A hedge fund career path is a challenging path to take. Most of the famous hedge fund managers you read about started with the same first step - the position of an analyst. The position may sound underwhelming, but it is a cornerstone to a successful investing career. How to become a hedge fund analyst is one of the hot topics in this niche, so we decided to tackle it in detail.
Starting early is the best approach if thinking about going down this road. A person must have a general interest in investing and the economy long before making a career path decision. The first real step is opting for a compatible educational direction, and trying to maximize it. It can be a pure economic direction, business administration, finance, accounting, or something similar.
Making connections in the industry can lend a person a first real gig. It is often an intern position, but in case it comes with quality mentorship it can be crucial for the remainder of the career. Being ready to learn from both personal and other experiences is essential because working in a hedge fund is a lifetime of learning.
Key Takeaways
- A hedge fund analyst is usually a starting position for newcomers to the industry. There are higher seniority levels of analysts, but most of them progress to managerial positions after developing all the necessary skills.
- Complementary educational background, investing experience, a strong professional network, and the will to learn are the cornerstones for netting a hedge fund analyst position.
- Starting off in a smaller hedge fund, or a similar investment asset company can offer beneficial experience in the long run. Focusing on the big industry names in most cases is only a waste of time because they are looking for seasoned professionals.
- The willingness to adapt and learn is the only way to stay in this high-intensity industry. Both fails and wins, and lessons from them are building blocks of a perspective investing professional.
- Talking about the salary of a junior hedge fund analyst is a difficult topic, due to a large inconsistency between firms. However, when looking at average, funds pay annually about $100 thousand for professionals in this position.
Overview Of Hedge Funds
Hedge funds are companies that are shortlisted by many as a get-rich-fast scheme. Employees in hedge funds are often envied for their lifestyle but rarely think about the job itself. It comes with unique risks, high-stress levels, and a demand for constant improvement.
A hedge fund is an investment vehicle that pools capital from accredited investors. Not everyone can invest in hedge funds, due to their often high-risk strategies. Adventurous and risk-loving investors are the type of hedge funds that are looking for cooperation. This may sound similar to employment in hedge funds - both come with risks and insecurities.
Portfolio managers can employ numerous investment strategies to generate gains, and most hedge funds are specialized in a certain direction. The most popular hedge fund strategies include long/short equity, global macro, trend following, activist investing, and event-driven approaches.
Unlike most investing options on the market, hedge funds are looking to beat the benchmark indexes. To accomplish this they aim to generate alpha in both market directions - when it is going up and down. To accomplish this they often bet on both winning and losing companies.
This has often been seen as a controversy - because rarely who would invest into something they believe is bad. But, this is the ultimate way to generate gains both in short and long-term investments.
While other major financial institutions like investment banks, pension funds, and insurance companies have complex structures, hedge funds are often straightforward. They are composed of smaller teams that in most cases have solid autonomy in making investment decisions.
Every team is composed of analysts and managers who work together to find the right investment ideas. Analysts first look over the market and are responsible for initial idea generation. Then comes portfolio managers who thin out the herd and choose ideas that are complementary to the direction of the hedge fund.
Before the investment is made, managers in cooperation with analysts conduct risk management analysis to determine potential drawdowns, and what actions should best protect the investment. Once the investment is placed, the whole team monitors it and makes necessary adjustments when needed.
The Role Of An Analyst In A Hedge Fund
Almost every professional in the hedge fund industry starts from the position of a junior analyst. Individuals in that position are responsible for researching, analyzing, and evaluating investment opportunities.
This may sound vague, but an analyst needs a lot of knowledge to conduct these operations on a high level. Besides knowing the goals the fund have, every analyst must constantly improve his knowledge of target industry sectors, major companies, current and future trends, and potential corporate events like mergers and spin-offs.
Once the analyst identifies a potentially good investing target, he needs to do top-down or bottom-up research. Depending on the fund, the research approach varies. A top down research includes monitoring the wider perspective around the target company, including competition, and condition in the sector. The bottom-up approach is focused on the company's fundamentals, which include assessing financial statements, competitive advantages, and potential for growth.
There comes the tricky part - creating a financial model. That includes trying to forecast the future direction of the company based on gathered information. Also, an analyst needs to conduct a market analysis. This includes evaluating potential market trends and how they can impact the company's performance in the short and long run.
Hand in hand with market analysis comes gathering current information from as many sources as possible. With that being said, the analyst doesn't need to know information not only directly connected with the company, but also those that can impact it from another direction. Regulatory changes, macro or sector events, all this information can determine the fate of the company, and thus the investment.
This big process is a part of making investment proposals for the team. Once the analyst make a solid equity research backed by an investment thesis, then the manager in charge looks over it and make further action.
Educational Background Needed For An Analyst In A Hedge Fund
Hedge funds are attracting only the best talent in the market. For someone fresh out of college, the best ticket to a job in a hedge fund industry is strong academic achievements. It shows that the candidate is ready to learn and be resilient to pressure.
Best-suited educational paths to a job in the hedge fund industry include economics, finance, business, or accounting. A new breed of hedge funds that focuses more on mathematical and statistical approaches, gives opportunities to aspiring students from data science, mathematics, or similar fields. They must have a strong understanding of machine learning, and natural language processing fields.
Large hedge funds usually have mentorship programs where new interns are taken under the wing of a more experienced portfolio manager.
Besides focusing on classical education, potential hedge fund analysts should focus on reading as much about the industry as possible. There are whole sections about investing in bookstores. Reading about famous hedge fund managers and their careers can be both inspiring and can also provide necessary tips for self-improvement.
Building A Professional Network
Finishing a good college even with good grades is far from enough to land a hedge fund job like an analyst. A professional network is there to boost applicant chances and can have a solid impact on the long-term career.
Every candidate should start while in college by joining investment clubs or similar financial groups. There he can connect and share experiences with similar-minded peers. Also, sharing ideas with professors can create strong bonds which can later result in concrete opportunities in the field.
Attending industry conferences and events can start while studying to get a head start. These manifestations are not only places to gather new ideas and knowledge but also to make useful connections with people from the industry.
Also, a must is creating a strong online presence. Connecting through LinkedIn is a good start, but it should be only that - a start. Social networks can be good for collecting all sorts of information, but it is not enough to build strong professional relationships.
Gaining Starting Experience
Once the candidate feels ready to start something real, he should get ready for hedge fund interviews. For a start, a summer program or internship is a good start. Some bigger names like Point72 and Marshal Wace offer some form of internship. Through it, it is possible to make a good first impression and draw positive attention.
The investing career doesn't need to start at a hedge fund. Building the foundation for hedge fund roles can start in mutual funds, investment banking, private equity firms, or other asset management firms. What is essential is to constantly learn and broaden the professional network.
Committing to even a low-paid internship followed by a good plan can result in a great opportunity in the future. With a good mentor with a few years under the belt, a perspective candidate has a good position to move up the ladder.
From many experience stories, opting to work in a smaller fund is often a better option, than looking for opportunities in biggest hedge funds. Young, smaller funds will more likely give a real opportunity to a newcomer to learn. He will have more autonomy in the work and will tackle challenging tasks, which is a much better road to take in the finance industry.
While in the beginning, it may seem like taking on too much, that first period is also a disqualification round of a sort. Anyone who cannot withstand the constant pressure and high intensity of the position doesn't stand a chance and should look for opportunities elsewhere.
Working On Essential Skills Needed For The Job
Every analyst can move his career in a different direction by taking a different approach. Opting to specialize in a specific industry is one way to go. Opting for a more diverse approach is another way, and these two are practically two schools of thought.
In any case, all junior analysts who are looking to progress to the position of senior analyst and later into a manager need to work on several skills.
Modeling techniques are one of the priorities to think about. An analyst should learn how to construct financial models for different purposes, like leveraged buyouts, discounted cash flows, and mergers and acquisitions.
Valuation techniques are also on the top list for improvement in this line of work. Differences and unique elements of different asset classes like equities, are essential for every analyst. With it comes an understanding of different valuation methods, like comparable company analysis.
Among basic analyst skills are different research skills. Every analyst must be capable of conducting research from various sources including market reports, and industry publications. These sources are crucial for gathering information about potential investments.
Besides technical skills, every employee in a hedge fund needs to work on people skills. Managers regularly communicate with investors, and also with the management of companies invested in.
Some of the soft skills that are in demand include critical thinking, emotional intelligence, time management, teamwork, and stress management.
While the hedge fund industry is highly competitive, it is also a team effort. Bringing these two together can be tricky, but is necessary. Staying focused on the joined objective can be the deciding factor for success in the investment world.
How To Remain And Progress In The Investing Industry
Starting as an analyst will give every individual a preview of his future career. While it may look like the start is hard, it doesn't come much easier with time. A career in the investment industry demands constant self-improvement, and dealing with risk.
Constantly improving crucial skills including analytics, mastering asset classes, and gaining proficiency in quantitative finance will give you a solid chance to build a successful career.
Also, there is also enough room for improvement in the educational department. Acquiring professional certifications like Chartered Financial Analyst, or Chartered Alternative Investment Analyst will always come in handy.
Self-assessing is one of the first lessons every analyst needs to learn. With so much uncertainty and risk that can hit you every day, facing challenges and losses will become a part of you. However, keeping a track record of your ups and downturns will help you to assess the issues you need to work on.
We already mentioned this, but we cannot emphasize the importance of a professional network. With years, the network must be expanded. Not only for the job opportunities but chances to learn and progress.
Attending events from the industry should be a regular thing and not only from the networking perspective. Being a speaker at these events will also help you to create a personal brand, which cannot be measured in capital.
From all this, crucial steps for a successful career in a hedge fund are learning, networking, and being ready to challenge yourself. Only the best succeed, so be ready for a serious task ahead.