programmers get a bigger share of the profits that result from the code they write? Add your comments below.

A rather lame article appeared in Forbes about getting a job at a hedge fund, filled with such trite advice as “get ready to be aggressive about networking” and “design your search strategy to fit the hyper pressurized, risk-taking culture” of hedge funds.

It is our contention here at HedgeFundDigest that to get a job at a hedge fund, first and foremost, you need to have a passion for investing. It doesn’t matter whether it’s stocks, futures, options, derivatives or some arcane combination. You need to have such a good understanding of the markets, or one particular market, that you have some very passionate opinions about what would make a pile of money in that market. And be ready to back it up with numbers that prove your point. In other words, an investment philosophy.

Barring that, maybe you have deep experience in an industry vertical, such as biotech or green energy. Or you’ve earned a Ph.D. in math and enjoy devising complex algorithms in your free time. One final saving grace: maybe you’re an awesome poker player (research has shown a correlation between good traders and good poker players).

If that doesn’t describe you, why are you pursuing hedge funds?

About the only suggestion that made sense in the Forbes article was perhaps to try to worm your way into a hedge fund job after working for a prime brokerage (the firms that provide financing to hedge funds).

If you really want to know how to break into hedge funds, check out Hedge Fund Digest’s Hedge Fund Careers Guide. And get busy building your investment cred.

What’s your opinion? If you do the hiring at a hedge fund, what makes a candidate stand out in your mind? Add your comments below.

The usual trickle of bank traders wanting to leave their firms to start their own hedge funds has turned into a flood, according to a recent article in Britain’s Telegraph. Among them are traders from Goldman Sachs, BNP Paribas, Deutsche Bank and the former Wells Fargo.

In some cases the reason is tighter bank regulations following the financial crisis. There’s new legislation in the U.S. to clamp down on proprietary trading. Banks will have to ante up more capital to cover their risks. As a result, proprietary traders aren’t being given the freedom to trade as they once did.

What’s more, tighter oversight of compensation may prevent traders at banks from pulling in enormous bonuses, even when they do well but their bank has a bad year.

Still, the freedom of running your own show has considerable lure. There’s virtually no bureaucracy. The working environment of a hedge fund job is entrepreneurial and perhaps more intellectually stimulating. And you can show up for work in a polo shirt and jeans.

Speaking of freedom, one of the bank refugees setting up his own fund is Greg Lippmann, the trader who helped Deutsche Bank make millions shorting the U.S. subprime mortgage market. Lippmann was profiled in great detail in the current bestseller by Michael Lewis, The Big Short. Lippmann has reportedly raised $1 billion for a new fund which he is calling “Libra Max”, which translates into “Maximum Freedom.”

Other newcomers to the hedge fund world may have more difficulty raising funds, though. Banks are more reluctant to seed hedge funds today. Institutional investors are committing fewer dollars. And the heavy redemptions and fund closures during the financial crisis have made it tougher than ever for smaller funds and new funds to raise investment capital.

To top that off, there’s a growing regulatory burden facing hedge funds both in the U.S. and Europe. Maybe the “freedom” to go off on your own isn’t all it’s cracked up to be.

What’s your take? Do you think the exodus of bank traders will continue or even increase? Add your comments below.

When looking for hedge fund jobs, perhaps the most important part of the process is developing a plan. We recently caught up with the author of The New Job Security, Pam Lassiter to talk about this topic (among others). A veteran career advisor, Pam has provided career advice for three decades and has seen many up and down job markets. She offers some practical advice for someone looking for a hedge fund job in this excerpt from the interview.

Job Search Digest: When somebody is looking at making a change what approach do you recommend for them in terms of developing their job search plan?

Pam Lassiter: Okay, a change within industry or outside of industry?  You want to stick within industry to start off with?

Job Search Digest: A good differentiation.  Yeah, let’s start within the industry.

Pam Lassiter: My referral triangle.  Simple answer.  If you visualize a triangle in front of you and put yourself in the middle, the fat part of the triangle, there are three ways that people typically leave their firms or their companies, and it’s through the points of the triangle: vendor, competitor, customer.  And that goes for venture, private equity, or hedge as well.  So let me talk that through for a second.

Vendors, what’s coming into your firm?  You don’t have to touch these people to be of value to them.

Let’s say there’s some software your firm has been buying and it has to do with modeling and you’re interested in software.  So that’s a conversation you could be having right there about – people that sell into companies are very well-connected, by the way.

So even if you don’t want to work for their company, they can tell you what venture firms are growing, who isn’t, who’s having trouble, because they’re in there all the time.  So not only may you be interested in them as an end, they can become a means to marketplace information too.

Job Search Digest: What a great insight.  Because you’re exactly right, those vendors, those salespeople, it’s their job to understand what’s happening in the industry, and more likely than not, they’re going after some of the hotter firms, the emerging firms, and they’re probably going to have contacts in many of those.

Pam Lassiter: They may well.  And if they’re good and smart they’ll figure out – if they help you land your next job, you can’t make any guarantees, but you can certainly tell them, “If I land at one of those firms, I’d be delighted to have you in for a conversation.”  So you can’t promise anything, but they can see they can help themselves if they help you.

And that’s second of the five strategies I teach about the marketing for mutual benefit, what’s in it for them.  You can help point that out to them if they aren’t getting it on their own, and they will know the companies that are hot and the ones that aren’t. There are other vendors, like the law firms and the accounting and tax firms.  So think about the vendor side.

The competitor side, it’s interesting.  I love the word “should”.  If you can see what the competition is doing and your own firm is not doing it, maybe they should be.  Maybe their lunch is going to be eaten because they aren’t.  So you have a conversation that’s not about you; it’s about the opportunity in the marketplace.  So look at competition with other firms as well as is there an area for growth within your own firm.  So vendors and competitors.

Now the customer side or private equity, VC, or hedge funds, where does the money come from is the question to ask yourself.  And should we be talking – are there institutional investors out there that might be of interest?  Are there limited partners, are there acquirers, are there strategic divisions, as in companies that this function could be embedded within?

So thinking more creatively about the client side, where the money is coming from, and are there niches for me within that.  Or getting back to should, are there niches that should be developed within some of these strategic areas or some of the – maybe publicly held companies are investing in your hedge fund too.

So maybe there should be some niches around there.  Easy flip over often is business development.  If you’re a deal-maker on one side, you can be a deal-maker within a company as well.  And so you’re just working back with the types of companies or firms or portfolio companies that you’ve come from.  Is that making sense?

Job Search Digest: Absolutely.  And it’s those translatable skills, those transferable skills, I should say, where you are a deal-maker and it’s a function of them saying, “Here’s where I’ve got that experience and here is where I can translate that into this new niche.”  And especially in a case where, like you said, where the investment firm should be operating.

Pam Lassiter: Yeah.  Or where you should be, even if your firm isn’t.

About Pam Lassiter

In addition to authoring The New Job Security, Pam Lassiter is the founder of Lassiter Consulting, a firm that offers career management services such as employee retention, career coaching, outplacement and more to companies and individuals worldwide.

Want to learn more? You can listen to the entire Pam Lassiter Interview (to download, right click and “save as”)

You can also pre-order the latest version on The New Job Security (and save 32%)

The SEC has reversed its position and will now allow public pension fund managers to hire third-party marketers (3PMs) that are registered as investment advisors or broker-dealers. However, the new rule prohibits a 3PM from providing advisory services for two years if the advisor, or employees from the firm, make a political contribution to an elected official who may be in a position to influence the selection of the advisor.

The new ruling comes in the wake of scandals in both New York State and California where so-called advisors lavished perks and gifts on officials with relationships with public pension funds. It’s aimed at eliminating “pay-for-play” improprieties, according to Doug Rothschild, managing director for the hedge fund third-party marketer Agecroft Partners, who wrote an article on this topic for Finalternatives.com

Third-party marketers play an important role for hedge funds. Hedge funds can choose to create their own sales teams in-house, or outsource the fundraising and marketing efforts to a third-party marketing firm, or use some sort of hybrid approach.

However, third-party marketers are required to be licensed and regulated by both the SEC and FINRA, the Financial Industry Regulatory Authority (FINRA), the largest independent regulator for all securities firms doing business in the United States. Whereas most hedge funds are not regulated and their sales staff are often not licensed.

Third-party marketers also do extensive screening and due diligence on the hedge fund managers they represent. Rothschild estimates that they end up promoting fewer than 1 percent of the firms they research. So if they have any concerns about a particular fund manager, they have the flexibility to drop them. Whereas an in-house salesperson would have to keep selling the firm’s funds or look for another hedge fund job.

Third-party marketers have argued that this high degree of regulatory oversight, combined with greater objectivity, help 3PMs provide a very valuable service to potential investors, including large public pension funds.

What’s your opinion? Does your firm use third-party marketers? Do you think the new ruling is the right direction for the industry? Add your comments below.

To find the optimal city for hedge fund jobs, you have to look at local economies, costs of living, quality of life issues and many other factors. So, we did just that and there are both some expected results and a few surprises.

Hedge Fund Jobs Digest completed an analysis of the top cities for finding and working in a hedge fund career.  We looked beyond just the top funds in each city (although included) and examined what makes each city stand out because a career decision is part of a life decision. Night life, culture, cost of living, and what an area has to offer are all considered.

12. Zurich, Switzerland

11. Tokyo, Japan

10. Stamford, CT

9. Dallas, TX

8. San Francisco, CA

7. Hong Kong, China

Check out the full list of the Top 12 Cities for Hedge Fund Jobs on JobSearchDigest.com