Hedge Fund Recruiting: The Definitive Guide
Also, many hedge funds are not interested in broadly marketing themselves to candidates.
As a result, it’s far more difficult to outline a step-by-step recruiting process.
But since this entire site is dedicated to step-by-step processes, mixed with my apocalyptic worldviews and obsessions with TV shows, so I’ll give it my best shot:
What Do Hedge Funds Do?
A hedge fund is an investment fund that raises capital from institutional investors and accredited investors and then invests it in financial assets – usually liquid, publicly traded assets.
Most hedge funds target absolute returns rather than relative returns, and they use a wide variety of strategies and securities to achieve those returns.
“Absolute returns” means that if the S&P is down 25% for the year, and your hedge fund is down 15%, that’s a terrible outcome because you’ve still lost money.
On the other hand, if the S&P is up 30% for the year, but your hedge fund is up only 20%, that’s a good outcome on an absolute basis because you’ve earned money.
“Wide variety of strategies and securities” means that hedge funds do far more than simply buying and selling plain-vanilla stocks and bonds.
For example, they may short-sell securities, use derivatives, bet on mergers going through or failing, and they may become directly involved in events like spin-offs and restructurings.
Hedge funds differ from mutual funds and asset management firms because those firms tend to target relative returns (e.g., “beat the S&P by 5%”) and they follow more traditional strategies, such as buying and holding undervalued stocks.
Hedge funds differ from private equity firms because PE firms usually buy and sell entire companies or large stakes in companies, and most of their holdings are illiquid.
Why Work at a Hedge Fund?
Hedge funds are good if you’re extremely passionate about the public markets, and you want to follow companies and other securities rather than work on deals.
“Extremely passionate” means:
- You’re constantly reading about the financial markets in books and other media.
- In your spare time, you research companies, create investment theses, and buy and sell stocks, bonds, derivatives, and other assets.
- You’ve joined investing clubs and have participated in investing competitions.
- You procrastinate on other work/responsibilities by trading your portfolio.
The money is a big draw as well.
If you’re at the right fund and you perform well, you can earn into the mid-six-figures, up to $1 million+, even as a junior-level employee.
And the top individual Portfolio Managers can earn hundreds of millions or billions each year.
Hedge funds offer a much higher pay ceiling than investment banking, (sometimes) better hours and work/life balance, and the chance to do more interesting work.
The downsides are that your exit opportunities out of a hedge fund will be more limited, it’s still a very stressful job even though you work fewer hours, and if your fund blows up or otherwise shuts down, you’ll be out of a job.
Also, many people are pessimistic about the future of the hedge fund industry because of the rise of index funds, passive and automated investing, and AI.
It’s not going to disappear overnight, and you can still make money even in a declining industry, but the best time to enter a hedge fund was a long time ago (e.g., the 1990’s) when there were more opportunities and fewer threats on the horizon.
Hedge Fund Recruiting: Who Wins Interviews and Offers? And for Which Roles?
There are three main roles at most funds, and the hedge fund recruiting process differs for each one:
- Investment Analysts (IAs) or Research Analysts: They are the junior employees who generate investment ideas, do the analysis, and present their ideas to the senior team.
- Portfolio Managers (PMs): They review the Investment Analysts’ work and then decide which investments to pursue.
- Traders or Execution Traders (ETs): They receive directions from the PMs and execute their ideas, using their knowledge of buyers and sellers in the market.
At some funds, the Investment Analyst and Execution Trader roles are blended – for example, Structured Product and Investment Grade Credit investors usually do their own trading as well.
And at some types of funds, there are additional roles – for example, at quant hedge funds, there are also quants and programmers with math/statistics/computer science backgrounds.
In addition to these front-office roles, there are also middle and back-office roles for trade settlement, compliance, IT, HR, and more.
In this article, we’ll focus on hedge fund recruiting for Investment Analyst roles because:
- If you’re working in a field such as investment banking or equity research, you’re far more likely to win a role as an Investment Analyst than anything else here.
- You don’t “recruit” for PM roles – you get promoted to that position after developing a track record of results.
- To win Execution Trading Roles, you pretty much need to be a trader in the right group at a large bank. We cover this topic in the article about sales & trading exit opportunities.
- And finally, quant funds are a whole separate topic that I don’t want to get into here, as we have an article on them and one on quant research jobs.
The following professionals have the best chance of winning Investment Analyst roles at hedge funds:
- Investment Banking Analysts at bulge-bracket and elite-boutique banks, and sometimes ones who followed the “2 + 2” path (i.e., two years of IB followed by two years of PE).
- Equity Research Associates at bulge-bracket banks.
- Research/Investment Analysts at traditional asset management firms or mutual funds.
- Some Sales & Trading professionals who happen to work in highly relevant groups, such as the rates trading desk or the equity derivatives desk.
- Occasionally, university graduates who have completed relevant internships, such as ones in asset management at a pension fund, win full-time hedge fund offers straight out of undergrad without another full-time role first.
Some large hedge funds have begun to recruit on-campus more actively, but it’s still not that common, and it may not necessarily be a good idea to accept a buy-side role right out of undergrad.
Of these categories, many U.S.-based hedge funds prefer IB Analysts – at least funds that use strategies such as long/short equity, merger arbitrage, and anything else related to fundamental analysis or deals.
Funds that use strategies such as global macro (i.e., trading FX, commodities, etc. based on changes in government policy, economic or trade policy, and interest rates) may prefer S&T professionals who have worked in areas like the rates trading desk.
And if the fund is even more specialized, such as one that invests in distressed credit, you should be on the distressed debt desk so your skills match up perfectly.
In terms of academic credentials, the quality of your undergraduate university, your GPA, and even your SAT or other standardized test scores, such as the A-Levels in the U.K., all matter in hedge fund recruiting.
That said, “prestige” is not quite as important as it is in investment banking and private equity because hedge funds value results above all else.
As a result, you’ll see more non-traditional professionals at hedge funds than you will in IB/PE.
Beyond work experience and academics, hedge funds seek the following qualities in candidates:
- Passion for the Markets / Investing – You must enjoy reading about the markets, learning different businesses, and picking them apart. You must enjoy taking calculated risks by making bets and protecting your downside when those bets go wrong.
- Independent Thinking / Healthy Skepticism – You have significant autonomy at most hedge funds, and you must come up with ideas and spend your time efficiently. You must be able to absorb large volumes of information and decide what to pay attention to and what to ignore.
- Team Player-ness – Being a team player is critical because no investments happen in isolation. Even the biggest hedge funds have lean teams without much “middle management,” so you must be able to contribute without letting your ego override good team decisions.
- Emotional Stability – You will lose money because no investor is right 100% of the time (or even 51% of the time). When that happens, you need to remain calm and stick to your strategy. If you’re a hysterical or high-strung person, you’ll never make it.
Hedge Fund Recruiting: Who Does NOT Win Interviews and Offers?
It’s also worth pointing out a few things that are not useful for winning interviews and offers.
First off, an MBA is not particularly useful in hedge fund recruiting.
The numbers don’t lie: look at any employment survey of the top 10-15 business schools, and you’ll see that a low percentage of students (often 5-10% or less) accept hedge fund offers.
And the funds that do hire post-MBA often want to see pre-MBA buy-side experience, such as in private equity, asset management, or hedge funds.
The CFA is a bit more helpful, particularly if you’re a career changer or you need to demonstrate your knowledge in the absence of traditional finance experience.
However, it’s still less useful than real work experience in IB, PE, AM, ER, or S&T.
Both the CFA and MBA tend to be more helpful for traditional asset management roles, especially since AM firms conduct on-campus recruiting at a wider variety of business schools.
If you’re a day trader, it will be extremely difficult to win hedge fund jobs because trading a small amount of your own money is very, very different from taking positions worth millions or tens of millions.
Your best bet is to win an offer at a legitimate prop trading firm, build up a track record there, show that you can work in an institutional setting, and then use that experience to move over.
It can also be quite difficult to win hedge fund interviews if you’re at a boutique or middle-market investment bank; you’re certainly unlikely to win mega-fund offers coming from one of those.
If you have your heart set on a mega-fund or even a mid-sized one, you should make a lateral move to a bulge bracket or elite boutique to boost your chances.
The Hedge Fund Recruiting Process: Paths into the Industry
Similar to private equity recruiting, there are “on-cycle” and “off-cycle” paths into hedge funds.
The difference is that “off-cycle recruiting” is far more prevalent for hedge funds since the industry is more fragmented and the required skill sets are less standardized.
In the on-cycle hedge fund recruiting process, mega-funds such as Citadel, Point72, Millennium, Fortress, and Bridgewater contact 1st Year IB Analysts at about the same type as large PE firms do.
These funds have internal recruiting teams or are represented by specific headhunters, such as Glocap, and they aim to fill a certain number of openings for the next year.
This process has been moving earlier each year, and it now happens several months (!) into the job for NY-based Analysts.
That means that you need to start preparing before your full-time job even begins.
“Preparation” for hedge fund interviews means coming up with 2-3 solid investment pitches, working on spinning your pitches into sounding like deals and then taking a strong view of each one, and making sure you can explain your market views coherently.
You can certainly network with professionals at these large funds, but headhunters dominate the process, and opportunities often depend on factors outside your near-term control, such as your bank, your undergraduate institution, and your GPA.
Interviews at the mega-funds typically go for 3-4 rounds, with several individual interviews in each round, and a modeling test or investment pitch near the end.
If you win an offer, you’ll hear back quickly, and the start date will usually be after your first year in IB ends.
By contrast, the mid-sized and smaller funds use off-cycle recruiting because they don’t have good visibility into their hiring needs until someone leaves.
Often, these departures happen in the first quarter of the calendar year because bonuses are awarded then – but spots also open up throughout the year.
These funds almost always want recruits to start immediately, but sometimes they’ll let Analysts stay until they receive their annual bonus, depending on the timing (e.g., 2-3 months might be OK, but probably not 9 months).
With these funds, networking is far more important and is one of the best ways to win interviews.
You can certainly reach out to headhunters and apply online through resume drops and job boards, but you’ll get better results with networking – if you do it correctly.
These firms tend not to have dedicated HR teams, so it’s easier to find professionals on LinkedIn or via your alumni network, email them to introduce yourself, and set up brief calls.
Once you win interviews, the process might not be that much different – especially if someone has just left and they need a replacement ASAP.
However, the process could be a lot more extended (e.g., several months rather than days or weeks) if they do not have an immediate hiring need.
Hedge Fund Headhunters: Do They Help?
Hedge funds employ many reputable headhunters: Glocap, Dynamics Search Partners, SearchOne, Amity, and more.
The mega-funds, multi-manager funds, and some single-manager funds all tend to use headhunters.
Our usual advice applies here as well: if you “fit the mold” of an ideal candidate, headhunters can be helpful in hedge fund recruiting.
If not, don’t spend too much time with them.
So, if you graduated from Yale with a 3.9 GPA, worked in IB at JP Morgan and then in PE at Silver Lake, and now you want to join a TMT-focused hedge fund, headhunters will be lining up to help you move over.
But if you went to a state school, worked in a corporate finance rotational role at a mid-sized company, and then joined a regional boutique investment bank, don’t hold your breath.
If you want to work with headhunters, it’s always best to get referrals from co-workers and former co-workers and focus on specific professionals – not entire recruiting firms.
Other Routes into Hedge Funds
Some hedge funds hold investing competitions and award internships to the winners; you should explore these if you’re an undergraduate, but they’re not the best use of time if you already have full-time work experience.
Local CFA Societies can also offer a path into hedge funds right out of undergrad, and few students use them at all.
The idea is that you’ll begin studying for Level I of the CFA, attend in-person meetings of the CFA Society, meet investment professionals there, and then network your way into internships and, eventually, full-time offers.
The rest of this article will assume that you have full-time finance experience and you now want to network to win hedge fund roles – since most candidates have to do that as part of the hedge fund recruiting process.
We can divide the process into four steps:
- Research and screen for funds.
- Network with hedge fund professionals.
- Prepare for interviews.
- Follow up after the interviews and provide references.
Hedge Fund Recruiting, Step 1: Research and Screen for Funds
Before you begin searching for anyone, you need to figure out the type of fund you want to work at.
If you’re not focused in your search, you will get nowhere – no matter your experience level or approach.
Here are some questions to think about:
- Asset Class: Equities? Fixed Income? Commodities/FX? Convertibles? Private deals? A mix of all of these?
- Industry Focus: Technology? Healthcare? Energy? Generalist?
- Investment Strategy: Long/short equity? Investment-grade debt? Distressed debt? Global macro? Merger arbitrage?
- Fund Model: Single-manager or multi-manager?
- Size of Fund: Under $1 billion AUM? $1 – 5 billion? Over $10 billion?
- Names Covered: Do Analysts there typically cover 5 – 10 companies or 40 – 50? Or something in between?
- Investment Process: Do you have to present to the investment committee to take a $10 million position? Is the threshold higher/lower? Or is there very little bureaucracy?
- Level of Activism: Does the fund take an active role in special events such as restructurings, acquisitions, and divestitures?
- Culture: Is the office fairly quiet, with a lot of introverts? Or is it more social, or even “fratty”?
- Hours / Lifestyle: Do you want fairly predictable hours, even if it means more boring day-to-day work, or would you be OK with a less predictable schedule?
- Location: New York? London? Middle of Nowhere?
You don’t necessarily need answers to all these questions, but the more specific you are, the better your hedge fund recruiting results will be.
For example, if you’ve worked in a TMT group at a bank and you have an engineering background, you might target funds that use convertible bond arbitrage strategies in the technology sector.
You prefer single-manager funds with between $1 and $5 billion in AUM, ideally in California, and you’d prefer to cover 5-10 names at once so you can do in-depth analysis on each one.
Simply with that criteria, you’ll get much better responses from headhunters, and you’ll be able to find funds more effectively.
You can search for hedge funds on different sites; there’s Preqin, Capital IQ, Bloomberg, and our IB Networking Toolkit has lists of funds as well:
IB Networking Toolkit
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You could also attempt to use free sources like Google searches, compensation reports, or press releases, but if you’re serious about winning a job in the industry, it’s worth the money to get detailed information.
Don’t spend thousands of dollars on it, but spending $50-$100 to save yourself hours or days is well worth it.
Hedge Fund Recruiting, Step 2: Network with Professionals
Once you have a preliminary list of funds – perhaps 20-30 to start with – go on LinkedIn and your alumni database and start searching for professionals at these funds.
You should ideally have a good LinkedIn profile as well, so that you’re more visible in the search results.
Once you find the names of professionals at these funds, you can contact them via email using a template similar to the one in our article on equity research recruiting:
SUBJECT: [Bank Name] Analyst – Opportunities at [Hedge Fund Name]
“Dear Mr. / Ms. [Name],
My name is [Name], and I’m currently a [XX-Year] Analyst at [Bank Name] in the [Group Name] group who found your contact information via [LinkedIn / the [University Name] alumni network].
I have become increasingly interested in hedge funds that invest in [Industry Name] companies and use [Strategy Name] strategies, particularly in the [XX – YY] AUM range, so your fund immediately caught my attention.
Before my role in investment banking, I completed internships in asset management at [Company Name 1] and [Company Name 2], both times focusing on the [Industry Name] sector.
I’ve attached here an example stock pitch I completed for [Company Name], as well as my resume.
I know you are extremely busy, but if you have a few minutes to speak so I could learn more about opportunities at [Hedge Fund Name], it would be greatly appreciated.
Thanks, and I look forward to connecting with you soon.
If you’re targeting different types of funds, you can customize this template a bit.
Keep your email short (~150 words), make sure your pitch is short (2-3 pages or less), and get to the point by asking directly about opportunities.
They will ask you for an investment pitch as part of the interview process anyway, so you might as well send it upfront to show that you have the required skills.
Your goal is to set up brief phone calls with professionals, follow up, and contact other funds with the same approach until you get positive responses.
The timing for these off-cycle roles is unpredictable, but you want to be “top of mind” in hedge fund recruiting as soon as something opens up.
Hedge Fund Recruiting, Step 3: Prepare for Hedge Fund Interviews
Hedge fund interviews are mostly about one thing: your stock or other investment pitches.
Yes, they could ask about other topics, such as standard “fit” questions, technical questions, your views on the market, your resume walkthrough, and more.
Before we explain that point, here’s a quick overview of the other question categories:
Fit Questions and Resume Walkthrough
Similar to the differences in sales & trading fit questions, you want to demonstrate more of a “market instinct” and risk-taking ability with your responses to these.
You should point to examples of calculated risks you’ve taken in the past, how you thought about risk and potential returns, and how those bets turned out.
Please see our tutorial to buy-side resume walkthroughs as well.
The most likely topics for standalone technical questions are accounting, 3-statement modeling, and valuation.
Merger models and LBO models are not that relevant for most hedge funds unless the fund happens to use a strategy that is linked to transactions.
If the fund is more specialized (convertible arbitrage, distressed debt, etc.), then you can expect technical questions related to that strategy.
For example, you could easily get questions about how to quickly approximate the Yield to Maturity (YTM) on a specific bond if you interview with a distressed fund.
Deal and Investment Experience
As with your deal experience in private equity interviews, you need to demonstrate a strong view of each of your deals and clients.
For example, if you advised a client on a sale of its company, put yourself on the other side and think about it as an investor: Would you have invested in that company? Why or why not?
If you worked on a debt or convertible bond issuance for a client, would you have invested in the issuance? Why or why not?
For your 2-3 best deals, outline the following points:
- Yes/no investment decision and brief investment thesis.
- Potential upside/downside based on a quick valuation.
- Catalysts that might cause the security’s price to change in-line with your analysis.
- For “yes” decisions, risk factors and how to mitigate them.
- For “no” decisions, what might make you change your mind.
Some hedge funds, especially ones that use more mathematically complex strategies, like to ask brain teasers.
We don’t focus on this topic here, so you should get a book on the topic if you think they’re likely to come up.
Hedge Fund Stock Pitches (or Other Investment Pitches)
We published a detailed stock pitch guide, so you should review it, look at the examples, and use them to generate and frame your own pitches in hedge fund recruiting.
You should spend 80%+ of your interview preparation time on these pitches and aim for the following deliverables:
- 2-3 pitches total, with at least 1 Long and 1 Short. “Neutral” is not recommended for hedge fund roles unless they give you a specific company and ask for your views on it.
- Do tailor these pitches to the fund’s strategy and industry, but don’t try to figure out the fund’s current portfolio and pick companies in it. It will be nearly impossible, and it might hurt your chances since they’ll know far more about their portfolio than you.
- For each pitch, outline the following:
- Long/Short Recommendation – And give the current price vs. targeted price range.
- Company or Asset Background – What it does, rough financial stats, etc.
- Your Investment Thesis – Explain the 2-3 reasons why the asset is mispriced, and how a market correction will change its price.
- Catalysts – Give the 2-3 events or potential events that will happen within the next 6-12 months that could cause this correction.
- Valuation – Briefly summarize the output of a DCF and comparable companies; for non-equity pitches, such as distressed debt, you could summarize the recovery percentages in different cases and use them to estimate the bond’s YTM or YTW.
- Risk Factors and How to Mitigate Them – Explain the 2-3 reasons why you might be wrong, what the worst case looks like, and how you might mitigate the risk with options or other investments.
The pitch itself may be delivered in Word, PowerPoint, or verbally, and it’s usually just the start of a discussion about your idea.
You need to know it like the back of your hand because interviewers will probe you about everything, especially if it’s related to a sector or company they cover.
We have an example stock pitch and other valuation/DCF case studies in the BIWS Premium package:
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Hedge Fund Case Studies and Modeling Tests
In the hedge fund recruiting process at some funds, in addition to the investment pitch(es), you’ll also have to complete a separate case study or modeling test.
These are usually 3-statement modeling tests, or sometimes DCFs or valuations that require you to project a company’s cash flows.
For example, SAC Capital, the precursor to Point72, used to give interviewees an airline’s financial statements and metrics such as Available Seat Miles (ASM), Load Factor, and Passenger Yield, and asked them to project the airline’s FCF and use it to value the company.
The fund might also give you a specific company’s annual and interim reports and 2-4 hours to research it, build a model/valuation, and make a quick investment recommendation.
To complete these case studies quickly, you need to practice with different industries and companies and build very simple valuations until you can finish in that time frame.
We have many examples of these tests and their solutions in our financial modeling courses, but my main high-level tips would be:
- Valuations: Don’t go crazy with the projections. You can include 5-10 key revenue, expense, and cash flow drivers, and skip the full 3 statements unless they’re required. It’s 100% plausible to project down to Unlevered Free Cash Flow with simplified assumptions and use that in your valuation. Your DCF, including revenue and expense projections at the top, might have between 100 and 150 rows.
- 3-Statement Models: Simplify ruthlessly. Consolidate smaller items and aim for a max of 5-7 items on each side of the Balance Sheet. List Debt as a single line item, net all Deferred Tax line items against each other to create one single Net DTA or Net DTL, and consolidate short-term and long-term versions of an item into one single version.
Also, consolidate smaller items on the Cash Flow Statement; Cash Flow from Investing should consist mostly of CapEx and an “Other” item, and CFF should have Share Issuances / (Repurchases), Changes in Debt, Dividends, and little else.
People run into trouble in these case studies when they start worrying about minutiae instead of simplifying, consolidating, and focusing on the 3-5 key value drivers.
Hedge Fund Recruiting, Step 4: What Happens After the Interviews
If the fund you’re interviewing with needs someone ASAP, and you perform well in the interviews, you’ll hear back quickly.
If not, or the fund is in no rush to hire, the process could drag on for quite a while.
And if you’re “borderline,” you might not hear back or ever get a definitive answer.
If that happens, or you get an actual “no,” you could try to push back and press your case, as some candidates do in sales & trading interviews.
But for that to work, you must be very confident that they got something specific about you very wrong.
That’s possible, but it’s not that likely if you went through 10-15 interviews as part of the hedge fund recruiting process.
If you get a positive result and the fund wants to hire you, they will then ask for references – which is a major difference vs. investment banking interviews.
The fund will ask these references question about your skill set, work ethic, and ability to work in a team, and they’ll look for evidence that your real-life performance matches your interview performance.
If you have to give two references, one should be a more senior person you work with indirectly or who has left your firm, and the other can be a peer or someone else who has left.
It is not a good idea to list your current boss as a reference unless you’ve already discussed this move and he/she is very supportive of what you’re doing.
If your references back up what you said in the interview, you’ll win the offer.
Hedge Fund Recruiting: Key Takeaways
The hedge fund recruiting process is quite unstructured at the majority of funds.
But if you understand what these funds are looking for, what interviews consist of, and the types of candidates who win offers, you’ll be able to make sense of a random process.
This article was long, so here’s a quick summary of the key points:
- You stand the best chance of winning Investment Analyst roles at hedge funds if you’re an IB Analyst at a top bank, you did the 2 + 2 path in IB and PE, you’re in equity research at a large bank, you’re on certain sales & trading desks, or you’re a university student who has completed public-markets internships.
- To get in, you’ll need solid academic credentials, passion for the markets and investing/risk-taking, independent thinking, the ability to be a team player, and emotional stability.
- The mega-funds use on-cycle recruiting, which starts earlier and earlier each year, and they interview candidates and hand out offers very quickly, targeting primarily 1st Year IB Analysts at the top banks.
- Mid-sized and smaller funds move more slowly and hire “as needed,” and you can use a combination of networking, online applications, and recruiters to win interviews there.
- You must be highly specific about the funds you’re targeting in terms of asset class, industry focus, investment strategy, fund size, investment process, location, and so on.
- You can research these funds via online databases like Capital IQ and Bloomberg, find professionals on LinkedIn and your alumni network, and contact them via email. You’ll also find opportunities on job boards like the ones on SumZero, GoBuySide, Doostang, and Glocap.
- In interviews, your 2-3 investment pitches are, by far, the most important part. These must be well-thought-out and somewhat tailored to the fund’s strategy, and each one should contain a recommendation, company/asset background, investment thesis, catalysts, valuation, and risk factors.
- If you do well, you’ll have to provide references after the interviews; if not, keep at it and continue networking and interviewing.
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