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Hedge Fund Jobs

The first half of 2012 saw considerable gains in hedge fund asset allocations, with managers netting $20 billion in new cash. This growth in investment was weighted most heavily to the first quarter of the year, where hedge funds saw an injection of $16.3 billion, in comparison to a weaker second quarter where new funds only totalled $4.3 billion. The industry was managing approximately $2.1 trillion at June 30th.

Crain’s New York reported that investors have continued to be attracted to hedge funds despite returns that have lagged equity indexes in the first half of the year. Large hedge funds benefited the most from this renewed interest, attracting a total of $11 billion in the second quarter, while smaller funds actually saw redemptions of approximately $6.9 billion.

This weaker performance is actually reflected further in statistics that show approximately 70 percent of funds experienced net redemptions during the second quarter, while only 30 percent saw an net inflow of funds. This demonstrates a shift in interest from investors of smaller funds to those of larger funds. These larger funds may be perceived as being less risky and, in uncertain times, may be viewed as a safer haven for capital.

Most funds had positive performance in the first half of the year, averaging approximately 1.6 percent based on the MSCI Composite Hedge Fund Index. These positive returns however did not match equity market returns, where the S&P 500 achieved a 8.49 percent return in the first six months of 2012. Hedge funds tend not to promise returns in excess of the market, but rather aim to achieve steady positive returns over longer periods of time. This means that such funds can be ahead or behind equity indexes while maintaining their stated investment objectives.

Positive returns not telling the whole story

These statistics can be puzzling for job seekers that are interested in entering the hedge fund industry. The net positive flow of funds seems to be encouraging news, but it doesn’t represent the whole picture. Smaller funds are under great pressure, as they are seeing redemptions so far this year, which is often the case when equity returns are hot. Declines in the equity market, as we’ve seen so far in July, may encourage a shift back to hedge funds that offer more stable returns.

Larger funds are attracting capital, and opportunities may be available at such firms for talented individuals, but overall consolidation in the industry may result in fewer total openings. The outlook may not be as weak as the dark days of 2007 or 2008, but overall the industry needs to see much more widespread net inflows before opportunities become widely available.

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Hedge fund managers generally find their business from pension funds, foundations, endowments, and high net worth individuals.  Because hedge fund managers usually deal with entities that can withstand large short term fluctuations in the value of their assets, hedge funds are authorized a greater range of investment strategies.

Since some of these strategies used by hedge funds include short selling and leverage, most hedge fund managers need economic and market volatility to make a living (there are, of course, many exceptions to this generalization). This is in contrast to such financial careers as investment bankers and private equity professionals, where market volatility does not generally play into their hand.

Market Effects on Hedge Fund Managers

So, how has the recent economic and market conditions helped or hurt hedge fund managers?  Based upon estimates of the industry, the theoretical idea that volatility is good for employment only has limited applicability, with the main reason being that, although volatility may be good for many active hedge fund traders, many others’ use of leverage in times of declining equity prices only exacerbated their losses.

What’s happened to employment in the hedge fund industry the past decade?  Employment growth in the hedge fund industry had been fairly strong over the past ten years, growing by an average annual growth rate of about 13 percent.  The trend of strong employment in the industry hit a snag in the fall of 2009, declining by about 15 percent at its worst point.  The culprit, of course, was the financial crisis that surfaced in the fall of 2007, but really took full force in 2008 and 2009.

Since the summer of 2010, the year over year growth rate in employment has averaged around 3 percent, or about three times as much as the overall economy has grown over the same time horizon.  Some readers might find it interesting that the hedge fund industry is growing at around three times the rates of the overall economy even though the industry was blamed as a critical factor in the recent recession.  So, although some hedge funds surely blew it , there’s still a lot of trust out there.

Hedge Fund Employment Future

What does this all portend for the future of the economy’s hedge fund industry and its employment growth?  Well, although there’s growing competition from mutual funds that attempt to mimic as many hedge fund strategies as possible and there’s growing concern that hedge funds aren’t worth the money, the simple answer is that there continues to be strong demand for alternative methods for managing assets, and hedge funds are the go-to-guys when this question comes up.

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Hedge Fund Conferences: A Boon for Networking

August 6, 2012

If you’re looking to break into the exciting world of hedge funds and alternative investing, but you’re not sure where to start, here is a great jumping off point: check out a conference!  Here are a few tips to make your conference experience both enjoyable and worth your time and money. To choose which conference […]

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Recovery of the Hedge Fund Industry

July 30, 2012

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 […]

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Hedge Fund Industry Sees Signs of Recovery

July 23, 2012

Over the past several years, the hedge fund industry has struggled to grow, with market uncertainties pushing investors towards safer and more liquid asset classes. In many cases, investors are scared away from hedge funds by media sources that paint all hedge funds with the same brush, labeling them as speculative investment classes. Redemptions Down […]

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Hedge Fund Association Student Membership

July 16, 2012

There are many hedge fund-related organizations to join and they represent great networking opportunities – even as a student. The Hedge Fund Association, or HFA, is one such group to join if you’re looking for hedge fund networking opportunities.  The HFA is a non-profit, international trade and lobbying group “devoted to advancing transparency, development and […]

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Niche Market Hedge Funds

July 9, 2012

Hedge funds have grown substantially over the past decade as an alternative investment class for those who 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 […]

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