There is so little official information when it comes to how to get a job at a hedge fund. The reason is that hedge fund recruiting process is less structured than investment banking interviews or private equity recruiting. However, here are some significant parts we want to discuss in this article.

1. What is a Hedge Fund?

A hedge fund is a just a pool of money invested in smart ways to generate positive returns. Hedge funds are private unregulated partnerships that can use more leverage and diverse strategies to generate their returns, when compared to mutual funds. Hedge funds are limited to wealthy investors who are able to stand high fees and risks. And their goal is to create high returns regardless of whether the market is up or down. To “hedge” is to lower overall risk by taking on an asset position that offsets an existing source of risks.

2. Why Work at a Hedge Fund?

There are two main reasons why you will want to work at a hedge fund:

  • You have an extreme passion for the market – You want to follow companies and other securities rather than work on deals? Hedge funds are the right place for you!
  • The paycheck is big draw – If you’re at the right fund and your performance is excellent, you can earn a paycheck of up to $1 million+, even as a newbie. Obviously it is not a surprise when a top individual Portfolio Managers can earn hundreds of millions or billions each year. Hedge funds offer a much higher compensation than investment banking, (sometimes) better hours and work/life balance.

The consulting services of investment banking include two main areas:

  • Underwriting – Investments bankers raise capital, usually via the IPO process (selling stocks or bonds to an investor) on behalf of corporations.
  • Mergers & Acquisitions (M&A) – Advisory roles for both buyers and sellers of businesses, managing the M&A process start to finish.

3. Path to Hedge Fund industry

You certainly have the advantage of winning Investment Analyst role at a hedge fund if:

  • You are a university student who has completed public-markets internships, an IB Analyst or a trader at a top bank.
  • You have strong academic credentials, passion for the markets and investing/risk-taking, and critical thinking

Generally, there are two types of recruiting cycle that are often used by hedge funds:

On-cycle recruiting is used the mega-funds, starts at the beginning of the year, and they interview candidates and give offers very quickly, targeting primarily 1st Year IB Analysts at the top banks.

Off-cycle recruiting is used by mid-sized and smaller funds which act more slowly and only recruit when needed, you can take advantage of your networking, reach out to recruiters or use online applications to earn interviews there.

4. interviewing process

Step 1: Meeting with Headhunters

You need to understand the importance of each headhunter, you don’t want the headhunter to feel that you are unprepared.  Treat headhunter meeting just like real interviews: wear a suit and bring resumes.

At headhunter meetings, recruiters generally ask you some behavioral questions; however, there are some headhunters that may ask you technical inquiries.

You should also reach out to your friends/family within the Hedge Fund community. Talk with professionals for advice when jumping to this industry.

You should be prepared to talk about:

  • Your background
  • Walk through your recent deal experience
  • Why you want to work at a Hedge Fund?
  • What type of Hedge Fund do you want to work for?
  • Examples of Hedge Funds you are interested in

Step 2: Preparing for the interview

If you get a first round from a Headhunter, Senior Banker, or family connection, you also need to be fully prepared for the next interview rounds as well. You are hired to make money for the fund; thus, you need to have a real-time sense of what is going on in the market, news, and world events. In this step, you need to show your passion for investing: why are you interested in the market? Why do you want to work at this hedge fund? Why do you want to be a hedge fund analyst?

Hedge fund interviews are mostly about one thing: your stock or other investment pitches. You will be asked to pitch at least 1 long and 1 short in every hedge fund interview.

Delivering a good investment pitch is the main key to succeed your hedge fund interview. Even if it’s not explicitly mentioned as part of the interview, you will be expected to have a couple ideas prepared for them. This goes for both headhunters and for the hedge fund itself. You need to have copies of investment pitches available at all times in PDF form to print and be ready to go for your interviews. The pitch is obviously the most important part of your interview. ~70% of your interview will rely on the quality of your pitch.

You should prepare at least two investment ideas for the interview. Ideally you’ll have at least one long and one short idea. Pitches are usually done in the onsite interviews, unless they state you should have one ready to go for a phone interview. The pitch consists of developing a short ~3 page write up or 10 slide presentation and being prepared to give a 5 to 15 minute presentation to your interviewer outlining your thesis.

Yes, they could ask you other types of question:

Fit Questions and Resume Walkthrough

Standard questions about your background, objectives, and interests to decide whether or not you are fit with a specific fund. They will ask you why investing, why hedge funds and specifically why this fund’s type of strategy. You know these normal fit questions will come that cover your background and story, so crush them. Tie them into your passion for investing and your personal edge as a candidate.

Technical Questions & Brain Teasers

Funds may ask you a number of the normal financial technical questions and brainteasers that you’d encounter in an investment banking interview. A healthy dose of probability questions isn’t uncommon to assess your ability to think quantitatively. Obviously, tailor your interview prep to the type of position and fund you’re applying to – equity, credit, or quant.

Hedge Fund Case Studies and Modeling Tests

In the hedge fund recruiting process at some funds, in addition to the stock pitches, you’ll also have to complete a 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.

If the fund you’re interviewing with needs someone ASAP, and you perform well in the interview, 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 are not qualified, you might not hear back or ever get a definitive answer. In that case, don’t be letdown, keep networking and interviewing until you get your dream job!