Hedge funds as employers

MFin and MBA students often ask about working for hedge funds. I’ve never worked for a hedge fund but used to have several as clients and have done some consulting for a couple, which gave me some inside perspectives.

Most hedge funds are small businesses and there are thousands of them, often employing only 20-30 people. Like other small businesses they are likely to be informal, unbureaucratic and possibly somewhat chaotic. They will probably have a flat structure and no human resources department, which both sound like good things. The culture will be set very much by the founding partner(s). That may be a good or bad thing.

Often a fund is set up by a trader and an operational person who divide the investing and the managing between them, which is sensible. A fund set up by two traders is more likely to have good returns but bad organisation. But in truth you can’t really generalise much because so much depends on the individual character of the organisation. You can only tell if you fit by meeting the people who work there.

Lots of people like the sound of this sort of organisation until they find that they miss the cosy security and support of a large bank or asset management firm. And there is some security in larger firms, but it comes with less flexibility, less entrepreneurship and the sort of corporate stupidity that we associate with large bureaucracies, especially those based in the US.

A certain large bank I once worked for made a public apology for the fact it had acquired a bank that contained a residual legal presence of another bank which had once been involved with the financing of the slave trade. That apology wasn’t stupid (though I think it was futile). But then the bank sent round an internal email asking if anybody needed help or counselling to deal with the apology. This originated in New York of course. The further away you get from head office the more comical this sort of thing seems. So in London the reaction was utter bemusement. In Germany they laughed. And you can imagine how it went down in the Sydney office. This was the same bank which at once stage employed a vice chairman who urged all employees to phone up a client and tell them you loved them.

Anyway, hedge funds are potentially a good place to get a lot of experience and be pushed hard and perhaps to get rich – though the odds aren’t that good. But maybe not such a good place to start if you want more of a structured training and some clarity in your career progression. The larger funds employ hundreds of people and increasingly resemble institutional investors (to their horror). Some even have human resource departments.

One Response to Hedge funds as employers

  1. I would add to Simon’s comments that hedge fund compensation structures vary dramatically from fund to fund, but most importantly, that they are very different from those of asset managers or large banks. Besides being heavily bonus-oriented, with entre-level base salaries (arguably) lower than banks; hedge fund compensation is more closely related to individual performance, as opposed to a combination of firm/division and individual performance.

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