The hedge fund industry is off to a stellar start in 2018, as HFR reports. Average hedge fund gains of 2.45 percent, a January monthly performance record unmatched since 2006, were achieved. While this is, unquestionably, an auspicious beginning, we must remember that past performance is no guarantor of future success.

What Happened Next?

Post Super Bowl 52, all major market indices plummeted. The Dow Jones Industrial Average (DJIA) fell 1600 points before rebounding. At the closing bell, the DJIA was down 1179 points.

The S&P 500 tumbled nearly 4 percent, the Nasdaq Composite suffered a similar decline (3.8 percent) and the Russell 2000 lost about 2.9 percent. These declines erased 2018 gains and, according to CNBC, resulted in the loss of $1 trillion in market capitalization for the S&P.

The most interesting aspect of the decline is that it played no favorites. It was deep and it was broad, touching all eleven sectors in the S&P 500, with the financial, health-care and energy sectors being the hardest hit among them.

Equally troubling is the VIX, a volatility index, sometimes referred to as the fear gauge, which rose 88 percent, a record rise for a single day.

What Does This Mean for Hedge Funds?

In the mix of average hedge fund gains are those hedge funds employing an equity strategy, be it market neutral or fundamental. In this context, market performance and market volatility can play a significant role in the average performance numbers the hedge fund industry generates going forward.

One cannot help but marvel at the irony. The bull market represented a headwind to which the industry was slow to adjust. Now that the adjustment has been made, the markets played this cruel joke, which requires that hedge funds adjust once again.

Of course, it is much too early to speculate on the direction the markets will ultimately take. It would not be prudent to suggest that Monday’s events mark the demise of the bull market. Pullbacks are always going to occur. However, it would be imprudent for hedge funds to ignore Monday’s event, passing it off as an anomaly, though it may be no more than that. No one should paint this as a correction, a blip or an apocalypse. The data is just not there.

What about Hedge Fund Jobs?

As has been said many times before; there is always room for exceptional talent in the hedge fund industry. As new headwinds arise, so do fresh opportunities. For example, there is increased interest in artificial intelligence (AI) within the industry. These artificially intelligent stock picking programs are driven by algorithms that are developed by quantitative analysts, capable of doing the number crunching required for this technology. An event such as Monday’s has the potential to push this technology to top-of-mind with fund managers that previously may have dismissed the concept. The hedge fund industry represents almost one-half of the $6.5 trillion invested in alternative asset class. That should tell you most of what you need to know about hedge fund jobs.

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One sees the adjective happy, in daily use, in many contexts. It may characterize a feeling, causing a sense of satisfaction, a willingness to perform a task, an unexpected pleasure, a greeting, and even a description of slight intoxication.

The connotation most appropriate to describing one’s job in the hedge fund industry encompasses all these, except the last two.

Happiness Is a Universal Goal

Happiness is important, so much so, that it appears in the Declaration of Independence as one of three principal inalienable rights. After all, who doesn’t want to be happy in their chosen profession, their life and their relationships?

Unfortunately, happiness is a subjective term and, more to the point, the definition of happiness varies from one person to another, much like the idiom “one man’s trash is another man’s treasure”.

Fortunately, the 2018 Hedge Fund Compensation Report has real insights into the illusive state of happiness, and what factors are most likely to engender it, at least among hedge fund professionals.

What the Report Reveals 

As stated earlier, the concept of happiness has multiple contexts. Happiness, in terms of a feeling, is addressed in the report by asking participants how they view their work/life balance.

As we see in the chart below, 80 percent of hedge fund professionals view their feelings regarding work/life balance as average to excellent, while just one in five regard their experience as below average to poor.

This result suggests a generally positive sentiment with regard to the influence of work on familial and other interpersonal relationships.

Job Security

It is impossible to imagine that one could be happy in a job that may end at any moment. The 2018 Hedge Fund Compensation Report has polled its participants in this regard with the following results.

As the chart demonstrates, less than 10 percent of hedge professionals express serious concerns with regard to job security. While one must concede that this is not a measure of happiness, it must also be agreed that job insecurity is not a source of happiness, but rather, an impediment to said happiness.


This brings us to the “holy grail” of happiness—money! Revealed in the chart below is the fact that less than one-half, in fact, just 4 in 10 hedge fund professionals are satisfied with the level of total compensation they receive. But honestly, would you expect any other result from hedge fund professionals?

To most in the industry, satisfaction is synonymous with complacency. For this reason, we see the above result. No hedge fund investor wants to bet his financial future on a complacent firm. Investors want firms that strive to achieve the highest possible gains within the risk model to which they have agreed.

It follows that those hedge fund professionals exhibiting the will to achieve the best possible gains for their investors will also want the highest possible compensation for their efforts.

Final Thoughts

In the 2018 Hedge Fund Compensation Report there are additional charts clearly showing that the level of compensation satisfaction rises in direct proportion to the level of overall compensation, proving once again that cash is king.

However, the level of happiness one achieves as a hedge fund professional depends on how much weight one places on work/life balance, job security and, of course, compensation.


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