Hedge Funds

 

A hedge fund is a loosely regulated, privately organised, pooled investment vehicle. Hedge funds fall under the category of alternative investing as opposed to mainstream investing which refers to investments that everyone can invest in.

Typically, hedge funds are limited to 500 investors with a high minimum investment and are thus not available to the public. In many cases, they will invest across multiple asset classes in different markets and bet either on the movement of a security or the differential between the prices of related securities. They rely highly on the skill of their analysts rather than on market conditions.

These days most hedge funds trade actively, take aggressive long and/or short positions and can be highly levered. The value proposition of a Hedge Fund is that it provides its investors with a return that is not correlated with the market. Hedge Funds aim to provide an absolute return regardless of market movement, unlike mutual funds, which try to beat their market benchmark. For that, they typically charge their investors 2% of assets under management as well as 20% of the profits.

Download the free Vault guide to Hedge Funds for more information.

Useful Information

Routes in

Over the past decade hedge funds have become a major growth area, with many graduates seeking to work in this sector. This is a good sector to consider as an alternative to investment banking.

Unsurprisingly in a growth area, however, hedge fund opportunities are highly competitive and there are very few opportunities for new graduates. Hedge fund employees have normally worked in investment for some time before entering the industry, and research and networking are vital to finding a route in.

When applying for roles you will need 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, modelling 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. 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.

Graduate training schemes and internships

Very few exist, and are extremely competitive to get into. A few that might be of interest include:

  • Citadel Group

    A leader in the world’s major markets. From innovative asset management strategies to market–making in options and equities, Citadel effectively deploys capital to convert opportunity into results.

  • The Blackstone Group

    A premier global investment and advisory firm.

Get experience

Completing an internship can be very useful in gaining the experience relevant to working in a hedge fund. However, due to the scarcity of them and the high competition you will need to consider other ways to gain relevant experience. Getting involved in a related society, completing work experience and volunteering can all give you the skills necessary to start a career in this competitive market.

Useful links

Job roles

Roles vary from hedge fund to hedge fund, depending on their business size, number and expertise of employees and current projects, but a few roles and responsibilities might include:

Portfolio manager

Liaising closely with clients a portfolio manager will discuss and advise on their investments, generally specialising in investments in one area, i.e. IT, derivatives, etc. They will track the market, have advanced knowledge of financial models and concepts and advise accordingly, in order to capitalise on market increases and reduce the client’s deficit when the market falls.

Analyst

A research heavy role, an analyst must have a head for numbers, financial modelling, analysing data and suggesting and discussing their findings or ideas with colleagues. They will specialise in one area, e.g. derivatives, futures, etc. where their research will be based. They will be expected to read through reports, economic news and data and financial reports.

Trader (junior)

A junior trader is managed by the senior trader and would report to them. Some Junior Traders may have their own small clients to work with. This work would be monitored by the senior trader. They would also liaise with potential clients, informing them about their firm’s investment strategy and support the senior trader in their orders. 

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