Hedge Fund Careers

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Hedge Fund Careers

Landing a hedge fund job can be difficult for people lacking prior investment experience. It requires extensive preparation and groundwork to break into the realm of hedge funds.

Hedge funds seek maximum return on investment, by employing aggressive investment strategies, in both domestic and international markets. Wealthy people and large institutional investors invest in hedge funds since they have the capacity to undertake huge risks in order to obtain above average return on investment. Since these funds are unregulated, an investor is expected to have a net worth of more than $1 million and a sufficient understanding of the risks involved before investing in hedge funds. They collect a percentage of profits in addition to the management fee. They use leverage or debt in order to achieve a high return on investment.

Program trading, which refers to automatic computer generated trades, is also used for timely and perfect execution. Short selling, that refers to selling a borrowed security with the intention of replacing it at a lower cost in the future, is a commonly used technique that generates huge profits. Exploiting arbitrage opportunities by taking advantage of the price differential in similar securities, is one of the strategies employed by hedge funds. Leveraging and short selling are very risky strategies. Other strategies include using derivatives like options and futures and entering into swaps.

A Career in Hedge Funds

Seeking employment in a hedge fund is not an easy task. Generally, they hire people with experience and knowledge. The manager is responsible for the overall management of the fund. His responsibilities include hiring personnel, overseeing and managing portfolio risk, and making trading decisions. Overseeing accounting and other operations are also some of the duties of the manager. A person fresh out of college or a person looking for a career change, will not find it particularly easy to get a job in a hedge fund.

Becoming an Intern

Becoming an intern may be the best way of starting a hedge fund career. Cold calling start up hedge funds and networking with people already in the industry can be of use to aspiring job applicants. One should also be aware of the strategies and terms used. The best way of getting acquainted with the strategies and terms, is by subscribing to newsletters and magazines.

Joining as a Junior Analyst

This is the most common way of gaining entry into a hedge fund. A junior analyst is typically expected to have some investment experience. A pre-MBA, CFA, CAIA, or CHA candidate, who has the capacity to aggregate and analyze data, may find it relatively easy to land a job with a hedge fund. A degree in mathematics, finance, or economics will be an added advantage since they typically hire people with good quantitative and analytical skills.

Joining as an Assistant Trader

This can also be a starting point for some people. A trader is expected to be comfortable with reconciliation of trades, monitor asset allocation, re-balance portfolios, use portfolio optimization techniques, and implement currency hedging positions. A forex trader has a good chance of being hired by a global macro fund. Global macro funds are hedge funds that take directional and relative positions in currencies, debt, equities, or commodities.

Joining as a Sales Professional

People with prior experience in sales and marketing can look for job openings in newly launched hedge funds that require distribution of their products to wealthy individuals and institutional investors.

Future of Hedge Funds

The year 2008 witnessed a meltdown of the financial markets. Risk aversion resulted in investors demanding redemption of their securities and the subsequent closing down of nearly 1,200 hedge funds. Today, there are around 9,050 hedge funds in the US. On 17th June, 2009, the US President announced his intention to introduce regulatory reforms that would make it mandatory for them to register with the SEC (Securities and Exchange Commission). This would mean adhering to new requirements for record keeping, disclosure, and reporting.

Although their managers are confident that the last quarter of 2009 or early 2010 will see a recovery in the market and a subsequent growth of hedge funds, there are concerns that excessive government regulation may stifle the market. The growth of start up funds is also being witnessed since the first quarter of 2009. It’s evident that there are job opportunities in hedge funds for people equipped with the requisite knowledge and expertise.

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