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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

discussion topics
DISCUSSION TOPICS
  • Introduction
  • Hedge Fund Market Trends and Recruiting Trends
  • Preparing for Hedge Fund Interviews
  • Career Tracks and Compensation

Schwab Enterprise, LLC

introduction
INTRODUCTION

Schwab Enterprise, LLC

introduction4
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

introduction5
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

discussion topics6
DISCUSSION TOPICS
  • Introduction
  • Hedge Fund Market Trends and Recruiting Trends
  • Preparing for Hedge Fund Interviews
  • Career Tracks and Compensation

Schwab Enterprise, LLC

market trends and recruiting trends
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

market trends and recruiting trends8
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

market trends and recruiting trends9
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

market trends and recruiting trends10
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

market trends and recruiting trends11
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

market trends and recruiting trends12
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

market trends and recruiting trends13
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

discussion topics14
DISCUSSION TOPICS
  • Introduction
  • Hedge Fund Market Trends and Recruiting Trends
  • Preparing for Hedge Fund Interviews
  • Career Tracks and Compensation

Schwab Enterprise, LLC

how to prepare for hedge fund interviews
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

how to prepare for hedge fund interviews20
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

how to prepare for hedge fund interviews21
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

how to prepare for hedge fund interviews22
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

how to prepare for hedge fund interviews23
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

how to prepare for hedge fund interviews24
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

how to prepare for hedge fund interviews25
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

how to prepare for hedge fund interviews26
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

discussion topics27
DISCUSSION TOPICS
  • Introduction
  • Hedge Fund Market Trends and Recruiting Trends
  • Preparing for Hedge Fund Interviews
  • Career Tracks and Compensation

Schwab Enterprise, LLC

career tracks and compensation
CAREER TRACKS AND COMPENSATION
  • CAREER TRACKS:

Difference between hedge fund and other career tracks:

  • Less structured
  • Less formal
  • Fewer tiers/titles

Schwab Enterprise, LLC

career tracks and compensation29
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

career tracks and compensation30
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

career tracks and compensation31
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

career tracks and compensation32
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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