Careers in finance are amongst the most lucrative with high wages and a great deal of opportunity. Many graduates undertaking a finance degree set out to eventually become hedge fund managers and it’s easy to see why. The job is varied and interesting with potential wages being as high as £2-3 million per year. This article will examine hedge funds, explaining what they are and how they work while giving advice on becoming a hedge fund manager.
Hedge funds provide rich individuals and institutional investors such as banks, pension funds and insurance companies with large amounts of cash with a place to invest their funds to provide a steady return of investment with very little risk. It is important to note, however, that hedge funds do not provide ‘absolute returns’; this means that hedge funds are unable to guarantee that they will provide a return on investment.
These rich individuals and institutional investors pool their money together in the hedge fund and use these funds to buy multiple investments such as stocks, housing or other businesses. Hedge funds aim to spread the risk inherent in investment by spreading the investments out amongst many different sources. If one investment fails, the hedge fund is unlikely to be affected as the hundreds of other investments will remain untouched.
Hedge funds are often run by veterans of the financial industry that have spent a great deal of time working their way up the corporate ladder. Hedge fund managers choose where the money kept in the hedge funds will be invested. As such, they need to have a great deal of experience managing investment portfolios and an in-depth knowledge of the stock market.
Hedge fund managers make money in two ways. The first way is through a management fee that is charged on all money flowing into the hedge fund. Hedge funds normally charge 2-3% of the total amount of assets under management by the fund on an annual basis. Secondly, hedge funds earn performance related bonuses at the end of the financial year. The amount of profit made by the hedge fund is collected together and the hedge fund receives a percentage of this amount. This performance bonus is normally 15-20% of the total profit earned by the hedge fund during the financial year.
Entry level positions in hedge funds
Fresh graduates with MBAs often have to start their careers in hedge funds at the bottom. This can mean carrying out work as an administrative assistant, junior trader or as a risk manager. Career progression can occur quickly, however, if impressive performance and initiative is shown.
Most hedge funds have an internal recruiter that hunt for potential recruits. The secret to getting a job at a hedge fund is to network – seek out the hiring managers for the hedge funds and make sure they know you. Sites like linkedin and directories such as the ‘Hedge Fund Group’ make it easy to find the contact details for hiring managers and get them to notice you.
Internships are also on offer at some hedge funds. These internships provide both experience and a chance to network and make an impression. Many of these internships will be unpaid and the work tedious, but the chance to gain experience in the industry and network will be more than worth it.
Having a successful hedge fund manager as a mentor can also be helpful. These people are often looking for someone to teach and pass their experience on to. Impressing a mentor can be difficult, however – you need to show commitment, an ability to learn quickly and a desire to succeed in the hedge fund industry.
Hedge fund career progression
After demonstrating a high level of performance and job aptitude, low level hedge fund employees will eventually be promoted to the role of junior trader or junior analyst. These roles involve managing investment portfolios and working to make them produce a return on investment.
Eventually, the trader/analyst will be promoted to either a research analyst or an assistant trader. Promotion from these positions will lead to eventually becoming a portfolio manager and then a hedge fund manager.
The amount of time it takes to become a hedge fund manager varies depending on the individual. Some may reach that goal in ten years while others may take longer. Long hours and hard work are required to reach this position with only the best being able to claim the title.
The world of finance is incredibly lucrative with a number of high earning positions to be found in various institutions, many of them in the hedge fund industry. Climbing the corporate ladder to become a hedge fund manager is not easy. However, for those willing to invest the time and effort needed to reach the position, the rewards are huge, with a salary that few careers could hope to match.
This article is brought to you on behalf of Emanuel Arbib of Integrated Asset Management – read his blog for more.