Getting a job as an investment banking analyst is so mucheasier than transitioning to a hedge fund. Most banks really only care if youare smart, hardworking and easy-going. Since most view it as a two years andout program, banks can afford to make a few hiring mistakes along the way.
Hedge funds are completely different. Most are comprised ofsmaller teams that are trying to hire for the longer-term. After going through acountless number of interviews, I noticed that hedge funds primarily want to knowwhy you are interested in investing and where that interest comes from. Thereare so many people that are smarter than you that are trying to transition intothe industry as well, so the good way to differentiate yourself is to provethat you have a passion for investing and that this is the only career path foryou longer-term.
The two most important criteria when hiring is determining if a candidate is passionate about investing and if they fit well with culture of the fund. Culture varies by fund so that is out of your control. On the other hand, the easiest way to show that you are passionate about investing is to start early.
1. Start Early
The earlier you start learning about investing, the better. Mostinterviews I had asked me why I was interested in investing and joining a hedgefund. A lot of funds asked if I invested on my own or if I was part of an investmentclub in college.
For those who are currently in college, join an investmentclub and start investing in stocks on the side. If you are a broke collegestudent like I was, then build a mock portfolio using Seeking Alpha to track yourperformance. This allows you to begin to differentiate between good and badinvestment decisions over time.
For those who have graduated and have started your careers, do not panic. If you have not been able to start early, all hope is not lost. I did not realize I had a passion for investing until a year into my banking analyst program. Outside of what I learned in school, I knew absolutely nothing about investing back then! I had to work harder during my free time to learn as much as possible.
2. Read, Read, Read!
When I wanted to learn more about hedge funds/investing, I researched the best books out there and read them. Read my List of the Best Investing Books to find out which books you should read first.
Do not make any excuses that you do not have enough time to read. Even though I was a banking analyst working 60-120 hours a week, I still found time during the day to read. Find PDFs to read online during your downtime at work and set aside 20 minutes of dedicated time before / after work to read every day.
3. Figure Out Your Why
Dig in deep and figure out why you really want to work at ahedge fund. Most out of undergrad just want to make a lot of money. Afterworking for a few years you will realize that making money will not make youpassionate about what you do. I was on track to make half a million in my mid 20sat a multi-manager hedge fund and quit. Most would say I was crazy, but I didnot identify with the investing style there as it was extremely speculative.
After reading all those books, determine what resonates most with you. For me, value investing is extremely intellectually stimulating. Finding assets to buy for 60 cents on the dollar just makes sense to me. It is like trying to solve a puzzle and being comfortable making decisions based on an incomplete set of facts.
4. Research and Start Investing
After reading all those books, you now have a basicfoundation to determine what makes a good investment. Do a screen for cheapcompanies or look at companies with a lot of insider purchases (openinsider.comis a good source for this). You can also go on VIC and read through variousinvestment ideas. Pick a couple of stocks/ideas that sound interesting andstart reading their filings. Start first with the most recent 10K / 10Q, theninvestor presentations, then transcripts.
Once you have a general sense of the business, start doing some basic financial modeling to determine all your key metrics. You do not need to have a complicated model with dozens of different assumptions for projections. If your investment thesis relies too much on assumptions / projections, then it is probably not a good thesis! You know the saying: garbage in, garbage out.
5. Track your Investments
Almost everything you learn about investing happens after you make the initial purchase. Track the performance of your investments by reading future earnings releases / transcripts to understand where you were right and where you were wrong.
6. Reflect
Do not feel upset if you made a bad investment decision. Reflecton your initial thesis to determine why your initial thought process was wrong.Do not forget to reflect on your investments that are doing well. Figure out ifyou made the right call or if you were just plain lucky.
This is a very important step because you cannot build upon your investing knowledge unless you understand the difference between a good and bad investment.
7. Gain Relevant Professional Experience
The easiest path to landing a job at any type of hedge fund is to work in banking for the first two years out of undergrad. During those years, make sure you develop a good reputation and try to be a top bucket analyst. You need to be very good at excel and have a strong grasp on valuation / modeling. There will be nobody holding your hand once you make the transition to the buyside, so you have to prove that you have the necessary skillset.
If you want to work at a multi-manager hedge fund, then the best path is to work at a sell-side equity research firm for a few years. Equity research coverage is short-term and quarterly, so the analysis is very similar to what will be done at a multi-manager. Bankers can make the move as well – I started my career at an investment bank then transitioned to a multi-manager.
8. Stay Focused
If you really want to work at a hedge fund then you should not be recruiting for bothprivate equity and hedge fund roles. You need to pick one or the other because everyfirm will ask why you want to work there and if you are recruiting for othertypes of roles. It is best not to lie because interviewers can easily tell ifyou are trying to cast a wide net. You need to show that you have thought longand hard about what you want to do longer term rather than be indecisive.Recruiters are the same way.
Interviews at private equity firms are extremely different than interviews at hedge funds. Choosing one path or the other will make sure you stay focused so you can be best prepared. It is already hard enough to break into the buyside, so do not try to spread yourself too thin!
9. Network, Network, Network!
Generally, if you want to do something new in life, youshould surround yourself with people who are already doing what you want to do.You become the average of the five people you hang out with most, believe it ornot.
Network and find people who have already made the transition to hedge funds. Reach out to people who already work at the best hedge funds out there. If you are at an investment bank, reach out to those who have finished their two years and are currently on the buyside. You will learn so much by talking to others about what steps they took to break into the industry.
10. Prepare for your Hedge Fund Interviews
Once you have done the work and have landed interviews, make sure you read everything there is to know about working at a hedge fund and also make sure to prepare for the top hedge fund interview questions.
Your first few interviews are always going to be challenging, but once you go through a few then you will realize what to expect. Once you make it past the first few rounds, you will be given a case study which helps separate the candidates who do and don’t know what they are talking about when it comes to generating investment ideas. If you reach this step, make sure to read the case study guide for more information.
11. Read Through Real Hedge Fund Case Study Examples
The examples below are real written case studies and a full Excel model that were used in actual interviews.
Trust me, reading these examples and the Excel model will make it much easier to complete a case study and ace interviews, especially for those who have never worked at a hedge fund before.
Hedge Fund Case Study Examples Used in Real Interviews
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