Hedge Funds vs. Institutional Asset Management: Is a Billion Dollars Really Cooler Than a Million Dollars?

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Hedge Funds vs. Asset ManagementThis is a guest post from Mike Moran, CFA, a portfolio manager at a long-only asset management firm. He started Life on the Buy Side to teach you what it’s like working in asset management, hedge funds, and more.

Aspiring analysts often tell me that they want to work at a hedge fund one day. The most obvious reason is money.

Starting the next Facebook is way too risky if you want to make a billion dollars, so hedge funds seem like the next best alternative.

And since they’re limited to accredited investors – people with a net worth of at least $1 million or more than $200K of income – you’ve also got that air of exclusivity.

But beyond these points, few people understand the differences between hedge funds and traditional money management – how their investment strategies differ, what it takes to get in, what you do on the job, and what you do afterward.

So let’s dive right in and see whether a billion dollars really is cooler than a million dollars.

Mind-Boggling Money

Certain hedge fund managers make ridiculous amounts of money due to the 2 and 20 fee structure – they receive 2% of their assets under management in fees each year, as well as 20% of the investment returns they generate.

John Paulson made $3.7 billion betting on the collapse of the subprime crisis in 2007 – just compare that to Tiger Woods’ career earnings, which are estimated at only $1 billion.

Tiger would have to play another 40 years like his first 15 years just to match Paulson’s take-home pay in 2007 alone, and he’s arguably the greatest golfer ever.

In good years you’ll see multiple hedge fund managers earning $1 billion in cash – some hedge fund managers even create public profiles to gain a reputation and attract investors (think David Einhorn).

Boring Mutual Funds?

Compared to those paydays, the traditional mutual fund seems quite boring.

But top fund managers there can make a lot of money as well – you just don’t hear about it as much because they’re less public about it and because billion-dollar bonuses don’t happen.

And the flip-side of hedge funds is blowup risk – during the subprime crisis, thousands of hedge funds imploded and investors lost enormous sums of money.

One day you’d be cruising on a yacht and the next you were collecting unemployment.

There’s no way to make billions of dollars in one year without taking huge risks, working 24/7, or being incredibly lucky – and usually you need all 3.

Absolute Returns vs. Relative Returns

The main difference between hedge funds and traditional institutional asset management is that hedge funds focus on absolute returns, whereas money managers focus on relative returns.

It has little to do with investing styles – for example, you’ll see deep value investors at both types of firms.

Imagine you’re a traditional money manager who’s managing to the S&P 500 benchmark in 2008. That year, the S&P 500 fell 37%, but your fund was down “only” 33%. That would be a good year for you, since you’re focused on returns relative to that index.

But that same (33%) return would be awful for a hedge fund – potentially bad enough to shut down the entire fund depending on the leverage used and the assets under management.

Conversely, let’s say it’s 2009 when the S&P was up 26% and both your asset management firm and a hedge fund returned 20%.

That would be a terrible year for you as the relative manager since you’re down 6% against the index, but it would be a great year for the hedge fund manager – who gets 20% of that 20% return (assuming the fund is above its high-water mark).

Breaking Into Asset Management… and Hedge Funds

There are 2 different paths that people follow to work on the buy-side – the IB/PE route and the CFA route. The IB/PE route is more specialized, so let’s start there.

Breaking In from Investment Banking or Private Equity

Some hedge funds like to hire people from IB and PE even though they may not have prior public markets experience – that’s because of the absolute return mandate at hedge funds.

As a result, some funds operate more like PE firms – they just care about finding great stocks to invest in, regardless of what the broader market is doing.

And sometimes they’ll resort to activism if they believe the full value of the company is not being realized (e.g. Ackman with TGT or Lampert with SHLD).

If you want to break in from this background, your main obstacle will be convincing hedge funds (and money managers) that you’re actually interested in the markets.

The recruiting process is similar to breaking into private equity from banking: work at the firm with the best possible brand-name, go through headhunters, network aggressively, and tell a convincing story about how your interests shifted to the public markets over time.

The few ex-bankers I’ve worked with all ended up leaving institutional asset management because they were “deal” guys – they liked doing deals more than they liked following the stock markets, so there wasn’t a good fit.

If you haven’t entered IB/PE yet, but you’re thinking about going to a hedge fund or asset management firm and you’re more interested in the public markets than deals, you probably want to go the CFA route (see below) since that’s a more direct path.

One final note: hedge funds hire people from IB/PE, but traditional asset managers rarely do that for the reasons outlined above.

The CFA Route

Yes, Brian’s favorite topic once again – the CFA.

First, his views here on the CFA are absolutely correct – there’s no reason for a banker to care about the CFA designation because it has little to do with doing deals and selling entire companies.

But if you’re interested in the public markets and not doing deals – whether you want to be in asset management, work at a hedge fund, or go into equity research – then the CFA is almost a requirement.

There are almost 90,000 CFA charter holders worldwide, and the 2 biggest occupation categories are “Portfolio Manager” and “Research Analyst.”

You can even take advantage of networking opportunities within the program by joining local CFA societies – just get a professor to sponsor you and then you can attend society events.

As an undergraduate, joining and attending these events is the single most important thing you can do to break into both types of firms – hedge funds and institutional asset management firms – right out of school.

And yet very few students do it.

But that’s the “path” here – aim for Level 1 of the exam, make sure you network aggressively at those events, start with informal and even unpaid internships at local firms, and use those to work your way in without doing IB/PE first.

If that doesn’t work or you’re already out of school, another option is to go to business school – or even a Master’s in Finance program – after a few years of full-time work experience.

The good news, if you go the MBA route, is that you don’t necessarily need to go to a “target” school to land offers at these firms – that’s in sharp contrast to IB/PE recruiting, which are focused on the top 10-15 programs.

Recruiting – What They’re Looking For

So now you’ve done the networking and you have the experience to break in – how do you impress portfolio managers and land interviews?

Screening

Hedge funds often screen candidates according to who has prior banking or PE experience, but on the long-only asset management side it’s more about your credentials.

The most common requirement there is “MBA and/or CFA preferred.”

You can still get into either industry without these, but it’s tougher and you will have to focus on more specialized funds that match your background exactly.

Personality Traits

Aside from the initial screening, the personality traits required for both hedge funds and asset management are remarkably similar.

The two most important traits are passion for the markets / investing and being a team player.

Passion for the Markets and Investing

Your job as an analyst at either a hedge fund or an asset management firm is to drive investment performance by generating good investment ideas.

We’re not looking for data monkeys to enter data into spreadsheets – we need thinkers who can come up with ideas on their own without much guidance.

This is in sharp contrast to investment banking and private equity, where the bulk of your time is not spent on idea generation or winning clients, but rather on executing deals – at least until you reach more senior levels.

If you’re not passionate about investing, you’ll probably resort to surfing the Internet all day – and the stakes are too high for that to happen.

I hate to quote Wall Street yet again, but this exchange between Gordon Gekko and Bud Fox sums it up:

Gekko: You done good, but you gotta keep doing good. I showed you how the game works, now school’s out.

Bud: Mr. Gekko, I’m there for you 110%.

Gekko: No, no, no, no, you don’t understand. I want to be surprised. Astonish me, pal, new info, don’t care where or how you get it, just get it.

Obviously you want “new info” that is legal and not the material, non-public kind that Bud Fox obtained in the movie.

But just like the quote suggests, you must be a self-starter who can bring great ideas to the PMs – if they have to generate all the ideas themselves, why would they hire you?

Being a Team Player

This sounds so cliché that you’re probably wondering why I’ve even listed it.

In the context of investing, though, being a “team player” is an absolute requirement – teams are tiny, and both hedge funds and asset management firms have PMs with a handful of analysts covering the sector.

It’s not like a Fortune 500 company where there’s so much bureaucracy that getting along with others isn’t required – a person who only cares about himself causes the entire investment process to break down.

But when everyone plays for the same team, it lets HFs and AMs have flatter structures that result in better ideas – and higher payouts for everyone involved.

Do not go into an interview and think that acting like a BSD will get you a job in either one of these industries – this is not like banking where you have rainmakers that can bring in clients with strong solo performances.

Resumes

Your resume needs to demonstrate both of the points above – I often discard good resumes because I see no evidence that the person is interested in investing.

How do you show this?

  1. Take investing classes at your school.
  2. Participate in or start an investing club.
  3. Join your local CFA society and/or start the CFA program.
  4. All of the above.

Yes, all the usual criteria like having solid work experience/internships, good grades, and so on still apply but passion for investing is the most important point if you want to work in the public markets.

Interviews

As you might have already guessed, interviews tend to be more like sales & trading than investment banking.

Yes, I may still ask you accounting and valuation questions, but I’m not testing to see whether you’re a financial modeling wizard.

I want to see that you have great investment ideas and can pitch me on why a certain stock, company, or strategy is a smart move.

At hedge funds that operate more like PE firms, you’ll get case studies and modeling tests similar to the ones you see in private equity – but even there, they still care most about your passion for investing and your ideas.

See: more coverage of hedge fund case studies.

Saying that you’re “interested in business” and talking about companies or business models that you like might work for banking, but it’s a bad, or at least insufficient, way to approach HF and AM interviews – you need to have at least a few investment ideas that you can discuss in-depth.

A Day in the Life – Hedge Funds vs. Asset Management

Once you’re in, the average day is similar at both hedge funds and asset management firms.

You’ll create financial models and analyze financial statements, read sell-side equity research, and talk to management teams of companies – those tasks take up the bulk of your time.

The main difference is that hedge funds have a much, much broader array of investment opportunities than long-only asset management firms.

Asset managers stick to buying or selling stocks, whereas with hedge funds you will see everything from the plain vanilla strategies to more exotic ones involving derivatives, events and special situations, commodities, and so on.

Of course, that freedom also comes with much higher scrutiny on performance at hedge funds – if you screw up and lose a lot of money, you will hear about it and you might be out of a job if it’s bad enough.

As an analyst you’ll work 50-60 hours per week at both these types of firms, with occasional weekend work on top of it.

Another difference on the buy-side is that year-to-date performance impacts your hours – if you get a good start to the year, you’ll spend less time in the office the rest of the year; get in the hole early and you’ll be working much more later on.

In contrast to IB and PE where deals drive your hours, with HFs and AMs performance plays a bigger role.

M&I Note: I left in the 50-60 hours per week reference here, but your hours may be worse than this at the largest and most well-known hedge funds. Similar to PE mega-funds, the culture is more like banking there and you will work. A lot.

The Pay – Hedge Funds

Yes, John Paulson routinely makes billions of dollars each year, but he’s in a completely different league from the average hedge fund manager.

Once you start working at a hedge fund, the average pay might be in the low hundreds of thousands all-in; call it $200K-$400K depending on the fund size, their performance, and your standing there.

That’s a wide range because hedge fund pay is much less standardized than IB/PE pay.

Yes, some people do make over $1 million even at more junior levels but that’s the exception and not the norm – especially post-financial crisis.

You should not expect to make “serious” amounts of money – defined as tens or hundreds of millions in a given year – until you actually become a PM or start your own fund.

If you don’t believe these numbers, look at this hedge fund compensation report from Job Search Digest – over 20% of respondents there reported pay in the $300K – $500K range, with around 10% in the other ranges. The average was $326K.

Fewer than 5% reported pay over $1 million.

The Pay – Institutional Asset Management

While the ceiling at hedge funds is much higher and you see a few outliers each year, the average pay at the entry-level in asset management is not much different from the average entry-level pay at hedge funds.

Greenwich Associates publishes a report on investment management and hedge fund compensation pay each year, and average compensation is in the same range (the actual report is copyrighted, otherwise I would link to it here).

Pay depends more on your title and experience (Chief Investment Officers earn more than Portfolio Managers, who in turn earn more than Directors, Analysts, and Traders) and the fund size than it does on distinctions between different types of firms.

Exit Opportunities

For most people in investment management, “exit opportunities” don’t exist because becoming a Portfolio Manager is the end-game.

Sometimes analysts and PMs bounce around to better opportunities and leave for other funds, but other than that, the most lucrative exit opportunity is to start your own fund.

The key to doing that is getting seed money in the first place – if you’re new to the business, usually that initial investment comes from “friends and relatives” if you happen to have a wealthy family, or from existing PE firms and HFs.

Many PE firms and HFs provide seed money “to invest in start-ups” – Julian Robertson and the Tiger Cubs are the best-known example, but even Blackstone is now investing in start-up hedge funds.

To have a shot at starting your own fund, though, you need to have a great track record and years of high returns elsewhere – yes, “past performance is no guarantee of future results,” but that’s the way the game is played.

So if you’re a sophomore in college right now, don’t even think about this one until you can point to at least 5-10 years of solid returns at funds you’ve worked at.

A Billion Dollars?

A billion dollars is definitely cooler than a million dollars, but you won’t make anything close to that until you’ve been in the game for decades and have become one of the top PMs in the world.

The ceiling is much higher on the hedge fund side, so if the absolute size of your bank account is your top concern, you should go there.

Asset management has a much lower “Beta” but the pay ceiling is also lower – sometimes it’s nice to make a lot of money with much less risk, though.

But if you’re really set on that billion-dollar payday, you might be better off starting the next Facebook and hoping for the best – even if it doesn’t work out quite as well financially, you might at least get a hit movie out of it.

About the Author

is a Portfolio Manager at a long-only asset management firm. He started Life on the Buy Side to teach you what it’s like working in asset management, hedge funds, and more.

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262 Comments to “Hedge Funds vs. Institutional Asset Management: Is a Billion Dollars Really Cooler Than a Million Dollars?”

Comments

  1. Sam says

    Hi Brian,

    I am about to start working as a Private banking analyst at a BB in London, and I would most probably be an Investment professional, meaning that I will work closely to markets. I also have the CFA. How easy would it be to transfer to Hedge fund, or Institutional asset management? Should I expect a similar day to day work in Private Banking (Investment prof.) as I would in Institutional Asset Management?

    Thanks.

  2. Chintan says

    I want to work in a hedge fund at the end, so do you recommend me to join IB or Equity research in the beginning of my career after my Masters in Finance? And by the way which course is suitable for masters apart from CFA? considering i want to move to The States and as of now i reside in India.

    Thank you in advance.

    • Chintan says

      And 1 more thing, How much is the pay difference between IB and Hedge Fund? Can you be more brief? Can you explain in detail the way you have about IB analyst and associate as they climb the ladder, about hedge fund?

    • says

      Either one would work, but IB is better since it gives you more options. Aside from the CFA, look into financial modeling programs such as the ones offered on this site.

      • Chintan says

        Thank You, but somewhere i read hedge fund pays lower compared to an IB. Is it true? And plan to do Masters, i want to setttle in USA, If i get admission in LBS in london and some tier-2 school in US, which one should I choose? Are simon-fisher and boston university “Target” schools? And is it easy to move to US after completing masters from London, or it’s very difficult?

        Sorry to bombard you with so many question.
        Thank you :)

        • M&I - Nicole says

          No it depends on how good you are.
          I’d do LBS.
          Not really.
          Depends on whether you have a visa to work in the States or not, or whether a company is willing to sponsor your visa or not

          • Chintan says

            OK, Thanks again, and if you have got option after graduation to choose either PE/VC or IB than what would you choose if at the you want to work in Hedge fund?

  3. Chintan says

    Also as of now I am getting job in ER/PMS as IB opportunities are very limited here, should I take one of these? and will this help in any manner after my master’s to join an IB?

  4. Lee says

    Hi, I’m an engineering student and have scheduled an interview on hedge fund next week.

    May you recommend a website with links / glossary to answer the possible technical questions that may be asked?

    Thanks!

    P.S> great website!

  5. David says

    Hello,
    I am about to start my undergraduate business degree. I already have a passion for markets as I have been managing a my own small fund based off of family gifts and my savings. My eventual goal is to have my own HF or to manage one. Would it be beneficial to work as an analyst at an IB after my undergrad before doing and mba or going into the buy side immediately.

    Thanks so much

    David

    • M&I - Nicole says

      If you’re really good at investing and have a track record to show, I’d just apply to the buy side immediately. Can be tough to break in but I would cold call and network as much as I can. Otherwise, you can go back to IB (ideally Sales & Trading/Research) if you can find a role there. If not, a target MBA can help you achieve your goals

  6. vaibhav says

    Great Article!
    I wanted to know who earns more at a hedge fund-equity research analyst or a trader?
    And is it more likely for a trader to star his own fund?

    • vaibhav says

      Sorry i didn’t read the previous comments.So i guess it depends on the type of fund.
      Lets say its a macro long/short fund the answer is equity research analyst to both the questions.
      And if its a quantitative arbitrage fund the answer is trader.Am i right?

    • M&I - Nicole says

      Re compensation, I’m not quite sure. I think it depends on the person’s performance and whether he/she generates ideas or not

      Yes, since traders are more “entrepreneurial” and more likely to take risks. However, this is still a generalization…

      • Shash says

        Hey,

        I’m a sophomore at a target school and I just got an offer to work at GMO ($100 bil investment management firm). I’d like to eventually make the transition into PE, ideally out of undergrad. Do you think the experience at GMO would be valuable with regards to making that transition?

        • M&I - Nicole says

          Most PE firms prefer people with IBD experience http://www.mergersandinquisitions.com/private-equity-recruiting/

          So in your case, while your experience is somewhat relevant they maybe looking for people with specific modelling experience i.e. LBO models as well as transaction experience. To make your experience more appealing to PE firms, try to highlight your relevant valuation experience and ability to spot investments

  7. Soon to Graduate says

    I am about to embark on my last year at College. I plan to go to law school and work at Rope’s & Gray, which is the outside councel to Bain Capital, a alternative asset management firm that does private and public equity, credit, and venture capital. I plan to break into their private equity arm (which is called “Bain Capital Private Equity”). After doing that, is it a good idea to break into their Hedge Fund affiliate (Brookside Capital)?

  8. Kobe says

    Hello. I just graduated from MSc Investment course in UK. I have strong passion to financial markets, investing experience, and few working strategies. I’m reviewing job offers and sending my CV. The problem is that my motivation letter looks flat. Carrier advisor told me to write something like that.: “Young, passionate, graduate looks entry-level position in financial field…. ” I think this will not impress anyone. How could I get job now. I don’t have enough money to move to London now. Is it suitable to apply to London, or should I look only in other cities. Than you.

    • M&I - Nicole says

      If you have strong desire to work in London, you can make the money to move there. Are you motivated enough to do so should be the question you ask yourself.

  9. Nilay says

    Hi Brian,

    I’m a recent graduate working as a chemical engineer in the petrochemicals industry in Ontario, Canada. I want to make a switch to finance (equity research and portfolio management seem attractive options to me) and I was considering doing a CFA in order to show a demonstrated interest when I finally applied for jobs.

    I don’t have any working experience in the financial services industry so I’m wondering what options I have at my disposal. If a CFA’s not the correct approach, what else can I do to help my case?

    Thanks!

  10. SJV says

    A lot of articles on asset management tend to focus (accidentally or not) on equities. Would be great if someone on the M&I team could interview someone that’s specifically in fixed income asset management.

    Otherwise, awesome job so far! Love the site!

    Thanks!

  11. Rai says

    Hi there,

    I am in the last year of my undegrad degree in the U.K. and I want to work for AM firms as I like the idea of investing money and looking for opportunities but I have no internship or work experience as such. Therefore, I am scared that my motivational statement may not be good enough to start with. Could you perhaps suggest me how I could improve ? I don’t want to give up my dreams yet but I don’t know how to start either ?

    thanks a lot in advance.

    • M&I - Nicole says

      Taking the CFA will help. Perhaps volunteering your time with an asset manager? I wouldn’t let your lack of experience stop you!

      • Cheteshwar Pujara says

        Hi,

        I have a MS in mathematics from a top US univ, but due to the economy, I did not get a front office job. Currently working in a back-office position in a large asset mgmt firm. After reading this site (and others), I’m interested in research / portfolio management.

        1. Given that I am currently working (since 1 yr) in a back-office job in an AM firm, do I have a chance of moving to HFs?

        2. Since I have no prior experience with investing, can you suggest some resources where I can learn how to generate investment ideas? I mean, I don’t know how to start coming up with ideas.

        3. Is the entry level pay in the $200-400K range even at small HFs ?

        Thanks!
        CP

  12. Alejandro says

    I am a junior applied economics undergrad at a non-target, I have a ML Global Wealth Management internship lined up for this summer. I’ve also been trading my own personal account for 2 years and love regularly studying and watching the markets. My ultimate goal is AM, and I’m wondering whether GWM is AM. Also, if the internship does go great how would I go about obtaining a FT offer there?

    Thanks.

    • says

      GWM is different from AM because wealth management = individuals but AM = institutions. So the work, pay, and strategies differ. There is a fair bit of overlap, though.

      Internship to FT offer: perform well on the job, get to know as many people as you can, and they’ll let you know by the end. See the other internship-related articles on this site for more tips.

  13. John says

    I know it’s hard to get into asset management for big firms, but how hard is it to break into asset management at a smaller firm? Would it still be difficult to get into a smaller asset management firm if you were studying for your CFA?

    What would the pay and hours worked be for equity research analysts at those places? I would imagine less than those working for large firms, but do you have any estimates?

    And would it be harder to get into asset management if you were an economics major opposed to a finance major?
    Thanks

      • says

        Thanks for your comment. To clarify how comments on this site work: we provide answers, where possible, free of charge without asking for anything in return. Sometimes this means that it takes a few days to respond. If you’re seeking faster responses, you can sign up for one of our courses and ask us directly there.

        Now to your question: it is easier to get into smaller firms but still not “easy.” Pay and hours – hours are probably the same, base pay will be the same, but bonuses will be lower by a good amount… perhaps 30-50% less. Econ vs. finance is a slight disadvantage but it’s more dependent on your work experience.

        • John says

          Thank you for your response, it was very helpful. So would that mean that it is difficult to get into a smaller/less well known AM firm with an Econ Bachelor’s degree even if one was studying for the CFA exam, assuming one had an excellent GPA and an internship? Even if it is difficult to break in right out of college, how are opportunities to get into AM in the next 7-8 years before you turn 30?

          How are opportunities for an MBA (from a non-target school) to break into asset management? And do the firms care if it is a 1 year or 2 year MBA, distance learning vs. traditional, etc?

          If hours worked are about the same at smaller/less well known AM firms, is the travel also the same? Are there many AM firms, large or small, located in places other than large metro areas like NYC?

          Sorry for all the questions, I’m just trying to get an accurate picture. Thanks again.

          • says

            It’s completely dependent on networking, your work experience, and how good you are at the job. With asset management (and most things on the buy-side), results trump credentials so they care more about how much money you can make and less about your degree.

            There are AM firms elsewhere but high concentration in financial centers.

        • John says

          Ok, I understand that breaking into AM depends on networking and how well the person making hiring decisions thinks you can do the job. In your opinion, would someone with several years of experience in an economics related job having done a good job and a good amount of networking be likely to get into asset management at a smaller firm?

          • M&I - Nicole says

            Yes, if you can demonstrate your ability to pick stops from a top-down/macro perspective (using your experience in an econ-related role). I’d still suggest you to gain/demonstrate your experience in investing because this is crucial in AM. Taking/having a CFA will help too.

          • John says

            Trying to get into asset management from an econ-related job, I would take the CFA exams, but my only investing experience would be personal investing. Would I still be likely to get into AM considering my lack of investment experience?

            How much does an MBA (non-target school) help in breaking into AM?

          • M&I - Nicole says

            Your chances are decent if you have your own personal investing experience, though having relevant work experience in AM will boost your chances. You can still talk about your personal investing experience. The key is to demonstrate your passion in investing. I don’t think an MBA at a non-target will help as much. It will still help a bit, though I believe a semi-target/target can help you significantly.

          • John says

            I know having relevant work experience in AM will boost my chances of getting into asset management, but to break into AM in the first place, I was thinking of getting into a smaller asset management firm first and then using that experience to get into larger funds.
            Considering smaller/regional asset management firms, would I be likely to get into one from an econ background, with personal investing experience and having taken the CFA exams?

            Is there any way I can get relevant work experience in AM from economics to boost my chances?

            And would getting an MBA from a decent school that wouldn’t quite be a semi-target help with getting into a smaller asset management firm?

            Thanks.

          • M&I - Nicole says

            Yes, you have a decent chance at breaking into smaller/regional AM firms.

            Yes – you can do so by networking a lot and cold calling the smaller firms. Since the firms are smaller, they are probably more receptive to cold callers.

            I don’t think an MBA from a non-target really helps. Having a passion in investing, CFA and an experience in the field will be more useful.

  14. ream says

    nah, you don’t need no masters degree and no education to get into a hedge fund. It’s all about your track record. None of the crap you learn in business school will help you with investing. It will only help you with legal stuff, who you talk to to open a hedge fund and who regulates what but the whole economic theory will not help you in trading at all. You can read all you want about riding a bicycle but you will only learn to ride one by doing it.
    The management at good hedge funds understand that and they will hire you if you are good no matter what.

  15. Steve says

    “You should not expect to make “serious” amounts of money – defined as tens or hundreds of millions in a given year – until you actually become a PM or start your own fund.”
    1.Do most people at hedge funds eventually become PM – thus making “tens or hundreds of millions in a given year”? If not, how many (half, a quarter, etc)?
    2. Does anyone at top asset management firms make “tens or hundreds of millions in a given year”?
    If so, do most people reach that level? If not, how many (half, a quarter, etc)?

    • M&I - Nicole says

      1. No, I think few make it to PM given how cut throat the industry is. Not many funds survive.
      2. Yes if you’re the founder of the AM firm. I can’t quantify the numbers for you because I don’t have the statistics.

  16. Cheteshwar Pujara says

    Hi,

    I had applied for some hedge fund jobs through some headhunter firms. When I got a call from those firms, they asked me about my background, and also asked me about my current salary. I told them all the info, and they said that they would email me the job description of the positions for which they would forward my resume. But I never got any email from them.

    1. Is this normal of headhunter firms to ask for salary info ?

    2. Are we, as applicants, REQUIRED to give them that info (I just felt that since I had applied on their site, instead of them approaching me on their own, I should give them all the info they ask for. Is this correct?)

    3. Do they behave like this – ask your info but never get back to you (inspite of saying that they will email you “right away after the call”)

    • M&I - Nicole says

      1. Yes, though I probably wouldn’t have given the info to them so soon because it is best to keep such info confidential till you trust the other party/discussions are close to final stage. However, HH will always try to squeeze this info from you because they can benefit from such info
      2. No you are not required to give them such info. Some may not necessarily want to help you if you don’t, but if you’re established enough and have a strong resume (or if a firm is inquiring about you), you can use that as a leverage and not disclose information you are not comfortable disclosing. I’d suggest to partner with a headhunter you genuinely trust because this is very important for your career trajectory if you are looking for new positions through them.
      3. Yes, because sometimes they decide to select other candidates and present their profiles to the client (remember they don’t work for you, they work for the banks/funds that are looking to hire) or they are trying to sniff salary information from other candidates of the same caliber for their benefit. This is why I said it is in your best interest to work with a headhunter you trust, or none at all.

  17. SG says

    Hi,

    I have an phone interview this week with a buyside firm for a junior PM role. The interview is scheduled with Director, HR.

    1. Do you think this will be a technical interview?

    2. How would you suggest me to prepare for the same?

    3. The interviewer & I have some common connections on LinkedIn. Does it make any sense to ask the common person to introduce me to the interviewer before / after the interview? If so, how should I ask the common person to introduce me to the interviewer?

    Thanks,
    SG

    • M&I - Nicole says

      1. No, most likely not.
      2. Know why you want to join the firm and the role, and be able to talk about how you are a team player, your achievements, and how what you’re doing in your current role translates to that role.
      3. If you’re close to that “common person” yes. Perhaps you can do some background search on the interview first. If not, I’d be a bit hesitant because this may not appear favorable on your resume.

        • M&I - Nicole says

          I meant:

          3. If you’re close to that “common person” yes. You can just give him/her a call and speak to him/her re your interview.

          If you don’t know the “common person” well, I’d be a bit hesitant because the “common person” may not be as likely to give you the background info/introduce you. On my end, I’d probably not go through the “common person” on LinkedIn.

  18. King of BS !! says

    Hi,

    I’ve been a reader of this site for a while now but this is my 1st post. Firstly, let me congratulate you on the awesome job you guys do in terms of helping people & that too, without charging anything in return.

    I’m currently working in a backoffice job in a buy-side firm, and like everyone else, I’m looking to move to the front-office. I’m interested in asset management in the long run, but I’m more keen on getting out of the back-office where I am presently stuck. Basically, I’d be happy to accept anything I get – banking, equity research, asset mgmt etc.

    Now, my Question is — On my university’s alumni job board, there is a job posted for banking @ a mid-level firm. The company website shows current openings in the asset mgmt division of the firm as well. Also, I have some alumni working in the firm. Infact, the CEO & founder of the firm is also an alumnus of my school.

    - I don’t know any of the alumni working there, but I’m planning on emailing them as per one of your essays on networking. Is it okay for me to say “I am interested in the banking job AND ALSO the asset management one… so can you fwd my cv to the HR for both”… or should I express my interest in only 1 job ?

    - Besides the CEO (& founder), the other alumnus is an MD. Should I mail the CEO or the MD(or are both of them TOO senior for me to email them ?)… NOTE: This is a 1000-5000 people firm as per linkedin, so its not a startup…

    - The MD is based in Chicago while the IBD job posted on my career center is in SF… and the IMD job posted on the company website is in Chicago… would he be able to help me for both jobs or only jobs in the same office where he is (IMD job in chicago)?

    Thanks again M&I. Looking forward to your reply.

    • M&I - Nicole says

      - I think its best to express your interest in one area first. If you want to focus on two areas, its best you email two separate categories of people: 1 category on AM, another category on banking
      - I’d probably email the MD first. If you don’t get a response from the MD, email the CEO
      - He will probably be able to refer you to people in the SF office and give you advice. I think he may have more say over hiring in the Chicago office

      • King of BS !! says

        Thanks Nicole for your reply. M&I mentions 2 approaches to networking:-

        1. Emailing alumni for informational interviews & developing a connection with them so you can ask them for an interview when recruiting season comes.

        2. Cold calling complete strangers & asking them for a job.

        My situation is somewhere in the middle. Since the job I am interested in is already posted on my career center, I don’t have the time to develop a relation with alumni in the hope of benefiting in the long run. On the other hand, i DO have some alumni at the firm, so I would rather submit my application through them instead of (just submitting my application via the online system of my career center) or (submitting my application & cold-calling and talking to some complete stranger who has no reason to help me).

        I was planning on emailing my alumni contact, but not sure how to structure the email & the subsequent phone-call; since I’m not really asking for a conventional informational interview. Do you have any suggestions for me (for the initial email AND the follow up phone call)?

        Thanks Nicole:)

  19. SG says

    Hi Nicole,

    Have you ever heard of something called the Bloomberg Aptitude Test? Apparently, one of my friends at MIT took the test & she got a 98 percentile score… Its been about 6 months since she took the test, but so far she has received only 1/2 calls from recruiters.. I was wondering if its even worth taking the test.

    Any comments? Thanks!

    • M&I - Nicole says

      I have not heard of this test before. I’m not quite sure if you need to take the test unless the job application specifically requires you to do so.

  20. ben says

    So how do you get involved in your local CFA institute as an undergraduate? The only way I see after extensive research is participating in their research program.

      • Ben says

        Do many people take CFA level 1 as an undergraduate?

        Also, can hedge fund/asset management give you a better shot at getting a front office job at one of them coming out of college (undergraduate)?

        • M&I - Nicole says

          Some do.

          HF/AM are front office roles. Are you referring to transitioning from HF/AM to IBD?

          • Ben says

            Whoops I meant to say can hedge fund/asset management internships give you a better shot at a full time job at a hedge/asset management coming out of college (undergraduate)?

          • Ben says

            Thank you for your help. Also, I want to thank Brian for such a great website. I have learned so much.

  21. Arjun says

    What exactly did you mean when you said “… advantage of networking opportunities within the program by joining local CFA societies – just get a professor to sponsor you and then you can attend society events.”

    Why will a prof sponsor me to attend events even if I am with good terms with the Prof ? Can he/she even do that legally with his/her research fund money?

    • M&I - Nicole says

      Yes, professors can sponsor a few students to attend events. I am not 100% sure of the CFA’s rules, but I know it sponsors professors, who can in turn sponsor students, perhaps to increase credibility of the organization and gain membership. I’m not sure if the sponsorship is in “dollar value” or through seats at events etc so you may want to check with the professor or CFA

  22. DM says

    Hi,
    I have jus completed my Chartered Accountancy (CA) in INDIA and i hav also finished my CFA Level 1. I want to pursue a career in investment,fund managing etc…how should i go abt my career.??/..my cfa level 2 wil be next year…as of now i am applying in Mutual funds,broking house,PE etc…but as a fresher i am not getting it anywhere as they require experienced ppl in this field…which profile i should go for, if i get a job?

  23. ASR says

    Hi,

    I am a 2nd year student in the UK. I have a assessment center lined up for the AM division of a multinational bank for internship role.

    My aim is to work in their Investment division because i enjoy the process analyzing company financials and assessing impact of market conditions.

    How do I show that I have a passion for investing? I do have work experience in Transaction Services in Big 4.

  24. John says

    I know you mentioned top hedge funds target those coming out of their analyst programs at BB investment banks. Do they target those with buyside experience from a top asset management firm as well? For ex., if I join a top 10 mutual fund as an equity research associate straight out of undergrad, am I in a better, equal, or worse position at the end 2-3 years (relative to someone who did a 3-year analyst program in IBD) to recruit for a top hedge fund.

    • M&I - Nicole says

      I wouldn’t say you are better/worse off because it depends on what the fund is looking for, the fund type, and your performance. With the above being said, HFs tend to prefer candidates with some IB/S&T experience given the valuation skills/market exposure they gain. If you can obtain such skills at the fund (and yes you maybe able to learn very solid valuation skills of analyzing companies there) I don’t think you’d be at a disadvantage. Furthermore, if your fund is prominent that will help you too.

  25. Joe says

    Hi Brian,

    Quick question on AM pay; do you happen to know the all in comps for a 3rd year pre-MBA level junior Research Associate at any established funds(say $50B-$500B AUM range)? My guess is around 90k-120k; is that way off?

    Thanks,
    Joe

  26. Giorgio says

    Hi, thanks for the great article, it was very very useful. I have some questions for you:
    1) Do you think that doing the level 1 of the CFA before graduating would counterbalance the fact that I do not go to a target school (I’m interested in Institutional AM)?
    2) I’ve never understood whether breaking into the AM division of BB banks is easier than traditional IB. And generally speaking it’s easier to break into AM (of whichever company) or IB as a recent graduate?
    3) Do you think that those advice could apply also for European market or do you have some extra advice regarding EU?

    • says

      1) It would help a bit, but would not completely offset not going to a top school.

      2) This one varies by bank and by what exactly the AM division does (at some places it may be closer to private wealth management despite the name) – but yes, generally it is probably easier to get into AM at a large bank than it is to get into IB at a large bank.

      3) What is written here still applies to Europe. The exact networking opportunities / events may be different but the same strategies work.

  27. xiexie says

    Thanks a lot for another nice article guys.
    My question is about the working hour and pay in AM/HF in London.
    1) UK is known to be better than US in terms of working hour (UK even has the Casual Friday when people tend to leave early for pub). My question is whether AM/HF in London work less than their NY counterparts? And what is the common working hour for AM/HF in London (is 40h per week common there?).

    2) Second question is about the pay of AM/HF in London (both base salary and bonus) for junior staff out of MBA school in London.

    3) Third question is about the chance to land an offer at AM/HF in London for a LBS graduate with little experience in AM (1 year of AM/HF experience in a developing country), with passion in the market, and on his way to complete CFA level 2

    Many Thanks,

    • M&I - Nicole says

      1) Maybe – European culture maybe a bit more relaxed but it depends on the firm and your group.
      2) You may want to check out salary survey from Hudson
      3) Yes of course, I’d focus on networking and honing your stock pitch in interviews

      • xiexie says

        Thanks a lot for your prompt response Nicole
        1) Do you know the common working hour per week at AM/HF in London (a value fund, middle size firm)?
        2) Thanks
        3) What do you mean by “yes of course”? Does it mean my chance is high given my information (LBS MBA graduate, 1 year experience AM/HF in a developing country, CFA level 2)?

        Again, thanks a lot for nice response from you Nicole ;)

        • M&I - Nicole says

          1) I’d say 12 but it varies
          2) You’re welcome
          3) Yes, relatively high but it also depends on your interviewing skills etc

          • xiexie says

            Really nice and fast reply from you Nicole, thanks a lot
            1) 12h per day right? Is UK better than US in terms of working hours (in your article, it says US’s working hour is around 50h per week (10h per day)?)
            2) :)
            3) Thanks for the information. A friends of mine want to study MBA in US, his aim is wharton, chicago, kellogg, stern, darden and tuck. If he graduates from these schools, is his chance to get offer from AM/HF in US as high as mine? (my friend told me that unlike LBS, top 10 schools in US face fierce competition from each other, so it seems the chance is lower, especially he is not us citizen)

          • M&I - Nicole says

            1) as I’ve said earlier, it depends on the firm and day and team so it is hard to say. I wouldn’t count it like that. If you’re really worried about the working hours, I wouldn’t go into finance in the first place
            3) Yes, I think he has decent chance, especially if he has relevant experience. But again, focus on yourself, not others. You really can’t compare yourself to him because your background/talents/etc maybe different, even if they are subtle. I think UK’s competition is keen too, especially given the economy

  28. Ankit says

    Hi,

    I am from India and have an admission offer for the 2-year MBA from the Tepper School of Business-Carnegie Mellon. I am interested in an investment management role post-MBA but am not sure how easy it is to get such roles from Tepper, especially since I would need a work visa sponsor. I have also cleared CFA L2 and preparing to complete L3 this June before joining B-School.

    My previous work-ex includes 1 year in software development at Oracle and now close to 2 yrs in Equity Research at a Boston based small firm with a team of analysts working out of India. I also have an admit from a Top-10 Indian B-School. Would you recommend that I take the risk of attending Tepper and hope to network my way to my desired role with a visa or play safe and attend the Indian school instead?

    Thanks
    Ankit

    • M&I - Nicole says

      I’d recommend attending Tepper if you want to work in the States. Even though you’d need a visa you’d still have a chance; it would be hard to work in the States if you need a visa sponsor and did your MBA in India. However if you want to work in India, perhaps the Indian degree will suffice.

  29. barney says

    Hi Nicole,

    Is it easy to switch from venture capital to am/hf?

    Is experience from venture capital counted as investing experience that am/hf is interested about?

    Thanks

  30. J says

    Is it easy to switch into a HF role from Bulge Bracket Asset Management (e.g. – Goldman Sachs Asset Management)? Especially if it is in a specific role such as working in asset management of mortgage backed securities?

  31. Connor G. says

    I am about to begin an internship in NYC for a large AM firm in institutional portfolio management. I am from an off the map school in California, but am passionate for finance and econ, know what’s going on, and persistent. I’d like to work in PE or VC eventually, but realize that the skillset/contacts with an IB more readily prepare one for those industries. I’ll be networking my ass off, but how can I spin the experience in PM to land an offer in PE/VC/or IB? Thanks!

    • M&I - Nicole says

      You can talk about how you want to be doing deals and transactions, and working with corporates, instead of working with investors and analyzing investments

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