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Hedge funds reported another weak performance in October losing 1.9 percent for the month, slightly under performing the 1.8 percent decline in the Standard & Poor’s 500 Index. The October report reduced the hedge fund returns this year to just 1.1 percent, compared with a 13 percent gain in equities worldwide. Hedge funds that invest based on macro factors lost 0.6 percent in October. These funds have returned a negative 1.3 percent so far this year. Popular hedge fund manager John Paulson was among those that reported losses in October. Hedge fund winners that beat benchmarks in October include Citadel, SAC Capital and Third Point.

Net Hedge Fund Inflows Rose Modestly in October

Despite continued mediocre performance of hedge funds, the industry attracted more cash than what was withdrawn over the past month, according to the SS&C GlobeOp Capital Movement Index, which tracks monthly subscriptions and redemptions. Net inflows into hedge funds were 0.54 percent of the total during the month, compared to net outflow of cash in the prior month. However the net hedge fund inflow rate for October is well below the 2.01 percent of the total amount the industry attracted a year ago.

Image: TB Davies

Forward Redemption Request Rises

The number of hedge fund clients that requested forward redemption in November measured 5.19 percent, higher than the October figure of 3.19 percent. Hedge fund research firm SS&C Technologies’ CEO Bill Stone says that the higher forward redemption requests in November is likely due to investor rebalancing. Despite higher redemption figures in November, the forward redemptions request remains well below the peak of 19.27 percent in November 2008.

Some Hedge Funds Hiring Despite Weak Performance

Europe’s second-biggest hedge fund Brevan Howard Asset Management is among firms that are exploiting the abundant availability of hedge fund talent pool. Despite being on track for its second worst performance year, the London-based Brevan Howard is expanding its US operations. The hedge fund is continuing its hiring spree for its New York office. It has already added 14 people to its U.S. unit in the past five months.

Outlook for Jobs

There have been some pockets of good news of late, with funds such as Brevan Howard doing selective hiring even when the performance is mediocre. This suggests that at least a few hedge funds see the current job market scenario as conducive to hiring quality talent. But given the recent continued weakness in the performance of hedge funds, coupled with higher forward redemption requests, the recovery in the hedge fund job market may be a long way off from taking hold.

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Despite heavy attrition after the 2008 credit crisis, hedge funds have managed to regain much of their former glory.  Traders and brokers all over Wall Street have been piling into these attractive and open firms.  With fewer constraints than mutual funds, hedge funds have used their trademark tools – leverage and hedging – to reap huge rewards.

Hedge funds are notorious for holding minimum wealth requirements for prospective investors and institutions to ensure their clientele are kept as elite as possible.  Access to this kind of money allows them to trade more than just your typical stocks and bonds, but currencies, commodities, and derivative securities that you sometimes need a PhD in mathematics to understand. And it isn’t all that uncommon for their analysts to have one, using their clout on Wall Street – not to mention their high salaries – to pick up some of the best in the business.  With extravagant wealth and a talented team, hedge funds have the option to play out some of the most complicated trading strategies.

Where the Cash Flows

Though hedge fund performance suffered in 2008 overall profitability bounced back strongly in 2009.  In fact, the average fund had an ROI of about 20% according to data from Hedge Fund Research, Inc. If profits continue to increase, as they did again in 2011, money should start to flow back with even greater intensity in 2012-13.

However, as David Kochanek, publisher at Hedge Fund Jobs Digest, noted, “We are not out of the woods yet. We’ll continue to see funds close their doors – especially smaller the funds – it is the nature of the beast.”

Carving Your Own Path

Analyst and manager positions will likely remain as competitive as ever as more candidates come seeking hedge fund profits and prestige.  However, credentials and financial savvy are not necessarily enough if you aren’t quick on the job.  Since hedge funds are so diverse it’s important to make sure you can learn fast and make as much profit as your coworkers on the same trades.

How might you get the opportunity to show your worth like that?

There’s no straightforward path to working in a hedge fund.  Many analysts, traders, and portfolio managers have come from other Wall Street firms. Others have come into the industry after completing a PhD in economics, math or physics.  Some even come from corporate law firms.  What drives people from such diverse backgrounds into the industry?  Base salaries are relatively stable, with portfolio managers earning about $150,000-300,000 with expected bonus payouts around 15% of the investment-portfolio

So stay sharp, and no matter what job you’re aiming for always, always do your homework. Know precisely what the hedge fund you’re applying to does.  Is it trading commodities, debt instruments?  Does it generally hold longer-term investments or work with intra-day movements?

These are important questions that will help you assess both your ability to excel in the firm and whether it’s right for you generally.  Once you’ve done that, remember to put on your game face.

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Hedge Fund Growth Bodes Well For Job Seekers

September 3, 2012

There are some cold, hard facts facing hedge funds and those that are searching for hedge fund jobs. Hedge funds tracked by Hedge Fund Research were up just 2.3 percent in 2012 through early August. Over the past five years, hedge funds tracked by the Hedge Fund Research Index have returned negative 0.6 percent. Said […]

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