A Complete Guide on How to Become a Hedge Fund Analyst

Hedge Fund Analyst

In this post, I’m going to cover how to become a hedge fund analyst. In my previous article, I covered Investment Banking Analyst’s role and responsibilities. In this article, we will include Hedge Fund Analysis, which is a challenging career option.

Let’s begin with a 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 take investments for 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 to 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 in the overall portfolio management process

(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 accurate and timely manner

(11)  Developing a deep knowledge of the assigned hedge fund strategy

Skills & Qualification of a Hedge Fund Analyst

A hedge fund researcher or a hedge fund analyst needs to fulfill certain educational and skill criteria’s 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 senior team meeting, remain thoroughly updated with stocks and other performances that impact your investment fund.

The Salary of a Hedge Fund Analyst

The average entry level pay (combination of base and performance bonus) for a “Fund Accountant” in this category is USD 90,000 in the United States. In London, the pay for the same post would be GBP 35,000 and in India, it is INR 600,000.

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 the US 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 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.

Resource for Hedge Fund Analyst Career

Many of you may not be aware of this career. It’s challenging, exciting and rewarding. What do you think?

To put it simply, hedge fund analysis is a risky field, given the high-value investments. Whether you’re an analyst or a portfolio manager, the common goal is risk management, which is, reducing financial risk and maximizing returns.

This was all about Hedge Fund Analyst profile. If you are interested to know more, check out our brief on creating a mutual fund analyst profile.

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