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HEDGE FUND OVERVIEW: INDUSTRY & RECRUITING TRENDS, INTERVIEW GUIDELINES AND CAREER/COMPENSATION INFORMATION PowerPoint PPT Presentation

HEDGE FUND OVERVIEW: INDUSTRY & RECRUITING TRENDS, INTERVIEW GUIDELINES AND CAREER/COMPENSATION INFORMATION Claude Schwab MBA RESOURCE DISCUSSION TOPICS Introduction Hedge Fund Market Trends and Recruiting Trends Preparing for Hedge Fund Interviews Career Tracks and Compensation

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HEDGE FUND OVERVIEW:INDUSTRY & RECRUITING TRENDS, INTERVIEW GUIDELINES AND CAREER/COMPENSATION INFORMATION

Claude Schwab

MBA RESOURCE

Schwab Enterprise, LLC


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DISCUSSION TOPICS

  • Introduction

  • Hedge Fund Market Trends and Recruiting Trends

  • Preparing for Hedge Fund Interviews

  • Career Tracks and Compensation

Schwab Enterprise, LLC


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INTRODUCTION

Schwab Enterprise, LLC


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INTRODUCTION

SCHWAB ENTERPRISE, LLC

  • Schwab Enterprise is a hedge fund service provider dedicated to hedge fund recruiting. Searches for all functional levels and at all levels.

  • Hedge Fund client asset classes include equities, debt (corporate and government), commodities, and currencies.

  • Hedge Fund functional roles include analysts, portfolio managers, traders, marketers, business development and all levels of operations/infrastructure personnel.

Schwab Enterprise, LLC


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INTRODUCTION

HEDGE ME, 4th Edition

Career guide for students interested in hedge fund analyst and trader positions

Available on most major online book retailers and on www.schwabenterprise.com

Schwab Enterprise, LLC


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DISCUSSION TOPICS

  • Introduction

  • Hedge Fund Market Trends and Recruiting Trends

  • Preparing for Hedge Fund Interviews

  • Career Tracks and Compensation

Schwab Enterprise, LLC


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MARKET TRENDS AND RECRUITING TRENDS

  • MARKET TRENDS:

    • Hedge fund industry still in growth mode (financial and human capital inflows) though rate of growth has slowed

    • Continued blurring of the investment lines between hedge funds and private equity firms, and between hedge funds and investment banks

    • Strong activity in shareholder activism, merger arbitrage, distressed investing, credit strategies. Also LBO market/deals bigger than ever.

    • Strong interest on part of banks to acquire hedge funds: Morgan/Highbridge, CS/Ospraie, MS/Avenue

    • Continued uncertainty re: fund regulation, June 2006 reg. reqs. overturned; September 2006 Amaranth

    • Media attention on established fund closings/dramatic downsizings

Schwab Enterprise, LLC


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MARKET TRENDS AND RECRUITING TRENDS

  • MARKET TRENDS (continued):

  • Media attention on established fund closings/dramatic downsizings

  • Risk Management/Performance – Amaranths

  • Revolt against investors – Basswoods

  • Sabbatical/Succession planning – Narragansetts

  • Regulatory issues – Pirates

Schwab Enterprise, LLC


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MARKET TRENDS AND RECRUITING TRENDS

  • RECRUITING TRENDS:

    • Job market is strong and steady but Company search now for the perfect fit, silver bullet

    • Growth mode for hedge funds/fund of funds not similar to growth mode for investment banks, consulting firms, etc; No armies of HR/Recruiting Teams; Silver bullet mentality

    • Rise in need for marketing/operations/infrastructure personnel.

    • No formal hiring season, mostly ad hoc hiring. Multi-billion dollar firms are appearing on campuses, most still simply post if they even go the School route. Hence need for individualized searches

    • No formal training program within hedge funds

    • Increase in client requests for analyst candidates with foreign language skills

Schwab Enterprise, LLC


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MARKET TRENDS AND RECRUITING TRENDS

  • Recruiting trends (continued):

  • Highly fragmented market for job seekers

  • Personal network

  • Alumni network

  • Recruiters

  • Job posting boards

  • On-campus recruiting

Schwab Enterprise, LLC


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MARKET TRENDS AND RECRUITING TRENDS

  • POSITIONS

    • Analyst

      • Generalist

      • Industry specialist

      • Researchers

    • Trader

      • Execution

      • Profit & Loss

    • Marketing

      • Marketing/Business Development

      • Investor Relations

    • Operations/Infrastructure

      • Business Development, Legal, Technology, HR

Schwab Enterprise, LLC


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MARKET TRENDS AND RECRUITING TRENDS

  • BACKGROUNDS of hired candidates without hedge fund experience:

    • Analyst

      • Investment Banks/Proprietary trading

      • Private Equity Firms

      • Investment Banks/Research or Banking

      • Asset Management Firms (Long-only)*

      • Consulting Firms with Finance Focus/Practice

    • Trader

      • Investment Banks (Trading/Ops)

      • Asset Management Firms (Trading/Ops)

        * Hedge funds typically prefer well-known active long only investors/investment management firms

Schwab Enterprise, LLC


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MARKET TRENDS AND RECRUITING TRENDS

  • BACKGROUNDS of hired candidates without hedge fund experience (continued):

    • Marketing

      • Investment Banks/Banking, BD/Marketing, PCS

      • Asset Management Firms (Long-only)

      • Private Equity Firms

    • Operations/Infrastructure

      • Investment Banks

      • Asset Management Firms (Long-only)

      • Private Equity Firms

Schwab Enterprise, LLC


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DISCUSSION TOPICS

  • Introduction

  • Hedge Fund Market Trends and Recruiting Trends

  • Preparing for Hedge Fund Interviews

  • Career Tracks and Compensation

Schwab Enterprise, LLC


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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

- The Resume -

  • EXPERIENCE

  • FOCUS

  • SIMPLICITY

  • CHARACTER

Schwab Enterprise, LLC


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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

- The Resume -

EXPERIENCE:

  • Hedge fund or asset management experience (internships)

  • The CFA designation, provided by the Association for Investment Management and Research (AIMR). CFA is a good indicator of interest in investing

  • Recognized excellence in some area of academics, leadership, professional career

Schwab Enterprise, LLC


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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

- The Resume -

FOCUS:

  • Emphasis on valuation work and modeling skills (for Analysts)

  • De-emphasis on transactions volume and/or number of deals closed (especially pertinent for investment bankers)

  • Preference for generalist versus industry specific position

Schwab Enterprise, LLC


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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

- The Resume -

SIMPLICITY:

  • No job experience should contain more than five main points (bullet points) except when listing representative deal experience

  • Font, format, punctuation must be simple, clean and consistent. No need to highlight words/phrases in italics, bold, etc.

Schwab Enterprise, LLC


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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

- The Resume -

CHARACTER:

  • Integrity is critical. Do not exaggerate achievements, personal or professional or relating to personal investing

  • Account for all time since graduation from college, there should be no missing gaps of more than three months

  • Make use of Personal section at bottom of resume to note interests and hobbies. Personality should come through in this section

Schwab Enterprise, LLC


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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

  • READ BOOKS on Investing, and on different Hedge Fund strategies (see www.schwabenterprise.com for full list):

    • Warren Buffet’s Berkshire Hathaway Inc. annual reports and ANY other annual letters to shareholders by great business leaders

    • Benjamin Graham, The Intelligent Investor: A Book of Practical Counsel

      .

    • Joel Greenblatt, You Can Be a Stock Market Genius, and The Little Book That Beats the Market

    • Seth Klarman, Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor

    • Keith Moore, Risk Arbitrage: An Investor’s Guide

    • Charles Mullford, Eugene Comiskey, The Financial Numbers Game: Detecting Creative Accounting Practices

    • G. Bennett Stewart, III, The Quest For Value: A Guide for Senior Managers

    • Nassim Nicholas Taleb, Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life

Schwab Enterprise, LLC


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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

  • ANALYSTS:

    • Follow the markets on a regular basis and develop a clear and consistent point of view

    • Do not simply keep up with information/data: DEPTH over BREADTH

      • 1 or 2 stock picks versus many with less depth

      • Note: Characteristic of great PMs: ability to focus with amazing intensity and to isolate relevant data/information

Schwab Enterprise, LLC


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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

  • KNOW THY INTERVIEWER:

    • Educate yourself on particular hedge funds: SEC filings, 13-F, 13-D, 13-G, ADV

    • Make sure to spend as much time as possible understanding the firm you would like to meet with

    • Do your homework on firm, not just homework on how/what to present

Schwab Enterprise, LLC


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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

  • ANALYSTS AND TRADERS:

    • Identify which shop would best MATCH your interests, in terms of:

      • Asset Class

        • Equity, fixed income (corporate, government), currencies, etc.

      • Company Focus

        • Industry specific vs generalist; event-driven vs non-event driven

      • Investment Strategy/Style/Horizon

        • Long/short, macro, distressed debt, activism, credit, etc.

        • Growth, value, momentum, special situations, etc.

        • Long term vs short term investment horizon

        • Highly concentrated versus less concentrated portfolio

    • BE CONSISTENT throughout interview re: above-stated interests

Schwab Enterprise, LLC


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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

  • ANALYSTS:

    • Be prepared to talk about specific equity ideas ON THE SPOT

    • Be prepared to do more formal case studies on different stocks and to present your ideas to a group of employees. You may have as little as a few hours to prepare this or as long as one week.

      3)Be prepared for general (non company-specific) question:

      “If you could invest in anything, anywhere in the world, what would it be and why?”

    • Be prepared for brain teasers/‘assessment tools’, about 20% of established funds

Schwab Enterprise, LLC


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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

  • WHAT NOT TO SAY! (ANALYSTS)

  • No time to invest

  • Can’t invest – company/employer restrictions

  • Stale investment ideas

  • Random walk missionaries

  • Careerists, focused on titles, promotions, guarantees

  • PA success stories

  • Pure entrepreneurs

  • AVOID Inconsistencies

  • - Stated investment style/preference and PA investment style

  • - Stated asset class preference, investment philosophy/style, holding periods

Schwab Enterprise, LLC


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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

  • TRADERS:

    1)“PHDs” – Poor, Hungry, Determined

    2)Energetic, tenacious, resourceful, proactive

    3)Make sure you know what you want: execution vs P&L trader

Schwab Enterprise, LLC


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DISCUSSION TOPICS

  • Introduction

  • Hedge Fund Market Trends and Recruiting Trends

  • Preparing for Hedge Fund Interviews

  • Career Tracks and Compensation

Schwab Enterprise, LLC


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CAREER TRACKS AND COMPENSATION

  • CAREER TRACKS:

Difference between hedge fund and other career tracks:

  • Less structured

  • Less formal

  • Fewer tiers/titles

Schwab Enterprise, LLC


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CAREER TRACKS AND COMPENSATION

  • CAREER TRACKS:

  • Analyst career track – general rule of thumb

    • 2-3 years as analyst

    • 1-3 years as senior analyst (if such a title exists, otherwise “analyst”)

    • PM

  • Trader career track – general rule of thumb

    • 1-3 years as execution trader

    • 1-3 years as senior trader, sometimes with P&L

  • Marketing career track – BD versus IR, depends on prior experience

  • Operations/Infrastructure career track - function of prior experience, skills

Schwab Enterprise, LLC


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CAREER TRACKS AND COMPENSATION

  • COMPENSATION:

  • Experienced hires (MBA students) with little / no prior hedge fund/asset management experience

    • Analysts:

      • BASE: $90k-$120k (smaller vs larger funds)

      • BONUS: 0.5-2.0 * base

      • Upward trend in Analyst compensation, up 11% in 2005 vs 2004

      • Carry/Profit Sharing: only applicable at smaller hedge funds

    • Execution Traders:

      • BASE: $60k-$80k

      • BONUS: 1.0 * base

Schwab Enterprise, LLC


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CAREER TRACKS AND COMPENSATION

  • COMPENSATION (cont.):

  • Experienced hires (MBA students) with little / no prior hedge fund/asset management experience

    • Marketing (Investor Relations):

      • BASE: $90k-$120k

      • BONUS: 0.5-1.0 * base

    • Operations:

      • BASE: $60k-$80k

      • BONUS: 0.2-0.5 * base

Schwab Enterprise, LLC


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CAREER TRACKS AND COMPENSATION

  • COMPENSATION (cont.):

Corporation/Company:

10-20 years

Traditional Investment Banking:

7-10 years

Consulting:

7-10 years

Law:

7-10 years

Hedge Fund:

3-5 years

Schwab Enterprise, LLC


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