Michael Scotti of Traders Magazine recently reviewed a book that should be on your list of bedtime reading, especially if you’re interested in a hedge fund job.

Diary of a Hedge Fund Manager: From the Top, to the Bottom, and Back Again tells the story of a middle-class kid from Thunder Bay, Ontario, who earns a hockey scholarship to Yale University. He parlayed that into an entry-level equity sales job at Credit Suisse during the height of the dot-com boom.

The author, Keith McCullough, then moved to a hedge fund as a junior analyst. Within 3 years, he was earning more than $1 million a year as a hedge fund portfolio manager.

The book covers the frothy period from the dot-com crash through to the hedge fund bubble and ends with the with the subprime meltown. At one point, McCullough reached seven figures in annual compensation, not too shabby for a 27-year-old.

Reviewer Scotti says Diary of a Hedge Fund Manager is an easy read, covering the history of hedge funds, their meteoric growth in the past decade. And it gives readers a look at past- and present-day superstar hedge fund managers through the eyes of an industry insider.

You can read Scotti’s review at Trader’s Magazine Online. Or order your own copy of the book through Amazon.

Have you read it yet? Any comments? We’d like to know what you think. (Just leave a comment below).

Forget traditional hedge funds says Bloomberg writer Matthew Lynn. The next megatrend in international markets will be foreign exchange, and currency traders are set to be the new kings of the financial world.

Lynn points out that rising sovereign-debt crises, such as in Greece and Portugal, along with the gradual weakening of the US dollar and the search for a new safe-haven reserve currency, will all put currency traders in the driver’s seat.

Every decade has its financial hero. In the 80’s it was mergers and acquisitions deal makers. In the 90’s it was the venture capitalists, who backed promising tech start-ups, with help from bankers who arranged the IPOs. In the 2000’s, it was clearly hedge funds and derivative traders and engineers.

But in the two-thousand and teens, it’s going to be currency traders. Already, a big spike in activity on London’s global currency-trading hub, along with a 28 percent rise in foreign-exchange trading volumes in the U.S., adds further fuel to the fire.

“Great financial reputations and fortunes will be made in foreign exchange in the coming years,” Lynn writes, suggesting that any smart, ambitious grad finishing university this year, or anyone planning to move up a rung on the hedge fund job ladder would be wise to enter the sector.

We want to hear from you.

Have you seen or heard of increased interest in currency trading? (reply by clicking comments below)

Although women manage only a small slice of the hedge fund pie, they are enjoying increasing success in both performance and promotions, according to a new survey conducted by PricewaterhouseCoopers.

Between 2000 and 2009, women-owned firms delivered an average 9.06% annual returns, compared to a 5.82% average for all funds, according to data from Hedge Fund Research and reported in an article in The Guardian. Another study, by the U.S.-based National Council for Research on Women, shows that women are more likely to take a “holistic and risk-intelligent” approach to investing than men. And in the recent, turbulent years for markets, such a risk-averse approach can pay off.

Hedge funds may offer a more level playing field for women, as well. Compared with other financial institutions, hedge funds tend to have flatter organizational structures, with few layers and more opportunity to have a visible impact on the success of the firm. There are also more opportunities for flexible working hours, which enable women to better balance their work-family life without having to leave their jobs.

Nevertheless, women still manage just 3 percent of a $1.5 trillion global hedge fund industry. Which leaves plenty of room for women to play a greater role.

The Financial Times recently offered a quick snapshot of the health of the hedge fund job market as we move into 2010, and how soon we might expect a recovery.

2009 was a year of deep freeze, as many hedge funds simply tried to recover from the huge investor redemptions and free-falling market of 2008. That left practically no money for additional hiring. Firms instead tried to hang onto the staff they had.

2008 to 2009 was also a period when many big banks scaled back their proprietary trading desks. This dumped hundreds of experienced traders onto the street, flooding the market with trading talent. Thus, the chances of finding a position at a hedge fund during this period, without a stellar track record, were even more difficult.

Moving ahead, in the short term, industry insiders believe the surplus of trading talent will continue. Long term, however, job propsects looks brighter. One reason is that many of the larger hedge funds are beginning to nurture talent with in-house programs.

Some large hedge funds, such as SAC, have begun programs for candidates right out of university. Another firm, DE Shaw, one of the largest hedge funds in the world, prides itself on its recruitment capabilities. It hires “gifted mathematicians and computer scientists as well as extraordinary generalists” according to the firm’s website, and also notes that many of its managing directors hold degrees in fields as disparate as English, psychology, and Russian studies.

As the economy thaws and hedge funds recover, the larger funds will likely increase their commitment to graduate recruitment. However, only the highest quality candidates will have a chance at landing one of the few coveted positions.

A “Gone With The Wind” moment triggered a remarkable life turnaround for best-selling author, Marianna Olszwski. Like Scarlett O’Hara, she reached rock bottom and vowed “never to be this broke again” when her car broke down in the middle of the George Washington Bridge, and no one would help her.

Olzwski’s book, Live It, Love It, Earn It” and reviewed on NY1.com recently, is meaningful because she went on to achieve an MBA in international finance and to create a multimillion-dollar hedge fund marketing company. Her book is aimed at women, but offers advice that could help anyone searching for a hedge fund job these days.

Among her tips: don’t limit your networking to just  job fairs and career-related events. Get out there and network at charity events, religious organizations, at your previous employers, just about everywhere.

Be attuned to your instincts and talents, as well, she says. If you have a nagging dream about changing careers or starting your own business, it’s there for a reason. Follow your instincts and you may end up doing something extraordinary.

Prospects looking for a job in hedge funds need flexibility and a laser-like focus on creating value, according to Robert Olman, president of Alpha Search Advisory Partners. Olman, who has been in the executive search business for 26 years, including 10 exclusively serving the hedge fund market, was interviewed recently by hedgefund.net

A small number of firms are hiring but are being extremely careful, often hiring one person to do the work previously done by two. Successful candidates need to separate themselves from the pack by offering a very narrowly crafted package of how they can solve a problem for the firm, or provide value in a very targeted area.

And if you make it to the interview process, you’ll have to be more patient and flexible, too, because the hedge fund job hiring process is taking 2-3 times longer these days. Aside from solving a specific problem, candidates must show they’re the right fit with the culture of the firm. Gone are the days of when firms were making money so fast they could ignore interpersonal conflicts, Olman says.

His final advice? Focus on areas that are growing, such as distressed debt, special situations, global macro and equity long-short. Stay away from convertible bond arbitrage, capital structure arbitrage, statistical arbitrage and PIPES (Private investments in public entities).

Recruitment firm Heidrick & Struggles International, Inc. continues to release details on the hedge fund talent and compensation landscape for 2010.

Last year was what they call a “turnaround year” for the industry, as total hedge fund assets edged up over the $2 trillion mark once again.

Heidrick & Struggles surveyed more than 400 portfolio managers (PMs) and studied more than 100 hedge fund firms for their report. Some of their findings include:

- Higher demand for senior talent. The availability of senior talent is decreasing, as more professionals make the move to other funds, proprietary trading desks at banks, asset management firms and family offices.

- Bidding wars will return, as the increasing in hiring at banks and proprietary trading firms creates a higher demand for talent.

- Watch for a return of compensation guarantees in 2010 for front office professionals, although these may be linked to clawbacks and deferred forms of compensation.

Heidrick & Struggles also identified eight key characteristics of firms that are most likely to lose top talent. These characteristics include fund underperformance, lack of formulaic payouts to portfolio managers, shared portfolios, firms with less than $1 billion in capital, and funds undergoing a significant internal event, such as a merger or acquisition.

Claude Schwab, head of the U.S. hedge fund practice and a partner at Heidrick & Struggles, also identified “game changers” that trigger a top professional’s decision to leave even the best of firms. These include a very significant increase in capital allocation; sufficient capital to start one’s own firm; the opportunity to build a firm and/or be a key part of the firm’s succession plan; and the opportunity to serve a cause while investing.

Experienced hedge fund professionals are finding jobs in diverse places such as university endowments, sovereign wealth funds and even the U.S. Securities and Exchange Commission. That’s according to a new survey just released by the executive recruitment firm Heidrick & Struggles International Inc. and published by Reuters.

Heidrick & Struggles surveyed more than 400 portfolio managers at over 100 hedge fund firms for its report. The report noted that nearly 900 hedge funds went out of business last year, releasing a torrent of experienced professionals who are now more likely to seek out stable firms with more than $1 billion in assets for their next hedge fund job.

The exodus should slow down in 2010, with a “significant increase in hiring at most large banks and proprietary trading firms,” says Claude Schwab, head of the U.S. hedge fund practice at Heidrick & Struggles. Professionals may see compensation guarantees return as well, although many employers will likely include deferrals and clawback clauses in their compensation agreements.

It’s important to note that many of the hedge fund pros making the move to endowments and government work are quite senior, and may have already amassed their fortunes while working at hedge funds. Younger associates who haven’t yet accumulated their millions aren’t so eager to jump the hedge fund ship.

After losing 19 percent on average in 2008, hedge funds have racked up big gains in 2009. Energy funds, Russian and Eastern European funds and Convertible arbitrage have posted gains ranging from 32 percent up to 54 percent, according to data from Hedge Fund Research Inc.

But the big winner was David Tepper’s Appaloosa Management LP, which achieved a 117 percent return for the nine months ending Sept. 30th, taking the number one spot in Bloomberg Markets magazine’s Best Performing Funds report in its February 2010 edition.

Tepper achieved the top spot by scooping up beaten-down bank-related securities, such as common and preferred shares and junior subordinated debt of Bank of America, Citigroup, Fifth Third Bancorp and Sun Trust Banks Inc.  As the stocks surged later in 2009, Appaloosa pocketed more than $1 billion.

Tepper is profiled in a recent Businessweek article online, along with the heads of the other top-performing hedge funds of 2009. Tepper’s interest in investing started early, buying penny stocks in high school. He paid his way through the University of Pittsburgh, graduating with a degree in economics, by developing a system for options trading. Later, he was a star student at Carnegie Mellon University’s Graduate School of Industrial Administration.

After entry-level jobs in finance, Tepper wound up on Goldman Sachs’ new high-yield bond desk in 1985, the waning years of the junk bond heyday. By 1986, he was head of the junk-bond desk, but was passed over for partner three times as the high-yield bond market lost its luster in the wake of the Drexel Burnham Lambert Inc. collapse.

That disappointment pushed Tepper to launch his own fund, Appaloosa, in 1992, with $57 million in assets from people he knew through Goldman. The firm notched a 57 percent return in 1993 and grew to $800 million by 1996. Today, the firm has approximately $3.03 billion in assets among four funds. It’s a surprisingly lean operation, however, with just 11 investment professionals working at the firm.

Question:
You have two string-like fuses.  Each burns in exactly one minute.  The fuses are inhomogeneous, and may burn slowly at first, then quickly, then slowly, and so on.  You have a match, and no watch.  How do you measure exactly 45 seconds?

Answer:
Light Fuse 1 at both ends and simultaneously light Fuse 2 at one end.  As soon as Fuse 1 is burned out (i.e., after 30 seconds), light the other end of Fuse 2.

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