A Complete Guide on How to Become a Hedge Fund Analyst

In this post, I’m going to cover how to become a hedge fund analyst. In my previous article, I covered the Investment Banking Analyst’s role and responsibilities.

Let’s begin with the definition of a hedge fund.

What Is Hedge Fund?

Hedge Fund is the pooling of investments from high net worth individuals. These funds invest in equities, bonds, and commodities.

The funds use investment strategies as long, short, leverage and derivative positions.

They invest in local as well as international markets. They operate as a private investment partnership and investors are required to invest very large amounts initially.

The funds make investments for a minimum one year. They are similar to mutual funds in the concept of pooling the investments but differ in flexibility and approach.

The goal of the hedge funds is to minimize the risk and maximize the return on investment. However, to fulfill this goal, hedge fund managers enter into speculative transactions sometimes.

There are certain characteristics of a hedge fund.

To begin with, a hedge fund has a wider investment span.

They can invest in anything, such as mutual funds, currencies, derivatives, real estate, and stocks. The borrowed money is used to amplify investment returns.

The investors in the hedge fund market need to have a high-value net worth, which could be above 1 million USD. A hedge fund charges two kinds of fees: performance fee and expense ratio.

The “Two and Twenty” fee structure works where 2% is the fee for asset management and 20% is the fee from investment gains.

Hedge funds are private investment vehicles, which are risky ventures. Recall the global financial crash in 2008. It wiped out the hedge fund market, almost, leading to severe financial losses.

The Hedge Fund Analyst Profile

The profile of a hedge fund analyst encompasses various roles and responsibilities. In brief, it includes:

  1. Maintaining financial models for current and prospective companies of the fund
  2. Performing valuation techniques
  3. Data mining
  4. Idea generation
  5. Assist portfolio managers
  6. Analysis of financial markets and institutional investors
  7. Preparation of proposals, marketing materials, client presentations, and client reporting
  8. Developing risk and asset class guidelines for managers
  9. Making on-site calls to investment managers
  10. Writing due diligence reports in an accurate and timely manner
  11. Developing a deep knowledge of the assigned hedge fund strategy
  12. Risk Management

Let's see these tasks in detail.

You must work on new investments or investment memos.

This activity is number one on the list because your primary focus as a hedge fund analyst will be to research and evaluate investments.

Therefore, the best part of a day in the life of a hedge fund analyst will consist of finding information which he or she can use to that end.

Source and structure the deals which come your way.

Here is another type of activity you will be doing during a day in the life of a hedge fund analyst.

It requires you to structure the terms of the funds which focus on less liquid assets or private and semi-private deals.

Apart from that, great personal investments where either the fund you work for or a group which includes your fund is in negotiations with a company could turn into a problem for you as well.

Work on investment updates.

If we’re talking about current holdings, then you will have to come up with updates for all the events which could broadly impact the investment itself.

If you have started on this path, then you may even have to refresh the whole thesis to accommodate these updates. You will also need to prepare a brief memo or maybe just an email.

Work on marketing materials.

Taking into account the size and the resources of which your fund disposes, you will have to put together marketing materials.

You then need to use them to pitch your ideas to prospective investors.

Apart from that, you will also have to send the following to existing clients: annual meetings, quarterly letters, updates on the performance, and everything else in between, as far as analysis and presentations are concerned.

Perform back office support.

Just like with the marketing materials, your involvement in back-office support as a hedge fund analyst will depend on your fund.

Still, if they will require you to perform these activities, you must take care of accounting and compliance.

Participate in strategy meetings.

The best part of all hedge funds hold weekly or even monthly meetings led by a PM.

They review the performance, provide updates on all investments, and discuss all the potential new ideas.

These projects are regularly the ones that you, the hedge fund analyst, have presented in the memos I detailed above.

Conference calls are a must. As are diligence calls.

When it comes to doing diligence, your private network is crucial. However, you will need more accurate insights for all the distinct investments currently under your evaluation.

Cue other valuable sources of information, the likes of expert networks. Apart from that, you can also use the internet, LinkedIn, sell-side analysts, or even rating agencies.

If they ask you to participate in management calls, do it.

These particular conference calls are also called one-on-ones.

They are an excellent source of information for you on a personal level, which is why you should never shy away from one.

You can ask your managers everything you want to know about the hedge’s plans in general or for you.

You can also inquire about their strategy and anything they are willing to disclose.

Read. All the time if you can. It will set you apart from your fellow hedge fund analysts.

The best part of the investment analyzing process will ask you to read as much as you can about it.

It will help you a lot, especially if you’re trying to find things that your colleagues may have overlooked, such as the footnotes. Don’t forget about the research reports, articles in the news, reports of the industry, emails, and fillings.

Stay on top of all the data coming from the market and of the relevant economic indicators concerning the fund in its entirety.

Every single bit of information that comes your way has the chance of turning into a great opportunity. Take advantage of it.

Handle the fund’s lawyers.

This situation is exactly like it goes into banking. Are you familiar with those moments when you upload a data room? It renders a legal document which can sometimes be 300 pages long.

Evidently, since we are talking about a legal document, lawyers will handle much of this work. Still, if particular problems should arise, they will hold you responsible.

The conclusion? You must manage the fund’s lawyers.

You must perform modeling, even though it’s not such an interesting part.

This idea is a common saying in the world of investment banking.

Modeling is a fascinating part of it all. Even so, it’s not the same if we’re talking about a day in the life of a hedge fund analyst.

The concept of modeling becomes a methodical process, provided you have the basics locked down.

The reason is that you, as a hedge fund analyst, are a lot more interested in what that model can tell you and how it relates to the thesis you’ve just prepared than in how good you are at working with Excel.

If one part of the investments require you to read and perform diligence calls, the other part will ask some creative research of you.

If that is the case, then you must do one or several of the following.

  • Diligence visits to the company which you are supposed to evaluate.
  • Arrange and participate in meetings with the management.
  • Call every one of their locations so that you can get all the data you need.

At the end of the day, go home, eat, rest, take a shower and go to sleep. This is how a day in the life of a hedge fund analyst typically ends. And then what? Then you get to do it all over again come morning.

Skills & Qualification of a Hedge Fund Analyst

A hedge fund researcher or a hedge fund analyst needs to fulfill certain educational and skill criteria for getting hired.

The career track of a hedge fund analyst spans differently from the sell-side career track.

In this, you ideally spend a couple of years as an analyst, about 2 or 3 years as a senior analyst and then move on to be a portfolio manager.

You need to have a Master’s degree and/or CAIA, CFA certification.

The job responsibilities of a hedge fund analyst vary as the career starts growing.

To illustrate in brief, you need to have deep knowledge of hedge funds, need to demonstrate accountability and responsibility, possess superior writing and analytical abilities, excellent interpersonal and communication skills, attention to detail, ability to deal with colleagues, investment managers, and clients, strong relationship building skills and ability to work independently, ability to handle leadership positions, take self-motivated initiatives and have the willingness to travel.

In an initial couple of years as an analyst, you are required to undertake fundamental research projects and work with the Sector Head, which includes attending industry conferences, attending management meetings, conducting field research and build financial models.

You are required to gain expertise over a sector, which involves developing proprietary tools for research, create sector surveys, conduct macroeconomic research and read sell-side equity.

A level of engagement is expected in a hedge fund analyst.

By engagement, we mean the ability to steer senior-level investment ideas, create your own network of management teams and buy-side analysts, take the initiative to work independently and analyze investments.

As you move upward in the career ladder, responsibilities include generating own investment fund ideas, find ways to improve sector performance, lead the investment team, add value to other others, be accountable towards investment plans, actively participate in a senior team meeting, remain thoroughly updated with stocks and other performances that impact your investment fund.

The Salary of a Hedge Fund Analyst in 2020

The average salary of a hedge fund analyst in New York is $105,133.

Hedge Fund Analyst New York Salary

Hedge Fund Analyst Salary Benefits and Bonus

Hedge Fund Analyst Salary Pie Chart

Hedge Funds in London pay for the same post around $77,425.

Hedge Fund Analyst Salary London

In India, the Investment Analyst in Hedge Funds gets average pay of INR 20,09000.

Investment Analyst Salary in Mumbai

Source: Salary.com and Glassdoor.co.in

Note that the compensation of a hedge fund analyst heavily depends on performance.

If the entry-level salary is USD 90,000 – USD 120,000, then the compensation is twice the base amount.

Compensation in the hedge fund industry doesn’t follow any fixed benchmark.

It is tied to fund performance.

If a fund performs exceptionally well, the employees receive excellent compensation.

The top hedge funds in New York like Stark Investments, Davidson Kempner Advisors, and Wellington Management have around 10 Billion USD in Assets under Management (AUM).

In India, there are hedge funds like Karma Capital Management, Atyant Capital, and Atlantis India Opportunities Fund.

A career in a hedge fund is challenging and rewarding too.

As you go up the ladder and reach managerial position, you get a strong grip on different investment products and strategies and you get paid as per your performance, unlike that of mutual funds where the performance is compared with economic performance.

A Complete Guide on How to Become a Hedge Fund Analyst 1
A Complete Guide on How to Become a Hedge Fund Analyst 2

33 thoughts on “A Complete Guide on How to Become a Hedge Fund Analyst”

  1. Good Afternoon Avadhut,

    I am currently working as a mechanical engineer in the chemical manufacturing industry where I was afforded the opportunity to attend graduate school for my MBA. I have since completed the degree and am now looking at what certification I can attain to make me more marketable for hedge fund managers. I am 35 years of age and owe my currently employer 2 years of service for repayment of the MBA tuition. Would 37 be too late in my career to transition into the hedge fund market? Would you suggest getting my CFA or CAIA certification? Is there a certain aspect of hedge fund management where an engineer would be more marketable to be in, for instance analyzing what refineries or chemical manufacturers should be added the the firms investment vehicle?

    Thanks,
    Chris

    Reply
    • Hi chris,

      Yes, you can market yourself based on your industry knowledge and experience. CAIA will be more suitable.

      Regarding skills:

      Financial Modeling Fundamentals course we offer is the most relevant for asset management because we have several case studies within that are designed for public markets (e.g. hedge fund, equity research, and asset management) roles. The EasyJet case study on 3-statement projections and the Jazz Pharmaceuticals valuation and DCF case study are particularly relevant.

      The rest of the material, while not specifically targeted at asset management, is still relevant because you need to understand topics such as accounting and valuation in any role in finance.
      As for VBA the Excellence in Excel course is mostly relevant although it is only an introduction to VBA and we do not go into advanced features or use cases there. So if you are looking for an introduction to VBA, the course would be appropriate but if you already have some experience using it, you probably won’t learn much.

      Reply
  2. hi, i have bachelor’s degree in accounting and finance, never work in hedge funding before what the best first step to start my career in hedge funding, i have long experience is sales and i am working now as director of procurement.

    Reply
    • Hi Ash,

      Yes, you can market yourself using a suitable certification. CAIA will be more suitable.

      Regarding skills:

      Financial Modeling Fundamentals course we offer is the most relevant for asset management because we have several case studies within that are designed for public markets (e.g. hedge fund, equity research, and asset management) roles. The EasyJet case study on 3-statement projections and the Jazz Pharmaceuticals valuation and DCF case study are particularly relevant.

      The rest of the material, while not specifically targeted at asset management, is still relevant because you need to understand topics such as accounting and valuation in any role in finance.
      As for VBA the Excellence in Excel course is mostly relevant although it is only an introduction to VBA and we do not go into advanced features or use cases there. So if you are looking for an introduction to VBA, the course would be appropriate but if you already have some experience using it, you probably won’t learn much.

      Reply
  3. Hi Sir,

    Now i came to know exactly what is an roles and responsibilities of Hedge Fund analyst. Im the person i will appreciate in first place.

    Here i have done MBA and i have good exp in Investment banking for past three years but not in Hedge funds with BNP Paribas and BNY as well. Now iam thought to learn hedge fund . Can you please let me know is it possible to grow without CA and CFA in Hedge fund Sector in coming future?

    Reply
    • Dear Ashok,

      Yes. It is possible.

      For hedge funds and other public markets roles, you typically just follow companies and evaluate them over time as opposed to analyzing transactions.

      So I generally recommend starting with the Excel & Fundamentals course (since it covers the key accounting and valuation knowledge you’ll need in these roles) if you’re going for hedge fund roles, and then, if you have more advanced knowledge, or you need industry-specific knowledge, perhaps you can look at the Advanced Modeling course and/or Industry-specific courses after that.

      Within the courses themselves, you should focus on the accounting, valuation, and DCF lessons, especially if you have limited time to go through the courses.

      Reply
  4. Hello,

    Thank for such a great post.

    But i still have some doubts i am a CA final student and also pursuing my CFA along with it. As i am doing my ca articleship in a financial advisory can i go for my Industrial training in a Hedge fund which is an last year opportunity given by CA institute to work in a company as a Industrail trainee.

    Do hedge funds in india provide these opportunity whether they provide these kind of training or not.

    If yes then how should i procced for the same.

    Goldman sachs provides such training opportunity and i am preparing for the same as well but i actually wanna go for BUY side( Hedge funds) of the industry not on sell side.

    I’ll be gratefull if you enlighten me on the above matter.
    Anything that you like to share.

    Reply
    • Dear Vinay,

      Please contact respective hedge funds HR directly for industrial training.

      The Financial Modeling Fundamentals course we offer is the most relevant for asset management because we have several case studies within that are designed for public markets (e.g., hedge fund, equity research, and asset management) roles. The EasyJet case study on 3-statement projections and the Jazz Pharmaceuticals valuation and DCF case study are particularly relevant.

      The rest of the material, while not specifically targeted at asset management, is still relevant because you need to understand topics such as accounting and valuation in any role in finance.

      Reply
  5. This is puneet, your article has led me to ask you certain questions that I am CA final student and want to go for hedge fund industry and also to start CFA-US from 2016 so is there aany credential course which can assist me entering into such dynamic field…

    Reply
    • Dear Puneet,

      CAIA or CFA qualification is enough as far as educational qualification is concerned.

      Reply
  6. Hello sir
    First of all thank you for this precise information about hedge funds that i have been looking for .
    Sir i have a keen interest in financial world and hedge funds. I want to make carrer in hedge fund industry. For this recently i have pursued B.COM & CFA-US with practical knowledge like reading ET/BS,various magazines,world economy & financial market.
    Furthur I would like to know that what should i do along with this in order to make my mark in hedge funds .
    Thank You !

    Reply
    • Hi Harshit,

      If you acquire the skills mentioned in the above article, you can look forward to a great career in hedge funds.

      Reply
  7. My son is working at CITCO as an OA. What goals must he set for himself, in order to rise and learn?

    Reply
    • Hi Harry,

      What are his job responsibilities? What’s his educational and experience background? What is his long-term career goal?

      Reply
  8. hello sir,
    I am interested in hedge fund industry & want to make my career in this. I am a Cost & Management Accountant (ICWA) and also did CFA from ICFAI University. At present i am working in a PSU as an accountant. how can i switch to hedge fund industry? Are my degrees (ICWA & CFA ) sufficent to make a career in hedge fund industry? pls guide me….

    Reply
    • Hi Alok,

      For equity research analysts/public market analyst I generally recommend starting with the Excel & Fundamentals course (since it covers the key accounting and valuation knowledge you’ll need in these roles) if you’re going for hedge fund roles, and then, if you have more advanced knowledge, or you need industry-specific knowledge, perhaps you can look at the Advanced Modeling course and/or industry-specific courses after that.

      Within the courses themselves, you should focus on the accounting, valuation, and DCF lessons.

      Reply
  9. hello ji. im from hyd, im basically a software engg, left that field. now want to peruse full fledged career into portfolio management, already have a team of 2000+ memebers in face book group where we give free advice in stock market , was trading from past 4yrs, though lost a lot in market, took 4yrs to learn , now just doing good, wanted to get degrees and certifications in same field n grow up my career , problem is im 30yrs now 🙁 please let me know the best path to go ahead with have just 1 yr time need to set myself else will be down my co-workers already pushing their highs in software field(SAP).

    Reply
    • Hi Sreenivas,

      Have you tried as a functional consultant/business analyst in Software company?

      Reply
  10. Hello Sir,

    Im 27 years old guy , done my PGDBM from an average college of delhi, and have an experience of 1 years as a financial executive in a delhi based small company after that i switch my stream and work as a marketing executive in hospital group.
    Sir, right now i totally frustated with my current job and i think i made a big mistake by changing my field.
    But i want to start from the roots.
    So please suggest me how i can change my carrer and build up in a financial sector.
    I am from a average family so cant afford the high courses right now.
    So please sugget me a good line…

    Regards

    Abhi

    Reply
    • Hi Abhi,

      Please email me ([email protected]) your contact number. My associate will help you clear your queries about finance career.

      Reply
  11. Hi, I am already working in Hedge fund industry but for the career prospect,need some additional tool to grow,which can add an extra benefit to my knowledge n vitae.Can you throw light on the courses available.

    Reply
    • Hi Nishant,

      You are looking for online or classroom programs?

      Reply
  12. The average salaries mentioned here are monthly or annually? Is an MBA degree in finance good enough to take up such a position of hedge fund analyst?

    Reply
    • These are annual salaries. MBA degree in finance is good enough. Focus on the skills that are required for this job. Look at the job profile and accordingly acquire the skills.

      Reply
  13. Hi Avadhut,

    I have done my MBA Finance from JNTU and Graduation in B.Com from Osmania University. I have 3.5years of experience in BPO and 2.5years in Software company as a functional tester. I looking for a career into Hedge Funds, please advice me the path I should adopt to move into this field.

    Regards,
    Ahmed

    Reply
    • Hi Ahmed,

      You need solid skills to get into Hedge fund analysis.

      We provide classroom and online programs that give you these skills.

      Please let me know if you need the program details.

      Reply
      • let me know what are the online programs for hedge funds

        Reply
        • Hi Singh,

          For hedge funds, and other public markets roles, you typically just follow companies and evaluate them over time as opposed to analyzing transactions.

          So we generally recommend starting with the Excel & Financial Modeling Fundamentals course (since it covers the key accounting and valuation knowledge you’ll need in these roles) if you’re going for hedge fund roles, and then, if you have more advanced knowledge, or you need industry-specific knowledge, perhaps you can look at the Advanced Modeling course and/or industry-specific courses after that.

          Within the courses themselves, you should focus on the accounting, valuation, and DCF lessons, especially if you have limited time to go through the courses.

          You can see details of the programs on this page.

          Please let me know if you have any queries.

          Reply
  14. Hi,
    I reside in Delhi and wanted to know that are these online courses as beneficial as a classroom training. Is there any way by which you can provide classroom trainings to people living in Delhi.
    I am interested in your equity research course.I also wanted to know that do you provide placement assistance also? Do also guide me about where to start for career in equity research as according to me there is no demand for freshers and more companies look for experienced ones.

    Thanks and Regards,
    Vaibhav

    Reply
    • Hi,
      We are into online trining programs. We guide our students about career plan,however we do not provide placements.
      Freshers can make career in this field if they have required skillsets and right attitude.

      Reply
      • Hi Avadhut want to get in touch with you for some personal counselling so please let me know your mail Id or contact. Please need help and mentoring
        Thanks

        Reply

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