Hedge fund investing
We covered these points in the article on how to get a job at a hedge fund, but to summarize: On the negative side, the hours are still long and stressful (though better than investment banking hours), job security can be low, and your exit opportunities will be limited.Īlso, many people argue that the long-term outlook isn’t great and that it would have been better to enter in the 1980s or 1990s when the industry was still growing quickly. You must be passionate about the public markets to do well (read: you trade stocks and research companies and financial assets for fun in your spare time). You work with smart, ambitious people, you can study a new global issue or market each day, and you can be more creative and independent than in sell-side roles. Many people are drawn to the hedge fund career path because of the money: even junior-level employees can earn $500K up to $1 million, and senior-level Portfolio Managers can go well beyond that. This fee structure gives you the potential to earn a lot of money if your fund performs well – far beyond what bankers or any other sell-side role could earn.įor more, see our overview of the hedge fund industry and our hedge fund vs private equity discussion. However, funds have been forced to cut fees ever since the 2008-2009 financial crisis and their poor performance afterward, and the average fees are now closer to 1.5% and 15.0%. Traditionally, hedge funds charged “2 and 20,” meaning 2% of AUM for the management fee and 20% of the returns for the performance fee. They earn money from a management fee, based on a small percentage of assets under management (AUM), and a performance fee, based on a percentage of annual returns. Hedge funds might use a wide variety of strategies, most of which are unavailable to mutual funds: short-selling securities, using derivatives, or going activist on a company to force change, for example. Unlike mutual funds, they target absolute returns rather than relative returns, and unlike private equity firms, they do not buy and sell entire companies. Hedge funds are investment funds that raise capital from institutional investors and accredited investors and then invest it in financial assets – usually liquid, publicly traded assets. We’ll examine these points, explain the hierarchy, give compensation estimates, and give you an honest run-down of the pros and cons of hedge fund careers in this article: What Do Hedge Funds Do? The day-to-day work and responsibilities change as you advance, but not quite as much as they do in other fields. The hedge fund career path is one place where our usual analogy – a fraternity house – does not quite hold up.Ĭompared with investment banking or private equity, there’s less structure and hierarchy to hedge fund careers.