As i understand, having an MBA is a *must* to break into the hedge fund industry, but it’s gonna be pretty much out of the question for the next couple of years for me (no money, little work experience).
What about alternative masters degree? MSc in Finance/Applied Finance? Will they dilute/are they too redundant for someone in the CFA program? Does the HF industry even care about anything besides top10 MBA degrees?
Background: I’m 24yo, 1.5 years of work exp in ER at a stock broker in my country. If i’m lucky i will have passed the CFA L3 exam next year. I’m thinking about attending to some “affordable” graduate program abroad in 2014 (either in singapore or australia) - and hopefully work and settle there after i get the degree. I’m just afraid i might mess up my HF employability by going for a MScAppFin instead of an MBA.
What? Hedge funds don’t give a **** about having an MBA. They care about your ability to generate profitable investment ideas. They’ll be much more impressed if you show them several year track record of profitable investing and come with insightful long/short investment ideas on several stocks.
There are two area where business school really helps. One is in terms of networks and the other is in terms of rounding out your business knowledge. I currently work in the industry and think my business school experience helped a lot, though I also took my education pretty seriously and saw it as a way to develop my professional maturity as well. Hedge funds are probably one of the toughest industries to get into and if you’re working in research at a small stock broker, your path to getting in will be very difficult without the right networking and being around others that are also committed to getting in and are willing to share their knowledge. I myself spent several years in equity research at the top bulge bracket banks and also spent a couple years in leveraged buyouts, and thought I knew a lot about investing then but only realized how little I actually knew once I started working in the hedge fund industry. I’m just glad that I got in and for me business school was very valuable for the reasons I highlighted above. Plus, where it really helps iis once you’re at the job. This is a knowledge and experienced based industry so being able to call an alum for insights on a particular stock is very useful and time efficient. But I never worked in hedge funds before business school and maybe if I had, I would have had some of these connections already thus making the MBA less value add from that standpoint.
@Shera: I get that they are in the business of making money and they only care about how i can help them achieve that, but i just wasn’t sure as to how elitist they can be when it comes to pedigree masters. Everytime i read about HFs, their employees almost always are MBAs, so i wonder whether having such a degree is a prerequisite or not (meaning they wouldn’t give me the time of the day unless i went to HBS - even if i could have otherwise pitched them a great idea bound to make them lots of money). In any case i am indeed working on my track record, and so far it’s been good.
@numi: much much gratitude for your feedback! I find it so interesting that a clearly smart guy who worked at BB and PE, you got into HF to realize how little you knew about how stuff works. That’s kind of disheartening for those out there who are passionate about investing, yet may never get the chance of working in the HF industry to learn the trade. I know that this is a retardedly vague question but: What kind of stuff do HF-outsiders (however passionate about investing) seem to miss, that HF pros dont? Care to share any specific big “AHA” insights in ur HF career, that you would never have gotten while being a “mere” BB/PE analyst?
One hedge fund manager that I recently met stands out for me. FYI they invest primarily in small-mid cap stocks CDN and US stocks with a bias to US stocks.
Since inception (March 2006) their annualized return is 13.8% vs 3.8% for TSX, 0.2% for TSX Small Cap, Russell 2000 6.4% and S&P 500 6%. BTW this is a long-short equity fund. Bottom up fundamental.
Their analysts are all undergrads but their PM use to be head of an large equity research firm and was in charge of all analysts at the firm so 30 or so. He regarded analysts as “parrots who know nothing and just copy others” his words exactly. The best advantage they have is the access to management and they are not active but sure not passive investors. Alot of their investments is based on cheap assets but ones with good management.
Their second advantage is lets say they found a hidden asset, they will purchase and tell their friends in the industry at active investors or sell side analysts about it to help realize the value in the marketplace.
This is their large advantage over retail investors in my opinion. They could get from mgmt different margins that are expected going forward or if there is a strategy switch underway in the industry (I mean margin differential of at least 5%). These are the two main things they specialize in. These are usually not stated in annual reports.
I find that hedge funds prefer to recruit people with some previous relevant experience. Most hedge funds do not have the same resource pool as big banks. The hedge funds cannot afford to take risks on untested employees, nor can they spend their limited resources training new people with zero experience. So, it helps, like in numi’s case, to have done equity research, trading, or some other job that is similar to what the hedge fund wants you to do. If you want to work in equity research at a hedge fund, you should go work in equity research at a big name bank. Then, apply for that same job at hedge funds.
Of course, there are exceptions. For instance, a $10 billion hedge fund will have more resources and does not have to play by the same rules as a $1 billion hedge fund. However, a vast majority of funds do not have $10 billion.
I’ve been job searching quite actively this year, and I interviewed at several hedge funds. My last interview was yesterday with the COO of some hedge fund. This guy flat out told me that I should not choose to work at this company; I should continue to work in trading for a big bank and only join a hedge fund when I have a big savings buffer. The rewards from working at a hedge fund can be large, but it can also be risky. Given my current circumstances, I thought that this was good advice. Your situation might be different from mine, of course.
Hedge funds tend to run very lean and secretive because if you have some good analysts and a good PM, the business model is very scalable. You have to really believe an analyst can generate returns and avoid disasters because otherwise they are more likely to be a liability than an asset. I work at a fund with over a billion in assets and we have a very small team. The hurdle to get a job here is very high because we care a lot about culture and also bringing someone else on means having to cut the pie up in more ways. We really have to be sure they can make incremental contributions. It is far easier to make a case not to hire someone than to bring them on, and I personally like it that way. It helps ensure a certain level of exactness and integrity that keeps us all motivated. I think my A-ha moment was when I realized how important it is to understand when a shareholder base turns over. Otherwise stocks that seem overvalued on traditional value metrics can continue to run as long as they beat and raise. All too often traditional value investors make the mistake of exiting a long or initiating a start too early because they don’t understand who the incremental buyers and sellers are. So much of being successful at a hedge fund is understanding the shareholder base constitution and investment psychology. This is in addition to having good instincts about what makes a good investment from a more analytical standpoint. The last thing I will say is that from what I’ve seen, the most successful analysts and portfolio managers live and breathe the markets. It is all about performance and if you don’t have the ability to generate clear alpha, your leash won’t be long. If you want to play corporate politics and just collect your performance bonus at end of year based on what tier you rank among your peers based on some fuzzy measures, go work in corporate. There is an immense pressure to find great stocks all the time and trying to beat the markets is very difficult, but the analysts that can make it can pull in bonuses of hundreds of thousands and even millions. On the other hand, if your performance sucks or people don’t like you, you’ll probably get zero bonus and possibly fired. This business isn’t for everyone. You have to love investing and have an immense drive to win. And if you want to win, you have to compete.
AF Version: Man, I see in AF the strongest and smartest men who’ve ever lived. I see all this potential apha, and I see squandering. God damn it, an entire generation chasing earnings calls, studying for useless designations; slaves with hacksaw MBAs. ( …) We’ve all been raised on television to believe that one day we’d all be BSDs, the next Warren Buffetts, and David Einhorns. But we won’t. And we’re slowly learning that fact. And we’re very, very pissed off.