Understanding Hedge Funds
Hedge funds are pooled investment funds that allow high net worth individuals to invest in uncorrelated investments and seek above-average investment returns. Hedge funds are actively managed, but typically require investors to lock up investments in the fund for a specified amount of time.
Common Hedge Fund Strategies
Long/Short Equity
This involves taking both long and short positions in securities. This generally involves pair trading, where companies try to maximize a situation by investing in a theme that drives the price of one company up, but the shares of another company down.
Event-Driven
This involves capitalizing on mergers, acquisitions, or any event that would drive short-term price volatility.
Global Macro
This involves investing thematically based on macroeconomic trends.
Activist
This involves taking an active role in trying to drive change within a company you've taken a stake in.
Distressed Securities
This involves investing in companies with troubled finances.
Notable Hedge Funds
Some of the most prominent hedge funds in the industry include:
- Point72
- Citadel
- Millennium
- Bridgewater
- Renaissance Technologies
Some of the top hedge funds include Citadel, Millennium, Point72, and Balyasny. They have several pods, with a PM and a group of analysts who will be seeded for a portfolio type of strategy. There are several upstarts and smaller shops in the Hedge Fund world though.
Typical Career Path at a Hedge Fund
The typical career path at a Hedge fund can involve a diverse background, but generally involves someone coming from a sellside research or trading role, or someone who is pivoting from an investment banking and private equity path. These individuals need to be intellectually curious and passionate about equity markets.
Early roles focus on modeling, idea generation, and being on top of market movements. Your progression from there is almost 100% based on performance, with it being crucial to generate alpha and to maintain good ideas. The path from Analyst to Senior Analyst to Portfolio Manager can be structured at large funds like Citadel and Millennium, but at other institutions it may be very fluid and flat.
You pretty much work at a Hedge Fund until it spits you out or create your own fund. After the hedge fund world, you're either retiring or you're moving into a more generalized asset management function.
Hours at a Hedge Fund
Within Buyside Hub, we've measured in detail the typical amount of hours at hedge funds through hundreds of compensation datapoints. Generally, we find PMs to work close to market hours, while idea generation focused analysts will work aggressively hard.
For industry analytics, with details on the average and median hours that hedge fund analysts work, please view here: Buyside Hub Analytics
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