Getting a job as an investment banking analyst is so much easier than transitioning to a hedge fund. Most banks really only care if you are smart, hardworking and easy-going. Since most view it as a two years and out program, banks can afford to make a few hiring mistakes along the way.
Hedge funds are completely different. Most are comprised of smaller teams that are trying to hire for the longer-term. After going through a countless number of interviews, I noticed that hedge funds primarily want to know why you are interested in investing and where that interest comes from. There are so many people that are smarter than you that are trying to transition into the industry as well, so the good way to differentiate yourself is to prove that you have a passion for investing and that this is the only career path for you longer-term.
The two most important criteria when hiring is determining if a candidate is passionate about investing and if they fit well with culture of the fund. Culture varies by fund so that is out of your control. On the other hand, the easiest way to show that you are passionate about investing is to start early.
1. Start Early
The earlier you start learning about investing, the better. Most interviews I had asked me why I was interested in investing and joining a hedge fund. A lot of funds asked if I invested on my own or if I was part of an investment club in college.
For those who are currently in college, join an investment club and start investing in stocks on the side. If you are a broke college student like I was, then build a mock portfolio using Seeking Alpha to track your performance. This allows you to begin to differentiate between good and bad investment decisions over time.
For those who have graduated and have started your careers, do not panic. If you have not been able to start early, all hope is not lost. I did not realize I had a passion for investing until a year into my banking analyst program. Outside of what I learned in school, I knew absolutely nothing about investing back then! I had to work harder during my free time to learn as much as possible.
2. Read, Read, Read!
When I wanted to learn more about hedge funds/investing, I researched the best books out there and read them. Read my List of the Best Investing Books to find out which books you should read first.
Do not make any excuses that you do not have enough time to read. Even though I was a banking analyst working 60-120 hours a week, I still found time during the day to read. Find PDFs to read online during your downtime at work and set aside 20 minutes of dedicated time before / after work to read every day.
3. Figure Out Your Why
Dig in deep and figure out why you really want to work at a hedge fund. Most out of undergrad just want to make a lot of money. After working for a few years you will realize that making money will not make you passionate about what you do. I was on track to make half a million in my mid 20s at a multi-manager hedge fund and quit. Most would say I was crazy, but I did not identify with the investing style there as it was extremely speculative.
After reading all those books, determine what resonates most with you. For me, value investing is extremely intellectually stimulating. Finding assets to buy for 60 cents on the dollar just makes sense to me. It is like trying to solve a puzzle and being comfortable making decisions based on an incomplete set of facts.
4. Research and Start Investing
After reading all those books, you now have a basic foundation to determine what makes a good investment. Do a screen for cheap companies or look at companies with a lot of insider purchases (openinsider.com is a good source for this). You can also go on VIC and read through various investment ideas. Pick a couple of stocks/ideas that sound interesting and start reading their filings. Start first with the most recent 10K / 10Q, then investor presentations, then transcripts.
Once you have a general sense of the business, start doing some basic financial modeling to determine all your key metrics. You do not need to have a complicated model with dozens of different assumptions for projections. If your investment thesis relies too much on assumptions / projections, then it is probably not a good thesis! You know the saying: garbage in, garbage out.
5. Track your Investments
Almost everything you learn about investing happens after you make the initial purchase. Track the performance of your investments by reading future earnings releases / transcripts to understand where you were right and where you were wrong.
6. Reflect
Do not feel upset if you made a bad investment decision. Reflect on your initial thesis to determine why your initial thought process was wrong. Do not forget to reflect on your investments that are doing well. Figure out if you made the right call or if you were just plain lucky.
This is a very important step because you cannot build upon your investing knowledge unless you understand the difference between a good and bad investment.
7. Gain Relevant Professional Experience
The easiest path to landing a job at any type of hedge fund is to work in banking for the first two years out of undergrad. During those years, make sure you develop a good reputation and try to be a top bucket analyst. You need to be very good at excel and have a strong grasp on valuation / modeling. There will be nobody holding your hand once you make the transition to the buyside, so you have to prove that you have the necessary skillset.
If you want to work at a multi-manager hedge fund, then the best path is to work at a sell-side equity research firm for a few years. Equity research coverage is short-term and quarterly, so the analysis is very similar to what will be done at a multi-manager. Bankers can make the move as well – I started my career at an investment bank then transitioned to a multi-manager.
8. Stay Focused
If you really want to work at a hedge fund then you should not be recruiting for both private equity and hedge fund roles. You need to pick one or the other because every firm will ask why you want to work there and if you are recruiting for other types of roles. It is best not to lie because interviewers can easily tell if you are trying to cast a wide net. You need to show that you have thought long and hard about what you want to do longer term rather than be indecisive. Recruiters are the same way.
Interviews at private equity firms are extremely different than interviews at hedge funds. Choosing one path or the other will make sure you stay focused so you can be best prepared. It is already hard enough to break into the buyside, so do not try to spread yourself too thin!
9. Network, Network, Network!
Generally, if you want to do something new in life, you should surround yourself with people who are already doing what you want to do. You become the average of the five people you hang out with most, believe it or not.
Network and find people who have already made the transition to hedge funds. Reach out to people who already work at the best hedge funds out there. If you are at an investment bank, reach out to those who have finished their two years and are currently on the buyside. You will learn so much by talking to others about what steps they took to break into the industry.
10. Prepare for your Hedge Fund Interviews
Once you have done the work and have landed interviews, make sure you read everything there is to know about working at a hedge fund and also make sure to prepare for the top hedge fund interview questions.
Your first few interviews are always going to be challenging, but once you go through a few then you will realize what to expect. Once you make it past the first few rounds, you will be given a case study which helps separate the candidates who do and don’t know what they are talking about when it comes to generating investment ideas. If you reach this step, make sure to read the case study guide for more information.
11. Read Through Real Hedge Fund Case Study Examples
The examples below are real written case studies and a full Excel model that were used in actual interviews.
Trust me, reading these examples and the Excel model will make it much easier to complete a case study and ace interviews, especially for those who have never worked at a hedge fund before.
Hedge Fund Case Study Examples Used in Real Interviews
Thanks a ton for doing this. Incredibly helpful stuff. How easy is it go from a MM to a SM in the case of blowing up at the MM?
What are the other exit options possible if you blow out of a MM?
Definitely, no problem. Most analysts who blow up at a MM just move to another group either at the same MM (if there are spots available) or to another MM. It is possible to move to a single manager that has a similar strategy (relative value, long/short) in the industry that you cover.
I know others that burnout and try to get out of the industry in general. They usually end up in business development/strategy/IR roles at a corporate company.
Hello,
First–thank you for this website and all of its wonderful content.
I wanted to ask, do you have a recommended list of value / distressed funds?
I’m going to be working in M&A at an EB and am interested in exiting to either a distressed PE group or a value / distressed fund. I know that may be a trickier transition, than if I came from restructuring, but I’m hoping I can make the transition with enough hard work.
Thanks!
Yes the main ones are Aurelius, Centerbridge, Cerberus, Marathon, Elliot, GoldenTree, Brigade, Anchorage, Bautista, Senator, Greenlight, Avenue, Appaloosa, Third Point. I know I’m probably missing a ton of other big names.
You don’t need a restructuring background. Just learn about distressed through reading and learning about bankruptcy processes and what true value investing really means.
Before I joined the distressed world, I had zero experience in restructuring. You learn everything on the job, so don’t sweat it. Just show you are interested and truly passionate about it in interviews and you should be good to go.
Thanks for doing these, I find them extremely helpful. My question is how can someone from a non-traditional background (for me, non-target state school 3.8 GPA, bad ACT) break into a MM? I am a rising senior and did an internship at a debt fund (senior only) and is recruiting for ER and IB at middle market banks.
Your best shot is to recruit for ER and start there right after college. You can also do IB and try to transition over as well.
There are a ton of people in the industry who did not go to target schools. Nobody cares about your SAT/ACT scores really and your gpa is good.
Just follow the steps outlined in the article and keep focus. You’ll probably have some bumps along the way, but as long as you keep your end goal in mind, then you should be able to break in.
Do you think prop trading at an event-driven shop to MM fund is possible?
Yes, but you will get siloed into whatever you are trading. Will be hard to switch to something else. Usually once you start investing in a specific industry or commodity, you will stick to that specific asset class.
How rare is it for someone to go into HF right after undergrad? For instance, someone that is doing their final year internship in HF and also has something like PE/IB internship.
Would someone in this scenario still need to do the traditional route of 2 years somewhere else? Or would other HFs give them a look as a fresh undergrad?
Since you have relevant direct experience, you should be able to go straight to working at a hedge fund after undergrad. It may be hard to work at one of the top shops / tiger funds without IB/PE experience, but if you are fine working at other places then who cares.
I would say that you can build a better overall skillset working in IB first before transitioning. And it gives you more time / optionality to really think about if the HF path is actually want to do longer term.
Are there other paths to HF right after undergrad, like normal PE? Or is having an internship in HF the only realistic way to have a shot?
Thanks for the post. I am looking to transition to a L/S market neutral fund (BAM/Citadel/P72/Millenium) or any single manager spinouts from these. I went through the recruiting process post-banking but didn’t get much traction (I actually interviewed at one of the aboves but didn’t get the role). Some of my mentors mentioned doing PE (which I ended up doing) for now to at least get into an investing role. Is it realistic to still move to one of these post-PE? I have been doing a lot of networking, but have realized that it is sometimes not that helpful given the HF recruiting cycle is random. Is it worth continuing to stay in touch aggressively with recruiters? I feel like they’re going to be the best resource for when there are actually openings.
My PE role is actually very similar to a L/S role since there is a lot of portfolio monitoring (month to month) and we do more deals (ie I analyze and execute more potential investments) than a traditional PE shop due to our investment mandate.
Appreciate your thoughts and any other insights you have. I’ve been persistent with landing a HF job for a couple years and have done the above and as I mentioned moved into PE, but just want to make sure I leave no stone unturned.
Just keep at it. You shouldn’t have a problem switching to a HF post-PE if it is really what you want to do. Make sure you read my articles on multi-manager hedge funds.
All of the big MMs have their own recruiters/biz development guys, so cold email and talk to them so you are on their radar. Also, some of the recruiters work for the multi-managers as well, so reach out to them. Mercury Partners, Odessey, Search 1, Dynamics, etc
Thanks!
Is it possible to get into a Hedge Fund with an unrelated Bachelors degree based on your track record alone? My minor is in business. I did pay for courses and a mentorship by someone who has been in the industry before and I have been working on building my portfolio and track record.
Yes, you don’t need a business/finance background. Focus on getting a job in investment banking/sell-side research, then you can transition to a hedge fund. Out of college it is tough, but possible. Still I think it’s best to get good training at an investment bank before enteirng the buyside.
Thank you!
Hey,
Thank you for this article. Could you repost the books you recommend? The link is telling me that the page no longer exists. Thanks a lot.
Yep, here you go: https://www.buysidehustle.com/the-best-investing-books-for-banking-analysts-and-finance-grads/
Hey there,
I’m in college currently deciding whether to pursue Sales and Trading, or IB, with the ultimate goal of getting into a HF. Would you say it’s definitely more ideal to be working in IB? Or can someone get away with being a trader and then transferring to one of the multi-manager funds (also considering that Prop trading is basically gone at most of the top banks)?
Thanks
100% better to work in investment banking if you want to work at a multi-manager or another hedge fund. You can also pursue sell-side research and become really good in a particular sector, then move on to a hedge fund.
Hi,
I am moving into a Fixed Income Sales and Trading role. Is it at all possible to move to a hedge fund after a few years?
If you are on the trading side yes. Buy what you will be doing on the HF side will be similar to what you traded at the investment bank. Best route to generalist hedge fund or traditional long short is to start career in investment banking.
Hi BH,
I’ve seen your WSO replies on how to get a HF job, but for nontarget students, would it make sense to try and intern at a hedge fund startup and (possibly) get a full-time offer from there?
So far I’m in the progress of making writeups and attaching them to my cold email.
For a bit of context, I’m about to be in my senior year (nontarget) and the only relevant finance internship I have is m&a consulting for a boutique firm in Indonesia.
Would try to get an investment banking job first. There is typically no guidance/training at hedge funds, not a great place to start a career. When you think about what a good first job is out of college, focus fist on places like IB where they can train you to build a good financial skillset. Then can transition to buyside roles after.
I am currently pursuing a Master’s degree in Artificial Intelligence and working on a research paper about applying machine learning in quantitative trading. I am also considering taking the CFA exam. Do you think my background would qualify me for a role as a quantitative researcher or analyst at a hedge fund? If so, what suggestions do you have for progressing towards a career as a hedge fund manager or potentially starting my own hedge fund after gaining experience in the field? Thank you.
I’m not a quant, but if you can code, are good at math, and add AI on top of that, then no problem breaking into a quant role if your smart straight out of undergrad. Just need to have something on the side that shows why you are interested aside from the academics.