Buyside opportunities for graduates are not as plentiful as those in either investment banking, consulting or professional services. Few hedge funds recruit graduates directly out of university and asset management firms tend to hire tens, rather than the hundreds of students brought in each year on the sell-side.
Asset management and hedge funds both pay well, they both target analytical high achievers with impeccable academics and both come with the glamour tag that is increasingly elusive in financial services these days. So, how do you choose which one is for you?
Pay should never be the determining factor when applying for either asset management or hedge fund graduate positions. Bridgewater Associates, the largest hedge fund in the world by assets under management, famously targets people who go into investment because of its intellectual challenge and any viewpoints of individuals are given honest scrutiny by others in the organisation. Asset managers also hire more humanities students that banks and again part of this is the implied analytical abilities they bring with them.
However, there’s no doubt that some impressive packages are on offer. Starting salaries at asset managers are £45k ($72k) on average, according to High Fliers research, while hedge fund ‘level one’ analysts earn base salaries of $100k, suggest figures from headhunters Glocap.
After this, compensation starts getting skewed in favour of hedge funds. Average payouts at equity hedge funds in 2013 were $850k, according to new figures from Greenwich Associates and Johnson Associates, compared to $530k for asset management. On the fixed income side of the business, this was $760k and $340k respectively.
Smaller hedge funds usually operate under a limited partnership model, where senior staff tie themselves in with upfront investments but get a share of profits each year, which can easily hit seven figures.
A few hedge funds run formal graduate recruitment schemes. In the U.S. they are Bridgewater Associates and D.E Shaw, while Man Group, CQS, Marshall Wace and Cantab Capital Partners all have them in the UK. Again, though, even here opportunities are not plentiful – Man Group, which has $55bn in assets under management, has historically taken on just 10-15 students each year.
In asset management, most large firms have graduate schemes where they’ll recruit for money management, distribution and support functions, but again the numbers are not huge. BlackRock, the world’s largest asset manager with $4.4 trillion in AUM, takes on around 50 graduates in the UK. Numbers are increasing, though – Aberdeen Asset Management, for instance, has 22 positions this year, up from 6-7 in 2010.
Most asset managers will ask for 2.1 degree and a minimum of 3.5 GPA, but are more flexible than most financial services organisations when it comes to degree discipline. Analytical skills are valued, so softer degrees are considered, but bear in mind that most asset managers have a very restricted list of target schools. Oxford, Cambridge, LSE and Edinburgh have provided the vast majority of portfolio managers in Europe, according to a recent study by eVestment.
Hedge funds ask for a 1st class degree, or a 2.1, but they really mean a 1st. Hedge fund recruiters suggest that impeccable academics from high school upwards are integral to getting your foot in the door, and hedge funds also only show themselves on the campus events of elite universities, competing against the investment banks and asset managers.
“The kind of candidates that apply for our scheme are often also applying for investment banking opportunities as well, however, we don’t necessarily target these candidates,” Jacqueline Michael from UK hedge fund CQS’ human resources department told us previously.
Asset managers usually have a generalist graduate training programme, meaning that you’ll be rotated across investments, distribution and operations before eventually settling on a specialism. This usually takes two years, and often involves taking the CFA qualification – or at least some of it – during this time. Essentially, asset managers are looking to harden the fundamental analytical skills you need to succeed, Kathy Collins, an analyst at Aberdeen Asset Management, told us previously.
“The company reports we analyse contain a lot of financial and legal information, so it’s important to be able to assimilate and digest information quickly,” she says. “You also need to have a sceptical outlook – sometimes there’s negative news about the companies we cover, but we have to really get to the bottom of the story and you can’t always take company statements at face value.”
Hedge funds that operate formal graduate training programmes take a similar approach, but those who recruit on a more ad hoc basis tend to mould academically-gifted individuals into the type of employee they desire.
“Our view is that working at other places will taint you. If we hire someone out of school, there are no predispositions,” said one hedge fund manager in a recent Citigroup report.
Until a couple of years ago, headcount in large asset management firms was on the decline as the financial crisis took its toll. Job cuts were less severe than in investment banking, but significant pain was felt nonetheless. Things have changed – Blackrock, JPMorgan Asset Management, Morgan Stanley and Goldman Sachs have all been bolstering their buyside headcount significantly since 2012, and paying their staff more. Headcount in asset management has been increasing at an “above average” rate every quarter for the past two years, according to the CBI/PwC’s financial services report.
Hedge funds are more cut throat. Some operate an eat-what-you kill mentality, where traders are given more or less capital to invest depending on their success rate, but here a bad run can end your employment swiftly. Millennium Management is a good example of this, but hedge fund Brevan Howard recently showed some long-serving staff the door after a period of underperformance.
Larger hedge funds, notably Man Group, have been cutting jobs more recently after a rough period. At Man, though, most job cuts hit support functions and IT, with money managers being spared. Smaller hedge funds run the risk of closing entirely – a tenth of all hedge funds tracked by Hedge Fund Research, or 904 funds, shuttered last year.
Both asset managers and hedge funds will expect you to perform in order to keep your seat, but asset managers a less inclined to a hire and fire mentality.