How to get Hedge Fund jobs after MBA

How to get Hedge Fund jobs after MBAMany MBA graduates would part with their last dime to become successful hedge fund managers. The “Benjamins” are, of course, the obvious main attraction. And we aren’t talking about any “handsome salaries” or “decent commissions” but really big bucks.

The annual earnings of the top hedge fund managers easily cross $1 billion each: think of Ray Dalio, George Soros, Ken Griffin, Bill Ackman, and James Simons. To put this in perspective, each of them makes more in a year than the top-ten Wall Street movies have made together at the box office.
 

What is a hedge fund?

First, a little about this diamond mine called hedge fund (HF). By definition, a hedge fund is a pooled fund, a private investment partnership, set up by a money manager or an investment advisor in the form of a limited partnership or limited liability company. After raising money from investors, the fund invests it according to strategies agreed upon with the investors.

HFs can invest in almost anything, from stocks, bonds, and mutual funds to foreign currencies, real estate, and art. The total assets of the HF industry, comprising about 8,000 funds, have grown to $3 trillion. Most of the funds are worth under $100 million each, but HFs over $5 billion control 65 percent of the assets under management (AUM).

HF can use strategies that mutual funds cannot use, such as short-selling (betting against a stock by borrowing shares and selling them without actually owning them). Investors in HFs have to commit their funds for a lock-in period, when they don’t have access to the funds.

Only an accredited and sophisticated investor can invest in a hedge fund, and there are quite a few conditions. The HF managers receive the standard 2 percent of the value of the AUM annually and 20 percent of profits, and there lies the story for fund professionals.
 

How does a Hedge Fund work?

Here’s an example to understand how hedge funds work. Let’s suppose an investment manager/company launches an HF and an investor puts in $100 million. The fund manager makes a contract with the investor, and let’s say they agree that the manager receives 2 percent of the AUM and 20 percent of the profits earned annually above 3 percent and the investor receives the rest. Assume that the HF starts business with the investor’s $100 million and it becomes so successful that it earns $100 million in the first year.

Now, according to the contract, the HF manager receives 2 percent of the AUM ($2 million). Of the profit, the first 3 percent goes to the investor, which is $3 million here. Of the $97 million profit remaining, the investor receives 80 percent, or $77.5 million, and the fund manager 20 percent, or $19.5 million.

Therefore, the investor makes a total of $80.5 million ($3 million + $77.5 million) and the fund manager $21.5 million ($2 million + $19.5 million) in this rather extreme example.
 

A little Hedge Fund history

The first hedge fund was launched in 1949 by Andrew Winslow Jones, writer and sociologist. The idea came to him when he was writing an article about investment trends for Fortune. He raised $100,000, including $40,000, from his own earnings, and invested it, while trying to minimize the risk involved (hedging) in holding long-term stocks by short-selling other stocks. HF investments rose to prominence in the 1990s when George Soros speculated against the pound, forcing it out of the exchange rate mechanism.

According to the 2017 Hedge Fund 100 list, of the Institutional Investor’s Alpha, the top five HFs are currently Bridgewater Associates (firm capital $122.2 billion), AQR Capital Management ($69.6 billion), JP Morgan Asset Management ($45 billion), Renaissance Technologies ($42 billion), and Two Sigma ($38.9 billion), as reported by Business Insider.

The year 2016 was tough for HFs, with returns of only around 5.4 percent, compared with 11.9 percent that S&P 500 returned. Because of high fees and poor performance, $70 billion was withdrawn from HFs. But many top HFs recorded double-digit growth.
 

How to get Hedge Fund jobs after MBA

Hedge funds are choosy about the academic qualifications of job candidates, says an article in eFinancialCareers. They are known to be partial to graduates from Ivy League schools with straight “A”s and spotless academic records.

The most common qualification is a master’s degree (22 percent), followed by CFA (Chartered Financial Analyst, 20 percent), MBA (14 percent), CAIA (Chartered Alternative Investment Analyst, 3 percent), and PhD (3 percent). HFs once used to focus mainly on track record at work. But with a shortage of talent, they are once again giving importance to top degrees and professional qualifications.

HFs are increasing their recruitment of MBAs along with asset managers, says an article in efinancialcareers.com. However, some reports say there have been fluctuations in MBA intake. In any case, MBAs have better chances if they have gone to top schools. Among the MBAs most likely to find jobs in HFs and other buy-side organizations are those from Ivy League schools in the US, the London Business School in the UK, and INSEAD and HEC in Europe and Asia.

The top b-schools for HF, PE, and asset management jobs in the US are Columbia Business School, Wharton, Stern, Harvard, Booth, Stanford, Yale, MIT Sloan, Tuck, and Johnson. In Europe, the top schools, apart from LBS, are INSEAD, HEC Paris, and Oxford Said. Chinese institutions — CEIBS, the Fudan University School of Management, and the University of Hong Kong—are also talent resources for hedge funds.  US organizations tend to hire more MBAs than those in Europe, where funds recruit fresh graduates and train them, instead of hiring MBAs paying high salaries.

The highest percentage of MBA graduates working in HFs come from Stern (7 percent), followed by Columbia, Booth, Wharton (all 5 percent), and Harvard Business School (4 percent). In Europe, LBS and INSEAD are the biggest contributors of MBAs to HFs (2 percent), followed by HEC Paris, SDA Bocconi, Cambridge Judge, and Oxford Said (1 percent), according to efinancialcareers.com. This does not denote annual intake: for example, just 0.9 percent of the class of 2016 at Stern joined an HF.

Reads these articles on MBA Crystal Ball:
Best MBA programs in finance
Best MBA programs for private equity and venture capital
 

Just MBA not enough

Can a top MBA by itself guarantee a hedge fund job? No. It may be important to go to a top b-school, but work experience in a hedge fund before school is what often counts, says a Quora participant. The alternative is experience in investment banking or a private equity fund. If you don’t have this experience, it is going to be tough to get into a hedge fund even with an MBA.

While working toward your MBA, you need to specialize in economics, finance, and accounting, advises an article in bizfluent.com. You could apply for an entry-level position in an investment bank, a job that will give you experience and prepare for a position in an HF. This is helpful because HFs don’t have training programs and like to hire people with basic knowledge of finance.

The article also says that you need to stay abreast of developments in the HF industry by reading the Wall Street Journal and HedgeWeek. Your resume should highlight your investment industry experience, including how much money you brought to your firm. Other resume tips: be descriptive about your deals and transactions; explain the roles you played; stick to a one-page format; mind the presentation and legibility; include GPA and test scores; be clear about where you worked and when; don’t leave any gaps; and be honest.

Among other tips: take networking seriously and follow up on leads from friends connected to HFs; document good investment ideas gained from your professional experience or interest; and market yourself aggressively. Another track to an HF job is to join an investment bank and then apply to an HF after two or three years.

For an MBA graduate who managed to get an HF job after b-school, work experience at as a sell-side analyst helped, according to this person’s Quora post. He showed that he loves the challenges of making investments. This person developed a personal trading portfolio while at b-school, making case studies into investment puzzles and assignments into investment research opportunities. Based on the research, this person traded in the company concerned using an e-trade account, which demonstrated to future recruiters an interest in trading. “Being a proven money-maker is the best way to get hired,” says another Quora contributor.

What is a “proven money-maker” made of? The ability to make money depends on strong math and computation skills, street smartness, and a pleasant personality that clients will like, according to a Quora post. If you make the best use of your education and apprenticeship, that will help very much, too.

Investopedia gives some general tips for how to get a job at a hedge fund: be sure you want to work for an HF; study the HF industry; use the three-circles strategy (involving your passion, experience, and considerations of high profitability); identify HF career mentors; complete internships; develop your USP (such as a specialization in the emerging funds market); take networking and cold-calling seriously (since HFs don’t always advertise jobs); and consider HF service-provide jobs.

Skills across finance, operations, front office, risk, and compliance are sought-after in the HFs industry, says a career advisor at Aston Business School, UK, quoted in BusinessBecause.
 

Hedge Fund Salary after MBA

HF jobs are attractive because, even in a bad year, an HF will earn the “asset management fee,” which is usually 2 percent of the assets, which itself may run into millions for the fund. Of course, a good year would also provide 20 percent of profits from investments.

At Columbia Business School, a Class of 2016 MBA received a job offer from an HF with $325,000 annual base salary, $200,000 more than the median base salary, reports Poets&Quants. A couple of Class of 2015 MBAs landed $250,000 annual salary at HFs/investment management firms. At Stanford, at least one 2015 MBA graduate received a $267,000 base salary. An INSEAD graduate accepted an HF/investment management firm in Latin America with a salary of $200,000.

The average total compensation for a hedge fund professional in 2015 was $368,000, according to the 2015 Hedge Fund Compensation Report quoted in financialcareeroptions.com. But the money comes at a price: the report said 80 percent of HF professionals worked between 40 and 60 extremely stressful hours a week, with very little job security.
 

Recruiting MBAs

There are three investment-management hiring groups: large managers; HFs and mid-sized managers; and boutique and small firms, according to a post on wallstreetoasis.com. Large managers run internship programs from which they recruit employees; the interns’ pool may be very small and only very few of them would be offered full-time jobs. HFs depend on networking as they generally don’t post job ads; small firms may post only full-time positions.

As already discussed, an MBA is not a big plus for a HF job-seeker, according to a Slideshare presentation developed by Glocap Search. MBAs can expect fierce competition from lateral HF and PE/VC candidates. A majority of successful MBA applicants have previous buy-side experience (HF, PE, long-only).

Much MBA hiring takes place for junior and mid-levels (two to eight years’ experience). These new recruits command relatively low salaries and come with some knowledge/training. Although some funds have shown renewed interest in hiring MBAs, they don’t place a premium on the degree. In fact, MBA candidates might be rejected for their attitude, high salary expectations, and time spent out of the job market during their program.

Also read:
How to become an investment banker
Asset management vs investment banking
How to get a job on Wall Street
IIMA PGPX placements in private equity
 
References: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20


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Sameer Kamat //
Sameer Kamat
Founder of MBA Crystal Ball. Author of Beyond The MBA Hype & Business Doctors. Here's more about me. Connect with me on Google+ | Twitter | Facebook | Linkedin

7 Comments

  1. Priya Chatterjee says:

    Hello Sameer,
    Hope you are doing good.
    I am in between some career dilema and I have absolutely no idea what to do.
    Let me explain in detail:
    I have passed my B.Tech in 2012 and joined in a reputed MNC on 2013. But this IT job culture was stucking me day by day that’s why I started preparing for government jobs on 2015 but I did not get success. Due to this failure I tried to concentrate on my IT career again , I got my promotion within time also. But from 2017 this I got stuck again in my frustrating life. I really don’t like my job what I am doing daily in this company. I started preparing again for UPSC on 2017 but the result is same , no positive outcome. As I am already 28 yrs old, very limited government jobs are open to me now. Hence I am planning to do a MBA or masterts in business analytics but that will again involves huge money which is difficult for me to manage at this point of time.
    To prove myself in this IT world I forgot what are my likings. Sometimes I feel that choosing IT life was a big mess in my life. I want to move away from here in a decent way but that path is really not clear to me.
    I Would really like to get some valuable suggestion from you as I am not getting any way out.

    Many thanks in advance!!

    Regards,
    Priya

  2. Mini says:

    Hello! I am currently doing my bech in Aerospace and aeronautics. I am interested in doing MBA next without working before my masters. Do I have a chance of getting a good MBA college without work experience ? since chances of getting a good job exactly after my bachelors is very less in india. And after searching alot I found dat we can do MBA in aviation also, so can I wanted to know more about the colleges which offer such courses and the criteria of getting into them without work experience.

  3. Swati says:

    Hello,
    I am pursuing with my BCOM and I am planning to do masters in USA and I don’t have any work experience so I am confused rather to go with MIM or Ms and whether there will be good job opportunities or not ?? And are they included in stem courses or not?

  4. Sameer Kamat says:

    @Priya: It’s natural to feel that another field would be more interesting than the current one. But what if you realise after all that effort that government jobs aren’t exactly perfect either? Changing the direction now and aiming for an MBA or MS also seems more like an escape route, rather than a well thought-out plan. Try volunteering some time to organisations (like NGOs) that do work that you are interested in. You may be able to better identify where your calling lies. Then take the next steps to go in that direction.

    @Mini: International MBA programs insist on work experience, so it’ll be very tough.

    @Swati: We’ve tried to cover some perspectives on the MiM degree here: https://www.mbacrystalball.com/blog/2017/04/17/mim-degree-worth-it-masters-in-management/

  5. Gourav says:

    Hi Sameer,

    I am working in an IT company for last 10 years,I started trading when I was in college.Though I am having a successful career in IT(Worked in Europe-Netherlands,Germany)I still trade.I am earning more in trading than from my IT job.Lately I realized I want to pursue MBA in finance,work for a HF for few years,understand the setup, and then either continue in HF or have my own fund.Though there is no problem with my IT career,I want to follow my dream.Please suggest me.I am a B.Tech in IT,will be completing 10 years of job in June 2018.

    Regards
    Gourav

  6. Sameer Kamat says:

    Gourav:

    Congrats on being able to make more money from your passion than your regular job. Not many are able to do that.

    On the point about taking the big step of changing careers from IT to finance, keep in mind that doing something for oneself (out of interest) is very different from offering the same as a service to paying (and highly demanding) clients.

    Also, I’m guessing the process you follow for your investments would be significantly different (and less rigorous, scientific and risk-aware) from what asset management funds do. The minute you start doing what the big funds do (fundamental / statistical research with tight deadlines), it can turn into a stressful job like any other.

    And despite your decade long experience, you’ll have to start at the bottom (probably as a research analyst) churning out tons of charts and data, without the decision-making power that you currently enjoy with your own funds.

    Think about these aspects before you invest in an expensive MBA assuming it’ll pave the way for a fun-filled, lucrative and adventurous job in a hedge fund (with a super-selective hiring process).

    The alternate option is to enjoy investing for yourself and probably do it for a few friends and family members who aren’t as savvy as you are with their investments. If you are able to give them the same returns that you’ve enjoyed for years, you can take a call on whether to leave your IT job to do this full-time.

    You get to do what you like without the pressures of a post MBA job.

  7. Gourav says:

    Thank you Sameer.Your answer is really helpful.I will focus on my own trading along with my job.As I enjoy the trading-I trade only nifty options-but if I am given any other financial task it would be toxic for me.I will see how I can grow this as business by helping out few of my friends,in fact I am already doing this.Thanks a lot for your help in clearing out my doubt and getting peace.I owe you for your advice.

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