Hedge Fund Analyst

Street of Walls Hedge Fund Training

The hedge fund analyst career track is much different from the typical sell-side career track. Hedge funds are
typically much less structured, less formal, and have fewer tiers and titles. As a general rule of thumb, a career
track for an analyst usually consists of: 2-3 years as analyst, 1-3 years as senior analyst, and then a portfolio
manager (if at a single P&L fund you might have to leave to accomplish a PM role). As a trader, the general rule
of thumb is 1-3 years as an execution trader followed by 1-3 years as a trader or senior trader with P&L
responsibilities.
Analyst compensation varies very much by fund and performance but, as a general rule, investment bankers or
MBA students with little-to-no prior experience will earn a $90,000-$120,000 base with a bonus that is 1-2x the
base amount. New traders with little-to-no HF experience can expect a base of $50,000-$80,000 with a bonus
that is 1x the base amount. It is much harder to lay out compensation for the hedge fund industry than it is for
investment banking, private equity, and others. Hedge fund compensation is very much tied to the performance
of the fund: If the fund makes money, employees are heavily compensated, but if the firm loses money, they do
not get paid. It is not uncommon to hear of hedge fund analysts in their mid- to late-twenties making well into
the half million-dollar range per year or more.
LIFE OF A HEDGE FUND ANALYST
Analysts are the heart and soul of a hedge fund. Analysts at a hedge fund typically have a well-developed
passion for following the stock and bond markets and a passion for developing ideas either on the direction of
the market or individual securities. Analysts perform the in-depth research, analysis, and due diligence required
to make an investment decision. They support senior analysts and portfolio managers to build investments into
the funds portfolio.
The career path for analysts into a hedge fund is much less structured than into investment banking or other
financial services sectors. An analyst may work for two to five years before either being promoted to sector
head or leaving the firm. At the lowest entry point, a college undergrad may join a hedge fund as an analyst, but
typically firms are looking for traditional hires in investment banking, equity research or other buy-side careers.
The most junior-level analyst for a hedge fund based in New York City will require an undergraduate degree
and a minimum of one year of work experience. Typically, junior analysts support the investment managers in
screening, researching, analyzing, and monitoring external investment managers. A junior analyst would have
the opportunity to move into a more senior role of analyzing companies to issue buy or sell recommendations
to the portfolio manager. A more senior analyst would be a member of the investment committee for the fund
and would report directly to the portfolio manager. Moving up the ladder is strictly at the discretion of the
portfolio managers.

Hedge fund analysts work market hours: getting into work around 7 a.m. and leaving around 6 p.m. This is
quite a change from the 90-100 hour investment banking hours some are accustomed to. Typically, hedge fund
analysts are not expected to work weekends or holidays. At some hedge funds, including SAC, analysts hold
weekend phone conversations with their portfolio manager to go over new ideas and positions within the fund.
HEDGE FUND ANALYST RESPONSIBILITIES OVER TIME
Year 1

Work with Sector Head and conduct fundamental research.

Attend industry conferences.

Attend management meetings.

Conduct field level research.

Learn a Sector.

Build financial models within a sector.

Start creating surveys and proprietary research tools.

Listen to company and industry conference calls.

Read sell-side equity and macro-economic research.

Year 2

Engagement:

Analyze investments on own and work more independently.

Engage in senior level investment idea conversations.

Have a positive impact on choice and size of sector positions.

Develop a network of other buy-side analysts and management teams.

Year 3

Becoming a Senior Analyst:

Lead the analysis on several investment ideas.

Generate own investment ideas.

Enhance sector performance.

Year 3+

Recommend investment ideas that get implemented.

Generate positive P&L.

Demonstrate ability to add value to other sectors.

Understand the consensus view on stocks and have the ability to quickly find differentiating
views.

Participate in investment team meetings.

LIFE OF A HEDGE FUND PORTFOLIO MANAGER

The funds Portfolio Manager (PM) either went out and raised the money (single P&L model) or was assigned a
certain AUM to invest (multi-manager). Either way PMs have the sole responsibility for trading decisions, hiring,
monitoring risk, and managing the back office operations. Very often the founder of the hedge fund is the
portfolio manager. The compensation structure can be very lucrative, with portfolio managers earning fees of 2
and 20.
Examples of well-known portfolio managers include:

Steven Cohen
John Paulson
Julian Robertson
James Simons
Timothy Barakett
Philip Falcone
George Soros
Kenneth Griffin

The job of a hedge fund portfolio manager is not to know the future, but rather to understand that it is uncertain
and to construct a portfolio that should generate attractive results under a wide variety of outcomes.
A large component of portfolio managers responsibilities is risk managementmanaging risk well turns
volatility into opportunities. Liquidity is a key part of the risk management philosophy, i.e. going to cash may be
the best option in certain scenarios. Portfolio sizing is also critical to the risk/reward balance. A large
percentage of can come from being outsized in high conviction trades.