A ‘normal’ investment is usually in stocks, bonds and cash, made with a view to earning interest or dividends, or because the value of the investment is expected to rise over time. Alternative investments cover a broader range – from wine to art and real estate. We will look at hedge funds and private equity.

Hedge fund managers also invest in stocks or bonds but while traditional fund managers do so in the hope that prices rise, hedge funds use strategies to make money even if they fall. Private equity funds invest in companies that are not listed on the stock exchange, from ‘seeding’ smaller firms (through venture capital) to buyout funds, which invest larger sums in established companies and usually use debt to finance the transaction.

Key players

The biggest fish in the hedge fund pond is currently Bridgewater Associates, with $58.9bn in assets, according to Institutional Investor magazine rankings. J.P. Morgan Asset Management, Man Investments, Paulson & Co. and Brevan Howard Asset Management make up the remainder of the top five.

In private equity, Goldman Sachs’ Merchant Banking Division is the biggest player in terms of funds raised over the last 10 years, at $62.1bn, according to figures from Preqin. TPG, Blackstone Group, Carlyle Group and Kohlberg Kravis Roberts comprise the top five – all these firms are from the US.

Roles and career paths

There are three key areas in the front office of a hedge fund: analysis, sales and marketing, and trading. Analysts look at the companies, markets and financial products the hedge fund invests in; sales and marketing liaise with investors andpersuade them to put money into the fund; traders act on the analysts’ recommendations and place trades.

In a private equity fund you’ll probably start out as an analyst looking for possible investment targets. You can then move into the role of principal, appraising whether a deal is worth pursuing and sorting out legal issues. At the top are originators, usually partners in the firm, who sniff out deals and oversee everything.

Graduate recruits are rare, however, and either experience in investment banking or a top MBA is usually required.

Pay and bonuses

Hedge fund managers can bring in huge sums – the highest earner in 2010, John Paulson, made $4.9bn, according to Absolute Return + Alpha. Such sums are, of course, not available to junior staff.

Skills sought

Hedge funds are not big recruiters of graduates, but an increasing number have programmes to recruit juniors.

“All our graduate recruitment programmes – whether that’s in finance, marketing, operational, quantitative or technology – require candidates to be numerically strong with an active interest in financial markets,” says Jo Carter, head of talent and development at Man Group. “We also look for evidence that they’re able to work in a collaborative manner, and can show a strong sense of integrity and entrepreneurial flair.”

“Someone coming in from a business school is going to need to have had experience beforehand in private equity, investment banking, or management consulting – at least one of these buckets,” says Jordy Spiegel, managing partner, Spiegel Partners. “Also valuable would be an executive-level position with a private equity firm’s portfolio company, because you’ll know many of the processes, procedures and protocols.”