The opaque nature of most hedge funds has created a lot of misinformation about the industry. People tend to underestimate how long and hard you’ll have to work to be successful, and the eye-popping salaries and bonuses that make headlines are more of a rarity than the norm. Perhaps the biggest misnomer is that traders and other investment professionals at hedge funds make millions of dollars every year.
Rumored compensation totals aren’t what they seem
While owners of large hedge funds and well-established portfolio managers take home seven-figure salaries, most investment professionals at hedge funds make well less than what many outsiders anticipate. Roughly half the people who work at hedge funds make less than $300k, according to the latest hedge fund compensation report. Less than 10% earn more than $1 million annually.
Recent investor pressure over fees have made huge paychecks even more rare, according to one buy-side trader in Connecticut. “Part of working in the industry is keeping up the perception that we all make millions,” he said. The theory is that no one will want to invest money with someone who isn’t already incredibly wealthy, he said. “We all perpetuate the stereotype. I’m not sure that will ever stop.”
The hours aren’t that great
Another misconception around working for a hedge fund is that your hours mirror that of the market. While it’s well-known that buy-side employees are up early and arrive well before the bell rings, the idea that most people leave when the market closes is a bit of a fallacy.
“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."
The madness that takes place during market hours means that much of the research that takes place is done before or after hours. “We don’t put in 100-hour weeks, but people who come over from the sell-side are usually shocked when they realize we don’t work an 8-4,” the Connecticut trader said.
Most hedge funds are small businesses
The big names in the industry that make all the headlines employ thousands of people. But that’s not the norm. Most hedge funds have just a few dozen employees, if that. This means that you usually can’t be a specialist with only one sharpened skill.
On the investment side, you need to have real-life experience through many market cycles to appreciate how markets turn, says Victoria Hart, a portfolio manager at Pinnacle View Capital Management. Being successful in sales and 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."
Culture fit is imperative
A New York hedge fund manager at a somewhat new quant fund not-so-reluctantly admits that he goes out of his way to avoid hiring from the sell-side. “The last thing I want is this place to feel like an investment bank” he said. “There are enough talented people out there that aren’t [jerks].”
For some, what you wear to an interview is an indicator of how well you’ll mesh. “If you show up in a suit and tie, you’re likely out. You won’t fit,” Drew Froelich, founder of Strategic Growth, a New York headhunter that specializes in front-office asset management placements, told us previously. "In the world of hedge funds, the worse you dress, the more successful you are," said one buy-side analyst. The same cannot be said on the sell-side.
The Connecticut trader disagrees, but only to a certain extent. “You don’t need to fit some cultural stereotype. No one cares. All you need to do is put up numbers,” he said. “But if you’re worth a damn, you don’t bother with putting on a suit.”