Climbing the Ladder: Best Hedge Funds to Work For

Before starting the hedge fund career there are a lot of factors to pay attention to. Different types of hedge funds have their unique characteristics. Is assets under management (AUM) the most important one? Or the strategy? How to choose the best hedge fund to work for?

If you are looking for a macroeconomic investing career a great option is Bridgewater Associates. Two Sigma is a famous quantitative hedge fund that uses technology and data-driven strategies. A great option, if you prefer a startup hedge fund, is a Voleon group. If you don’t want to be focused on a specific strategy, then Millenium Management is the perfect choice. In case you want to handle major restructurings Elliott Management Corporation, is known for its activist and event-driven strategies.

But, finding your spot in the hedge fund business is not easy. People often think that everyone dealing with funds is rich and powerful. But, that is often not the case. There are major differences between hedge fund salaries, all along the hedge fund industry. You need to learn the differences between hedge fund types, and what you find attractive. Stay with us, and learn how to start your fund career in the best way.

Understanding Hedge Funds

The media often portrays hedge fund employees as very rich people with a lot of money and time on their hands. Their lives look like a breeze when compared to an average white or blue-collar worker. But, there is a lot more to it. That is why you need to understand the bigger picture that shows what includes working in a hedge fund. Before you choose this career you need to know what is a hedge fund, and how it works.

A hedge fund is a type of investment pool that gathers liquid assets. Hedge fund employees conduct complex and diverse strategies to improve those investments. The goal is to invest in the assets and get high returns.

To do that hedge fund managers can employ different strategies. They can make a short-term investment that can have a high return. These often carry a higher level of risk. The other common strategy is long-term investments. Investors need to wait out these investments before they can acquire some higher returns.

Hedge funds are often used by investors to diversify their portfolios. That way they have their securities invested in several directions. They can earn from bonds, currencies, or other types of securities. With a diversified portfolio, an investor has a lower chance of major losses. When you invest in several companies, in several types of securities, you have a higher chance of positive returns.

There comes the influence of choosing a good hedge fund. A successful hedge fund analyst and manager will go the extra mile to conduct a good investment. Like investors that need to recognize a good hedge fund, so do the future employees. Choosing a starting position in your hedge fund career can be a big stepping stone, or it can pose a big problem in the future.

Different Types of Hedge Funds

There are different types of hedge funds, and investment strategies that they employ. Those factors will have an impact on the salary of the worker. But, it will also influence the knowledge, experience, and expertise they have to bring to the job. Here, we will mention the most important types of hedge funds, that you should know:

Long/Short Equity Hedge Funds

Long equity type of investment is considered to bring returns in the long run. These investments usually have a safe but small increase in value, so it takes time to make them noticeably profitable. This is a low-risk investment, especially when compared to short equity investments. Short equity hedge funds estimate that the investments will go bad. The managers borrow the shares in a company and sell them at the current price. Then they wait for the value of the shares to drop and then return it to the lender. In this strategy, a lot of things can go wrong, and only skilled and experienced managers should employ it.

Global Macro Hedge Funds

These macro funds take advantage of macroeconomic trends and major global events. These funds take note of changes in important financial or trading laws, the signing of treaties and agreements, and other similar situations. Those can have a strong impact on the global market. The key is to exploit the possibilities of these situations. They usually trade with different types of securities like commodities, shares, bonds, and currencies. To be successful in this job you need to understand global economic and political shifts. Also, you need to have extremely deep market knowledge, so you can act in a moment.

Event-Driven Hedge Funds

These funds take advantage of price fluctuations and discrepancies in cases of substantial corporate events. Mergers, restructurings, acquisitions, and bankruptcies offer a lot of possibilities to invest. For example, in the case of a merger, shares are often leveled. A well-informed manager can take advantage of this, buy shares before this happens, and earn a hefty profit.

Debt-Distressed Hedge Funds

Employees from these funds are on the lookout for distressed companies. They can be in high-debt or other structural or financial ditch. Managers need to identify the possibility of a company to bounce back. Distressed debt funds are high-risk investments, and the manager has to have extensive knowledge about the particular market and the company.

Quantitive Hedge Funds

These investment firms utilize advanced mathematical and statistical models. Today they are also using computer algorithms help to make the best investment decisions. These funds often have an IT sector that helps in determining the best strategies to invest. When working in a quantitive hedge fund you will be working with a large amount of data. The data needs to be relevant and up-to-date so the manager can identify the possible investment opportunities. The managers can compare these data and find any discrepancies and possible changes in the values of securities.

Market-Neutral Hedge Funds

They seek a profit in every market regardless of its positive or negative direction. To accomplish this managers often use paired long and short trading positions. This way the influence of market fluctuations on returns is minimized.

Trend Following/CTA Hedge Funds

The managers tend to exploit trends and momentum in prices. The common strategy to achieve this is by using exchange-traded futures contracts. This strategy is based on the expectation that upward-trending markets may continue to increase and downward-trending markets will continue to decline. Managers take long positions in positive trading markets. Regarding negative trending markets, it is preferred to take a short position. Managers aim to have a wide portfolio of investments, that have consistent volatility in a certain range. They want to keep the investments that keep a strong positive rise and discard losing positions.

We went through the basic and well-known types of hedge funds. There are others like credit hedge funds, real estate hedge funds, and commodity hedge funds. These are limited to investing in certain securities and are not as common as those that we mentioned.

Qualities of a Top Hedge Fund

Although hedge funds tend to use different strategies to reach their goals, several key characteristics define a top hedge fund. These characteristics help in identifying a successful fund with a good reputation.

Strong Positive Performance

If the hedge fund can offer constant high returns for their investors, that means that the team is top-notch. Maintaining constant positive business results in fluctuating markets demands a lot of skill and experience. They need to know how to calculate risk, when they should take it, and when to abandon the investment.

Efficient Risk Management

Risk is something that has always been attributed to investing with hedge funds. The majority of hedge funds have well-developed risk management systems. They aim to minimize the possibility of investment loss. To accomplish this they use different quantitive analysis, risk analysis, and hedging techniques.

Using Diversified Strategies

Investors use hedge funds to diversify their investments. That way they are minimizing the risk of losses. Hedge funds tend to use diversified strategies to capitalize on gains and minimize losses. With the use of different strategies, funds can earn from multiple sources, and mitigate a possible negative turnout.

Experienced and Multi-Talented Team

A good hedge fund team needs to tick a couple of boxes. Every individual needs to be experienced, and talented, and they have a hunger for success. Not every analyst and manager knows how to employ every strategy. But, if the team has an expert in several different strategies, that is an eye-catcher. A good and stable team, that works together, easier bypasses the changes in the market

Stable or Growth of Assets Under Management (AUM)

If the AUM levels of the fund are stable or growing that imply of a trusting investor base. On the other hand, managers are capable of maintaining and raising the levels of returns.

Having the Same Interests as The Investors

The most successful types of funds focus on the priorities of their investors. Often the fund managers are also investors which shows additional trust in shared interests.

Transparency in Work

Hedge funds are not strictly transparent and regulated like mutual funds, and are known for a bit low transparency. But, top-notch funds that conduct good business are very transparent to their investors. Why would a high-valued investor invest in a hedge fund that conducts shady business? They want to have access to full and regular reports. They want to know the fund’s performance, investment positions, and risk exposures to risk. That develops the feeling of trust and accountability between the investor and the fund.

Following Through the Regulation.

There are several regulations that hedge funds need to follow through. The most important are Securities and Exchange Commission (SEC) Regulations and Commodity Futures Trading Commission (CFTC) Regulations. They also need to keep on with anti-money laundering regulations and the Consumer Protection Act. That includes preventing money laundering, terrorist funding, and reporting for systemic risk assessment. To maintain fund integrity they need to follow through on fraud, inside trading, and market manipulation regulations. An important part of every fund is risk assessment, and establishing risk management procedures. This is essential for ensuring the possibility of meeting investor redemptions.

Identifying the Best Hedge Funds to Work for

Choosing a first step in any career can be a long-term decision. You should evaluate yourself, and identify your goals. Next, check the options that you can go for. Compare them with your views. There are several criteria for selecting a company to work for. If you want to succeed you should follow them.

Criteria for Selection

Choosing a fund to apply for and work with is a career-defining decision. There are a lot of factors to focus on so you make the best choice for your future career. You must evaluate the hedge fund and how it aligns with your own goals and views. To start, you should pay attention to these criteria:

• What skills and qualifications are the fund looking for? Compare the requirements of the fund, and align it with what you can offer. Different roles in the hedge fund will require different education and skills
• Level of experience required. This is a fundamental question. Review your working experience and assess it. There are several levels of seniority and you need to find your place on that scale
• Review the investment philosophy and strategy. Through your learning and education, you already developed some insight into how would you conduct business. Before applying investigate the fund and check how they conduct business. You do not want to end up in a company that has a different set of beliefs
• Payment and incentives. Hedge fund salary includes several packages like bonuses, base salary, and other profit-sharing arrangements. Finding a balance can be difficult, and you may need to be open to a compromise
• Location and work-life balance. These two criteria are often closely connected. You can choose to work close to your home, but that can be a limiting factor. There are hedge fund hubs where you can find a job with better pay. But, at the same time, you need to think about work-life balance
• Size of the company. This includes the level of assets under management (AUM) which is directly connected with the number of personnel and different teams. Smaller companies will offer more responsibilities, and the possibility to learn faster. Larger hedge funds have a better-developed infrastructure and have more resources. The size of the company will often impact the possibility of developing your business network. That is also an important factor, that can have a long-term impact on your career
• Define your goals and interests. What strategy you would want to master? What is your approach to conducting business and trade? Is solely earning as much as possible your primary goal? These are arguably the most important questions when choosing a company to work for. Everyone has a bad choice in their business career, but if you answer these questions you will minimize the chance for it.

List of Top Hedge Funds To Work for Long Term in Different Categories

Defining the top hedge funds to work for is often a subjective topic. Often managers list their favorite hedge funds, which is also a good reference. But we also managed to compile a list of well-known and respected funds. These are on the top-tier list for almost anyone who wants to work in hedge funds.

Long/Short Equity Hedge Funds:

• Renaissance Technologies. They were founded in 1982 by the mathematician James Simons. This fund relies on quantitative and systematic trading strategies. The core of their strategy is the use of complex mathematical models and statistical analysis. They are focused on short and medium-term trading
• Canyon Partners. One of the highly-regarded hedge funds that focuses on long-short equity strategy. They are known for their credit and distressed debt strategies.

Event-Driven Hedge Funds:

• Paulson & Co. This is a prime example of a family office hedge fund started in 1994 by John Paulson. It specializes in merger arbitrage and focuses on distressed securities strategies
• Pershing Square Capital Management. Led by Bill Ackman and are best known for their activist campaign against Herbalife. They are focused on long-term investments and hold securities in a small number of companies
• Elliott Management Corporation. Founded by Paul Singer back in 1977 this company is known for its activist investment approach. They often seek a chance to focus on distressed debt, event-driven strategies, and opportunistic investments.

Global Macro Funds:

• Moore Capital Management. A well-known hedge fund founded in 1989 and founded by Louis Bacon. They employ both event-driven and global macro strategies. Their focus is on currency movements, shifts in interest rates, and commodities
• Soros Fund Management. A fund founded by George Soros that is well-known for its currency speculation. George Soros has extensive knowledge of macroeconomic trends and uses strategies to complement them
• Bridgewater Associates. It was founded in 1975 by Ray Dalio. They are focused on macroeconomic strategies. Their management has the latest and precise information regarding new economic trends and changes in the market. Bridgewater associates employ a risk parity strategy to spread the exposure equally across every type of portfolio asset.

Trend Following and Commodity Trading Advisor (CTA) Hedge Funds:

• Winton Capital Management. Founded in 1997 by David Harding, Winton Management is one of the best examples of trend-following/CTA hedge funds. Their strategy is to exploit the anomalies and discrepancies in the market. They have a very diversified portfolio including commodities, currencies, and equities
• Tudor Investment Corporation. They are a global macro hedge fund, that utilize trend-following trading strategies. Their focus is on trends and sudden changes in the market. They are managing a wide array of investors, and take a strong emphasis on risk management.

Preparing for a Career in Hedge Funds

To have a successful career in hedge funds an individual requires solid preparation. They need to choose proper education, based on finance, economics, or management. Climbing on the education ladder can make a big difference in the long run. Finding a good mentor to lead you in the right way is a great stepping stone in a hedge fund career.

Skills Needed to be a Successful Hedge Fund Analyst

A successful hedge fund analyst needs to have a combination of analytical, technical, and people skills. Hedge fund analysts play a crucial role in creating a fund’s overall strategy. To do it then need to conduct in-depth research and analyses of large batches of data. From that, they can make an investment recommendation.

The most important skills needed for this are:

• Financial analysis. For proper identification of potential investments, the analyst needs to assess the financial health and performance of the investment. To accomplish this the analyst must have extensive knowledge of financial modeling, financial statement analysis, and ratio analysis
• Market knowledge. Every top-notch analyst needs to be informed about the market at all times. They need to follow economic and market trends, and also to know the latest developments. That knowledge, accompanied by knowledge about investment strategies, allows them to make suggestions. The best analysts will take all the relevant information and properly summarize it
• Quantitive analysis. One of the tasks of an analyst is to work with large amounts of data. They need to be comfortable with using different statistical methods to gather relevant information
• Investment research. Every new investment needs to be researched in detail. That includes researching the marketing trends, and the industry, and knowing the fundamentals. Once they know everything about the market, and the industry they can make a call about investing
• Assessing the risk of the investment. There are several types of risk factors, like market risk, credit risk, and liquidity risk. They all need to be taken into account before investing takes place
• Analysis and visualization of data. Every analyst needs to know how to present the results of their research. The best tools for this are Microsoft Excel, Python, and the programming language R. This skill comes hand in hand with presentation skills. The presentation skill is essential for the analyst to convey data to the top management
• Communication. An analyst should know how to express himself, both in writing and orally. An analyst needs to pitch the best ideas to the team. So if you are aiming to be one, practice communication
• Ethical mindset. When conducting any finance business it is important to remember to follow ethical boundaries. Build your reputation as a professional with high ethics and integrity. No one wants to work with shady characters
• Decision-making and time management. These two skills complement one another. Every analyst is working with a large amount of data. His knowledge is wide, and he needs to use it properly. Choosing where and when to invest is a result of making the correct decision after a thorough analysis. This also demands dealing with time management. Often fund analysts must act quickly because the opportunity can come and go in the blink of an eye
• Constant learning. We listed this skill last, but it is the most important one. The industry is constantly changing. Learning about new regulations, strategies, and markets will follow every analyst. If you are ready to constantly learn and improve yourself, then you can make the first step in your new career.

Take a Look So You Want to Start a Hedge Fund? Watch This First:

Differences in Salaries and Bonuses at Hedge Funds

Several factors impact the salaries and bonuses at hedge funds. The first thing you need to know is how employees like fund managers and analysts are paid. The two most important factors that impact the salary are management and incentive fees.

1. Management fee. The profit and loss statement doesn’t impact the management fee, and it is based on the amount of capital the fund is managing at the time. Ten or more years ago, 2% was the norm. Today, the management fee has shrunk to 1%-1.5%
2. Incentive fee. An employee will receive an incentive fee if the fund performs especially well in some period. This fee can be based on net realized gains, net unrealized gains, or generated net income. A decade ago, a 20% incentive fee was the norm. Today, there are still funds that offer that level of incentive fee, but more common is to expect 15%.

We covered how hedge fund employees are paid, but what impacts the salary and the fee? Of course, a hedge fund career is influenced by the type of hedge fund and its strategy. But, there are other factors, and we will go through them.

1. Size of the hedge fund. Larger hedge funds, with billions in AUM, will often offer better salaries and bonuses. Smaller and younger hedge funds are still struggling to find investments and will offer modest salaries
2. Fund investment strategy. There are several fund strategies, and they demand different levels of expertise and experience. Merger arbitrage, and long/short equity, tend to be riskier, but they also bring higher returns
3. Location of the hedge fund. Funds in larger financial hubs like New York, Hong Kong, London, or Tokyo will offer higher incentives. Smaller cities do not have many opportunities to grow and workers have to settle for lower salaries
4. Position in the fund. Depending on the size of the fund there can be several teams, that have a head portfolio manager. In the team are also other fund managers that will make less. There is also a head analyst who focuses on specific industries and conducts detailed research. At the bottom are analysts who have usually just finished college and went for an investment banking career
5. Hedge fund performance. The performance of the hedge fund refers to the financial returns in a certain period. They will directly impact the salary and the bonuses. The more returns the fund generates, the higher the incentives the employees will get
6. Level of experience. The position and the seniority in the fund will impact the incentives. But, experience also has a major influence. Special expertise and experience sets apart top earners from the rest of the employees. If you have a specific type of knowledge, and you bring unique value to the team, you will earn more
7. Impact of clawback and deferrals. A clawback is a provision that allows the hedge fund to recover paid compensations from employees. This is usually focused on executives and fund managers. This can happen when specific conditions are not met to acquire those bonuses or incentives. Also, if there is a decline in the fund’s performance, that can also trigger a clawback. With a deferral, a part of the employee’s salary or bonus is delayed. This can happen for several reasons, with the most common being missing specific performance targets. These mechanisms became more frequent after the 2008 crisis. Its goal is to prevent short-term high-risk investments and promote long-term investment and the overall health of the fund
8. Vesting periods. This incentivizes the loyalty of the employees and prevents short-term high-lucrative business. It works that way that an employee must remain in the company for a certain time to receive a full bonus. If the employee leaves the company early he will have to give a portion of its bonuses
9. Employee performance. Salaries and bonuses are closely connected with average fund performance. High returns will bring higher incentives while smaller or no returns can lead to very low bonuses. If the performance is really bad, the employee may not get a bonus at all
10. Hedge fund investor base. Large institutional investors and high-net gross individuals may bring higher incentives
11. The art of negotiation. Negotiating a salary is a skill much needed for many positions. If you are already a fund manager or an analyst with a solid career you need to know how to present yourself. But for all those who are new to the hedge funds and their hustle, that doesn’t leave you too much wiggle room. But, you still need to know how to present your case, your good sides, and your approach to life and work
12. Regulation policies. Hedge funds and their work are regulated by a series of agencies and their regulations. If certain regulations are changed that can influence both the salary and the bonus of the employee.

Also, when talking about hedge fund industry salaries, we must mention hedge fund careers that you can land. In every hedge fund there are typically three types of positions:

1. Hedge fund analysts. This is often the first step in your hedge fund career. Salaries in this position are usually in the range of $100k-$150k, without bonuses
2. Hedge fund senior analysts. After three years of learning you may step up to the position of senior analyst. The pay range for this position is $300k-$600k, but if the year is good, it can be much higher
3. Hedge fund portfolio managers. The salary of the portfolio manager is closely tied to investment performance. Their salary is based on the percentage of their profits. There are portfolio managers who earn $200k, but also those who earn more than $2 million.

What is important to note is that salaries can vary depending on the company. The figures that we mentioned are those that are common, or average. As we went through, a lot of factors can influence the salary.

FAQs

Is It Difficult to Get a Job at A Hedge Fund?

Yes, it can be difficult to get a job at a hedge fund. This can mostly be attributed to the competitive nature of the job. The best fund managers and analysts come from different niches, and they are the best among the best. They are lured by potential substantial returns, and possibilities to excel.

The most limiting factors in getting a job in the hedge fund are:

• Large competition. Once the hedge fund opens a position, it will attract a large number of potential candidates. This alone means that it will be hard to get chosen for the job
• Level of experience. Those upper-tier hedge fund jobs, like risk and portfolio managers, demand a lot of experience. They will require experience in trading, economics, finance, and mathematics.
• Mindset. To lend a job at the hedge fund a candidate must have a very specific mindset. You need to be a risk taker, but at the same time, you need to assess the level of risk. You need to be calm, fast in acting, and hungry for knowledge. One of the most important features for every hedge fund employee is to be ready to fail. Sometimes you will do everything right and still fail. That is the part of the job that you need to accept
• Education. Most hedge funds will expect a strong educational background. A master in business administration (MBA), or chartered financial analyst (CFA) is mandatory.

How to Land a Job at A Hedge Fund?

Landing a job at a hedge fund can be difficult to achieve but with proper preparation and the right approach, it is achievable.

1. Choose the best educational path. Several colleges focus on finance, management, and economics. Gain a high level of education to increase your value in the job market
2. Gain relevant work experience. To achieve this start with entry-level jobs in financial or trading companies. Do not turn down internships. You can develop long-lasting personal and professional connections that can go a long way
3. Define the career path. Once you acquired some experience you will have a glimpse of what would you love to work in the future. Find out what skills are needed for those positions. Work on them constantly and develop them as much as possible
4. Develop a professional network. There are seminars, conferences, and similar events that you can use to meet new people. Also, in these events, you will be able to follow on newest trends in the industry. These meetings often result in future work opportunities. Have a LinkedIn account and connect with relevant people from the industry
5. Constantly learn about the industry. This includes researching hedge funds, strategies, and key people from the niche. This can help in identifying your future career goals and possibilities. Follow marketing and economic trends. When you are talking with informed people you want to have a grip on things and to leave an impression of a well-informed future professional.
6. Show your take on current market and economic topics. Be thoroughly informed about investing strategies and possibilities. If needed show the initiative and perform financial analysis, and efficient risk management tactics
7. Be prepared for the interview. Practice your analytical and problem-solving skills. Make a list of FAQs regarding the common hedge fund, market, and finance topics. Learn the answers thoroughly so you can talk about the topic with competence
8. Choose a smaller fund. Starting in a small hedge fund is a good chance to gather experience and knowledge. After some time it is much simpler to step up your game and go to the big players
9. Do not give up easily. Finding a first job at the hedge fund is not easy. You must develop a habit of being rejected. It is though, but necessary. That is also a good trait when dealing with failures on the job. Never show that you are hurt by the rejection, and try to keep a positive stance. Sometimes in the future, the fund that once rejected you may call you up.

Final Considerations

There is no right answer to the question “Which hedge fund is the best to work for?”. To answer that question you need to know yourself, your beliefs, strong sides, and limiting factors. Hedge funds use different strategies, and have different company cultures, and approaches to work. In the beginning, you will probably need to adapt, but you should yearn to find the best place for you.

Be prepared for sudden rises and falls. A career in a hedge fund is turbulent and demands a strong personality. If you want to last and make a good career ready to constantly learn, adapt, and grow your mental resilience.