5 Quickest Paths to Hedge Fund Land
Maybe you thought about joining a hedge fund out of undergraduate but found it to be super hard.
There are wunderkinds who do Blackstone right out of Ivy League undergraduate and become a sector head at a Tiger Cub, but those are rare.
For the rest of you, what are the five paths that best position you for a high-earning career on the buy side? Let's find out.
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Private Equity
Private Equity is the buy side. Unlike your investment banking, management consulting, and equity research peers, you are as first-class citizen as a hedge funder.
You have worked on a number of deals from start to finish. You know one or two industries. You have a hands-on introduction to M&A transactions at a brand-name firm. You have the vote of confidence in technical skills.
Strengths
Definitely lean into your knowledge of risk-reward in the industry you cover and your deep knowledge of your portfolio companies. Talk about how you conducted deep diligence. Think about scenarios for the business outlook and how you work with management. Talk about how you added value to your portfolio companies to showcase your experience in operating a business.
As a first-class citizen in high finance, you have access to opportunities at all public equity funds, including activists, the Tiger Cubs, all the way to multi-managers if you choose.
Weaknesses
You need to explain 1) Why didn’t you go straight to a hedge fund after Investment Banking? 2) Why public investing? Your days of hiding behind a 5 to 7-year time horizon are over. Talk about the excitement you get from identifying opportunities under day-to-day price fluctuations in the public market.
Investment Banking
You can go directly to a hedge fund from Investment Banking. As an investment banker, you have three main qualities that make you more competitive than your sell-side equity research peers:
Strong technical skills. You have worked on transactions and have access to information that sell-side equity research people don't have access to, so your modeling is more detailed. In a hedge fund, Investment Banking level modeling skill is valued.
Perceived stronger work ethic. It's widely known that investment bankers, on average, work longer hours. So, you're perceived to have better stamina to work quickly and a lot when the market gives you more opportunities.
More absolute numbers of ex-bankers on the buy side. Equity research teams are lean, and not all of them leave after 2 years. The Investment Banking class is just way larger, and they go on to their exit opportunities after paying their dues. Many of them do end up at a hedge fund. Human beings have a tribal mindset - they like to hire folks with similar backgrounds. As a result, investment bankers get more interviews and more recruiter interest for having the most prototypical profile.
Strengths
Lean into your technical skills and work ethic. Highlight select transactions in detail. Talk about the strategic rationales, financial projections, valuation, linking your industry knowledge with numbers, which is what public investors do.
Weaknesses
Buy-siders might worry that you get too deep into the weeds. To alleviate that, showcase you know the 2-3 things that drive the business and talk about the high-level thesis of the deals you worked on.
Sell-side Equity Research
The good thing is it's your job to follow the stock market and the businesses within your covered industry.
Strength
You have access to hedge fund clients, providing you an invaluable opportunity to understand how to serve them and what they focus on. For those who want to work at multi-manager hedge funds that trade events/quarterly earnings, your current job is understanding what moves stocks in the near term, a highly transferable skill if you work hard to master it.
Weaknesses
You need to be mentally prepared that your opportunity set is smaller than your investment banking and private equity peers.
Sell-side research rarely exits to activism because of the depth of diligence and elements of deal-based workflow that you lack.
Tiger cubs prefer an elite 2+2 (IB+PE) background. Don't ask me why, but I suspect it's partially due to the tribal mindset I discussed before because a lot of Tiger Cubs investment team members have 2+2 backgrounds, and the depth of diligence resembles private equity.
You also need to make up for the perception of work ethic because you work relatively fewer hours. Make sure you talk about the number of long-form reports you have produced and how many concurrent earnings you need to work on during earnings seasons.
Management Consulting
If you're coming from an MBB (McKinsey, Bain, BCG) background, you bring valuable skill sets.
Bankers only focus on two financial aspects of running a business: raising capital and making acquisitions.
Depending on the engagements you've worked on, you could be exposed to nuances in all the P&L lines, sales and marketing, growth, operations, and cost management.
Strengths
You're trained to scope problems, which is similar to how you're given a stock to research but no further instructions. You understand business operations and have deep industry expertise, just like your private equity peers. Furthermore, you're comfortable presenting ideas to client top management teams. You know strategic and operational frameworks better than your Wall Street peers.
Let the depth of your knowledge of the details of a business and industry show through in an interview. You're better positioned for funds that focus more on the business than on the stock.
Weaknesses
You are perceived to not model as well as investment bankers or sell-side equity research associates. So, wow them with detailed modeling, projection, scenario analysis, valuation, and convince them of your ability to step out and see what really drives the business.
The easiest way is to include in your stock pitch a screenshot of your Excel model and/or attach it to your cover letter when sourcing informationals.
Business School
Interviewers at hedge funds don't care for anything other than your ability to make money. That said, an MBA is very helpful for career changers.
I'm not going into this topic in detail as you can read my prior article.
I'll just reiterate, for example, to get an interview with Viking Global for an internship, you definitely need to go to HSWCC (the 5 school in picture). You will be competing with classmates who have pre-MBA experience in the other four paths I described in this article. (A few have even worked on the buy-side before MBA.)
So you have your work cut out for you if you want to land a great buy-side role with a non-brand name pre-MBA work experience.
Nothing is impossible, and I encourage you to be growth-minded. You just need to know it's harder than you think it already is.
The same applies to all of you who don't have a traditional background. It just comes down to how hard you really want it and if you're a self-starter to find the guidance you need and do the work.
Conclusion
There you have it, the five best paths to hedge funds. You now know how you're perceived going into an interview. Each path has its strengths and weaknesses. Make sure to showcase your strengths and defend against the interviewer's concerns to separate yourself from the pack.
I hope this is helpful in your journey to your dream hedge fund seat.
Let me know your thoughts in the comments.
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