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Want to work for a hedge fund? You’ll be lucky

Avoid the young hedge funds

Avoid the young hedge funds

Hedge funds, despite increasing accusations of underperformance, equal glamour and riches for those working in financial services. Countless examples of investment banking traders switching from a salary and bonus to reaping millions in profits at their own hedge fund means they’ve always held a certain allure.

However, if you want don’t want the risk associated with running your own fund and just want the promise of a meaty bonus at a hedge fund, you’ll need to go for one of the behemoths. As the chart below from Citi’s prime finance division in a report released yesterday shows, headcount in hedge funds is tiny until they reach $10bn in AUM.

Citi-headcount

Again, working for a big hedge fund seems like a better bet in terms of career opportunities and earning potential. Once a hedge fund breaks the $10bn AUM threshold (the firms surveyed had an average of $36.4bn), there’s a 189% increase in investment headcount, each person managing an average of $266m.

Citi-investment

Not surprisingly, it’s some of the larger hedge funds – Bluecrest and Millennium, for example – that have been indulging in the most hiring this year.

By contrast, a hedge fund that has $10bn in AUM, relies more heavily on support staff, as firms suddenly have to hire more operations and technology employees. What’s more, it’s not a great place to be for profitability – people working in $5bn hedge funds bring in an average of $628k in profits, while those in the giants earn $1.4m each. However, those working in hedge funds managing $10bn make an average of $742k – not a huge rise in profits considering the increase costs as the fund grows.

Citi-support

Citi’s conclusion is that any hedge fund wanting to break even needs to have at least $300m in AUM, as marketing and compliance costs, together with a lack of fee income, makes it uneconomical to run a small fund. From an employment perspective, though, stick with the big boys.

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