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hedge fund culture

Hedge funds have grown substantially over the past decade as an alternative investment class for those that want returns not necessarily correlated with the overall market. These funds do not face the same restrictions as traditional funds such as mutual funds, and this freedom allows hedge fund managers to pursue a variety of unique investment strategies. Some of these investment strategies include long-short funds, relative value funds and commodity funds.

The freedom to short equities and trade in derivatives sets hedge funds apart from traditional mutual funds. Many investors believe that these exposures make hedge funds more risky, and in many cases, they are correct. However, the careful application of derivatives and short positions in a portfolio can yield solid returns that are not tied to any existing index, giving the investor instant diversification.

Hedge Fund Industry Affected by Overall Climate

The hedge fund industry is intimately tied to the overall investment climate. In times of high economic risk like we are seeing today, investors tend to avoid riskier investments such as hedge funds and equities in favour of fixed income alternatives such as Treasury bonds. The redemptions caused by this shift in capital allocation impact not only the size of hedge funds, but also the fees that hedge fund managers collect. This then impacts the resources that hedge fund managers are able to bring to bear in the management of the portfolio.

The New York Times captures this trend in a May article, discussing the slowing in hedge fund inflows. While overall hedge fund asset growth has been on the decline since May of 2010, the article indicates that one of the bright spots in the industry has been fixed-income funds. Leon Mirochnik, an analyst at TrimTabs Investment Research, said “investors see these strategies as offering the best defense against unpredictable geopolitical issues.”

Other niche markets such as funds in Japan and macro based funds are also experiencing growth in light of the overall decline in the industry. This has been despite negative returns in the Japanese market in particular.

Hedge Fund Jobs Outlook

Opportunities in the hedge fund industry will be limited moving forward unless a reversal in the flow of funds occurs and assets under management begins to grow again. Quite simply, there isn’t enough money moving into the funds to justify the addition of resources. The exception to this trend is of course the niche market and the fixed income funds that are experiencing growth. Individuals with experience and knowledge of these niche markets may find some success in the hedge fund industry over the coming years.

With that considered, until a robust economic recovery gets underway, investors will continue to avoid risky assets and hedge funds certainly fall into that class. This will continue to be a drain on hedge fund assets under management for some time to come.

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The founding partner of a hedge fund is often the portfolio manager and will be involved in overseeing investments, making trading decisions, hiring and firing, supervising accounting and operations and monitoring risk.

Because of the smaller size of the firm, principals and senior managers often take on multiple roles, including human resources. It’s not uncommon for vice presidents and even partners to review resumes and be involved in interviewing prospective employees. Another partner may take on responsibility for overseeing the operational side of the business. In general, a hedge fund culture is small, entrepreneurial, meritocratic, and run like a small business.

The culture of a hedge fund will also vary depending on the nature of its investment strategy. For example, a fund that is heavily quantitatively oriented such as a statistical arbitrage hedge fund will be staffed with PhD’s and “quants” who are typically more introverted and enjoy crunching numbers behind computer screens. A global macro fund, on the other hand, may have more extroverted types who enjoy watching the markets from a trading floor and sharing ideas.

Overall, hedge fund culture is less structured and more relaxed than other jobs in finance but every bit as demanding intellectually. The success and performance of the firm’s investments are paramount, and that tends to focus everyone into a cohesive team.


Yale School of Management

Schwab, Claude. Hedge Me: The Insider’s Guide: U.S. Hedge Fund Careers. Lynx Media.

Davare, Aditi A., Goodrich, Holly S. Vault Career Guide to Hedge Funds.

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Hedge Fund Job Culture

July 20, 2009

By investment banking standards, a hedge fund culture and schedule looks pretty tame. Almost 90% work between 40-60 hours per week and enjoy an excellent “work-life balance” according to the most recent Job Search Digest Hedge Fund Compensation Survey. Those who are drawn to working in hedge funds generally enjoy the public markets and making […]

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