Hedge Fund Careers
Unlike mainstream funds such as investment funds that everyday investors can purchase, hedge funds are – like private equity funds – considered unregulated. Over the past decade, they have become a major growth area. Yet despite this, they are still difficult to understand for many people.
The term "hedge fund" was used to describe the "hedging" strategy used by managers from the 1950s-1970s. In a nutshell, this refers to occasions when the hedge fund manager made additional trades in an attempt to counterbalance any risk involved with the existing positions in the portfolio. This is now a specialist area in its own right. The result can be achieved in many different ways, but the most basic technique is to purchase a long position and a secondary short position in a similar security. This is used to offset price fluctuations and is an effective way of neutralizing the effects of market conditions.
Occupations within Hedge Funds
Hedge fund companies vary in size, ranging from as little as two employees to as many as 500. This makes it impossible to standardize the culture of a hedge fund. Many small hedge funds are run like small businesses, with the culture determined by the owner, or in this case the hedge fund manager.
The hedge fund manager is usually in charge of the whole operation. They are usually also the founder of the fund. In practice, this means they are responsible for:
- Overseeing the portfolio.
- Making trading decisions.
- Hiring personnel.
- Monitoring the risk of the portfolio.
- Ensuring that the accounting and operations departments are in order.
The hedge fund manager is often referred to as the principal or president and can also be called the portfolio manager.
Unlike most investment banks, the roles of the hedge fund employees are not the same from one hedge fund to another. At an investment bank, someone starting as a trader is likely to have a role similar to a counterpart at another investment bank. Yet traders at hedge funds are likely to have different responsibilities, which are usually determined by the size of the fund.
At a smaller fund, the trader is more likely to be involved with the operations of the trade. In a larger hedge fund, there is likely to be a separate operations person or department to handle this area. So working at a hedge fund is not like working at an investment bank or a traditional mutual fund. Unlike these more structured organizations, the majority of hedge funds don't have large human resource or marketing departments. Therefore, this task is usually undertaken by the hedge fund management. Consequently, the manager may be extremely busy, while employees are expected to help with tasks as diverse as helping to interview new employees and assisting with the creation of marketing documents.
Would a Hedge Fund Career Suit You?
Unsurprisingly in a growth area, hedge fund opportunities are highly competitive. It is uncommon for hedge funds to hire staff with MBAs, as managers prefer to hire people with a proven track record, or who have been personally recommended by associates or colleagues.
Generally speaking, you will need some experience in either investment banking, private equity, accountancy, consultancy, or other relevant deal experience in a corporate finance team or accounting environment.
When considering your chances, remember to think in terms of what you're able to offer that particular hedge fund's decision-making process. Do you have industry expertise, a network of contacts, capital structure experience, modeling skills or strategic analysis skills? With such competition for opportunities, you need to be able to offer something remarkable. Strong analytical and interpersonal skills are just the start.
Salary and Prospects for Hedge Fund Careers
To find your way through the hedge fund recruitment process, you need to apply yourself to research. Discipline and focus are essential – networking and avid reading of the business pages are also critical. Internships and trainee positions come up year round, so you'll need to keep your eye on the ball.
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