Of all the misconceived stereotypes about working for a hedge fund, the biggest one is around pay. Many people underestimate how long and hard you’ll have to work to achieve the eye-popping salaries and bonuses that make headlines.
For every Chris Rokos, who earned around $900m over a decade working for Brevan Howard, there are plenty making decidedly less. Those who start out earn an average of $90-125k.
“One of the biggest misconceptions people have is if you work at a hedge fund then you don’t really have to do a lot and you make a lot of money and you have a great life forever, but that’s not reality,” says Afroz Qadeer, the CEO of Kettle Hill Capital Management and a member of the Mid-Atlantic Hedge Fund Association. “People think you’re essentially a master of the universe, but in reality, you put in a lot of hard work, a lot of long hours."
1. You will not earn millions working for a hedge fund unless you're very lucky
David Kochanek, the publisher of the HedgeFundCompensationReport.com, agrees that it is common to overestimate how much a typical hedge fund professional makes. The owners of large hedge funds regularly make the rich lists, but it's only the lucky few that earn over seven figures. “About half of the respondents in our study reported making between $100k and $300k,” Kochanek says.
Less than 10% reported earning more than $1m in cash compensation. For those making north of a million dollars, more than 70% of their cash compensation was from their bonus, a portion of which they typically have to invest back into the fund.
The Fund Compensation Report by SumZero suggests that hedge funds with between $5-10bn in assets under management are likely to pay you the most.
2. You will work incredibly hard, often outside of your job description
When you start out at a hedge fund, expect your daily routine to involve long hours and a wide range of tasks. The smaller the firm, the wider the range of responsibilities employees are required to take on. “It is difficult to get a good job working for a hedge fund,” says George Schultze, the CEO of Schultze Asset Management and a member of the Hedge Fund Association’s board of directors. “Most hedge funds are small businesses and therefore their employee needs may include jobs that are not that glamorous.
“Expect to work hard and wear lots of hats as you break into this industry,” he adds. “Know that there are limited openings so that competition can be extreme. Be prepared to work more for experience than for high levels of pay – that's the best way to enter this business if you really want in.”
Qadeer agrees that hedge funds tend to have a challenging working environment, which is exacerbated at smaller and medium-sized firms that don’t have a big support structure. “You’ll be doing more than one thing and you have to be prepared to get your hands dirty,” he says.
3. All hedge funds are not the same
There’s a misconception that hedge funds represent a monolithic industry, says Victoria Hart, a portfolio manager at Pinnacle View Capital Management, a long/short equity hedge fund.
Depending on the type, focus or investment style of the fund, the AUM, the turnover, the level of interaction with the co-founders or partners and various other characteristics, the experience of working at one hedge fund can be radically different from that of another. “They get lumped together, and then many stereotypes get drawn and associated to all [hedge] funds, without understanding that there are important distinctions between funds,” Hart says.
4. Making it takes a lot of time
Some aspiring and early-career-stage hedge fund professionals underestimate how long it takes to master the skills and acquire the expertise required to succeed over the long term. On the investment side, you need to have real-life experience through many market cycles to appreciate how markets turn, Hart says. Sales/marketing requires time to cultivate relationships and learn the art of persuasion and selling techniques. And operations is riddled with many important details to learn, she noted.
“[Another] misperception is that you need to be a rock star at just one thing,” Hart says. “All of these roles require multiple skills; you can’t just be good at only one thing."
You need analytical skills for an investment role, but you also need good communication skills to get your ideas across, she says. “Sales and marketing requires solid verbal and written communication skills, but also someone who is facile enough with math to understand the product."
5. It doesn't pay off to be known as a jerk who loses his temper
People who have the ability to perform well under pressure and possess the full range of skills, including emotional intelligence or “people skills,” are more successful over the long haul, says one hedge fund portfolio manager. In contrast, someone who flies off the handle and has a temperament that’s more volatile most of the time it means that individual’s emotional IQ is lower. That can limit some people’s career progression if they don’t compensate for those shortcomings with other factors.
Short tempers won’t be tolerated in someone who can’t deliver, whereas for someone who delivers consistently strong performance, there’s tolerance for such behavior, even though it is not welcomed. Softer skills come into play more once a hedge fund manager becomes a bit more senior – dealing with conflicts and stress well is an important leadership skill.
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