HEDGE FUND OVERVIEW: INDUSTRY

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HEDGE FUND OVERVIEWINDUSTRY RECRUITING
TRENDS, INTERVIEW GUIDELINES AND
CAREER/COMPENSATION INFORMATION
MBA RESOURCE

• Claude Schwab

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DISCUSSION TOPICS

• Introduction
• Hedge Fund Market Trends and Recruiting Trends
• Preparing for Hedge Fund Interviews
• Career Tracks and Compensation

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INTRODUCTION
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INTRODUCTION

• SCHWAB ENTERPRISE, LLC
• Schwab Enterprise is a hedge fund service
  provider dedicated to hedge fund recruiting.
  Searches for all functional levels and at all
  levels.
• Hedge Fund client asset classes include equities,
  debt (corporate and government), commodities, and
  currencies.
• Hedge Fund functional roles include analysts,
  portfolio managers, traders, marketers, business
  development and all levels of operations/infrastru
  cture personnel.

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INTRODUCTION
HEDGE ME, 4th Edition Career guide for students
interested in hedge fund analyst and trader
positions Available on most major online book
retailers and on www.schwabenterprise.com
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DISCUSSION TOPICS

• Introduction
• Hedge Fund Market Trends and Recruiting Trends
• Preparing for Hedge Fund Interviews
• Career Tracks and Compensation

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MARKET TRENDS AND RECRUITING TRENDS

• MARKET TRENDS
• Hedge fund industry still in growth mode
  (financial and human capital inflows) though rate
  of growth has slowed
• Continued blurring of the investment lines
  between hedge funds and private equity firms, and
  between hedge funds and investment banks
• Strong activity in shareholder activism, merger
  arbitrage, distressed investing, credit
  strategies. Also LBO market/deals bigger than
  ever.
• Strong interest on part of banks to acquire hedge
  funds Morgan/Highbridge, CS/Ospraie, MS/Avenue
• Continued uncertainty re fund regulation, June
  2006 reg. reqs. overturned September 2006
  Amaranth
• Media attention on established fund
  closings/dramatic downsizings

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MARKET TRENDS AND RECRUITING TRENDS

• MARKET TRENDS (continued)

Media attention on established fund
closings/dramatic downsizings

• Risk Management/Performance Amaranths
• Revolt against investors Basswoods
• Sabbatical/Succession planning
  Narragansetts
• Regulatory issues Pirates

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MARKET TRENDS AND RECRUITING TRENDS

• RECRUITING TRENDS
• Job market is strong and steady but Company
  search now for the perfect fit, silver bullet
• Growth mode for hedge funds/fund of funds not
  similar to growth mode for investment banks,
  consulting firms, etc No armies of HR/Recruiting
  Teams Silver bullet mentality
• Rise in need for marketing/operations/infrastructu
  re personnel.
• No formal hiring season, mostly ad hoc hiring.
  Multi-billion dollar firms are appearing on
  campuses, most still simply post if they even go
  the School route. Hence need for individualized
  searches
• No formal training program within hedge funds
• Increase in client requests for analyst
  candidates with foreign language skills

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MARKET TRENDS AND RECRUITING TRENDS

• Recruiting trends (continued)

Highly fragmented market for job seekers

• Personal network
• Alumni network
• Recruiters
• Job posting boards
• On-campus recruiting

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MARKET TRENDS AND RECRUITING TRENDS

• POSITIONS
• Analyst
• Generalist
• Industry specialist
• Researchers
• Trader
• Execution
• Profit Loss
• Marketing
• Marketing/Business Development
• Investor Relations
• Operations/Infrastructure
• Business Development, Legal, Technology, HR

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MARKET TRENDS AND RECRUITING TRENDS

• BACKGROUNDS of hired candidates without hedge
  fund experience
• Analyst
• Investment Banks/Proprietary trading
• Private Equity Firms
• Investment Banks/Research or Banking
• Asset Management Firms (Long-only)
• Consulting Firms with Finance Focus/Practice
• Trader
• Investment Banks (Trading/Ops)
• Asset Management Firms (Trading/Ops)
• Hedge funds typically prefer well-known active
  long only investors/investment management firms

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MARKET TRENDS AND RECRUITING TRENDS

• BACKGROUNDS of hired candidates without hedge
  fund experience (continued)
• Marketing
• Investment Banks/Banking, BD/Marketing, PCS
• Asset Management Firms (Long-only)
• Private Equity Firms
• Operations/Infrastructure
• Investment Banks
• Asset Management Firms (Long-only)
• Private Equity Firms

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DISCUSSION TOPICS

• Introduction
• Hedge Fund Market Trends and Recruiting Trends
• Preparing for Hedge Fund Interviews
• Career Tracks and Compensation

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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS
- The Resume -

• EXPERIENCE
• FOCUS
• SIMPLICITY
• CHARACTER

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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS
- The Resume -

• EXPERIENCE
• Hedge fund or asset management experience
  (internships)
• The CFA designation, provided by the Association
  for Investment Management and Research (AIMR).
  CFA is a good indicator of interest in investing
• Recognized excellence in some area of academics,
  leadership, professional career

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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS
- The Resume -

• FOCUS
• Emphasis on valuation work and modeling skills
  (for Analysts)
• De-emphasis on transactions volume and/or number
  of deals closed (especially pertinent for
  investment bankers)
• Preference for generalist versus industry
  specific position

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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS
- The Resume -

• SIMPLICITY
• No job experience should contain more than five
  main points (bullet points) except when listing
  representative deal experience
• Font, format, punctuation must be simple, clean
  and consistent. No need to highlight
  words/phrases in italics, bold, etc.

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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS
- The Resume -

• CHARACTER
• Integrity is critical. Do not exaggerate
  achievements, personal or professional or
  relating to personal investing
• Account for all time since graduation from
  college, there should be no missing gaps of more
  than three months
• Make use of Personal section at bottom of resume
  to note interests and hobbies. Personality
  should come through in this section

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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

• READ BOOKS on Investing, and on different Hedge
  Fund strategies (see www.schwabenterprise.com for
  full list)
• Warren Buffets Berkshire Hathaway Inc. annual
  reports and ANY other annual letters to
  shareholders by great business leaders
• Benjamin Graham, The Intelligent Investor A Book
  of Practical Counsel
• .
• Joel Greenblatt, You Can Be a Stock Market
  Genius, and The Little Book That Beats the Market
• Seth Klarman, Margin of Safety Risk-Averse Value
  Investing Strategies for the Thoughtful Investor
• Keith Moore, Risk Arbitrage An Investors Guide
• Charles Mullford, Eugene Comiskey, The Financial
  Numbers Game Detecting Creative Accounting
  Practices
• G. Bennett Stewart, III, The Quest For Value A
  Guide for Senior Managers
• Nassim Nicholas Taleb, Fooled by Randomness The
  Hidden Role of Chance in the Markets and in Life

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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

• ANALYSTS
• Follow the markets on a regular basis and develop
  a clear and consistent point of view
• Do not simply keep up with information/data
  DEPTH over BREADTH
• 1 or 2 stock picks versus many with less depth
• Note Characteristic of great PMs ability to
  focus with amazing intensity and to isolate
  relevant data/information

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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

• KNOW THY INTERVIEWER
• Educate yourself on particular hedge funds SEC
  filings, 13-F, 13-D, 13-G, ADV
• Make sure to spend as much time as possible
  understanding the firm you would like to meet
  with
• Do your homework on firm, not just homework on
  how/what to present

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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

• ANALYSTS AND TRADERS
• Identify which shop would best MATCH your
  interests, in terms of
• Asset Class
• Equity, fixed income (corporate, government),
  currencies, etc.
• Company Focus
• Industry specific vs generalist event-driven vs
  non-event driven
• Investment Strategy/Style/Horizon
• Long/short, macro, distressed debt, activism,
  credit, etc.
• Growth, value, momentum, special situations, etc.
• Long term vs short term investment horizon
• Highly concentrated versus less concentrated
  portfolio
• BE CONSISTENT throughout interview re
  above-stated interests

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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

• ANALYSTS
• Be prepared to talk about specific equity ideas
  ON THE SPOT
• Be prepared to do more formal case studies on
  different stocks and to present your ideas to a
  group of employees. You may have as little as a
  few hours to prepare this or as long as one week.
• 3) Be prepared for general (non company-specific)
  question
• If you could invest in anything, anywhere in
  the world, what would it be and why?
• Be prepared for brain teasers/assessment tools,
  about 20 of established funds

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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS
WHAT NOT TO SAY! (ANALYSTS)

• No time to invest
• Cant invest company/employer restrictions
• Stale investment ideas
• Random walk missionaries
• Careerists, focused on titles, promotions,
  guarantees
• PA success stories
• Pure entrepreneurs
• AVOID Inconsistencies
• - Stated investment style/preference and PA
  investment style
• - Stated asset class preference, investment
  philosophy/style, holding periods

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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

• TRADERS
• 1) PHDs Poor, Hungry, Determined
• 2) Energetic, tenacious, resourceful, proactive
• 3) Make sure you know what you want execution
  vs PL trader

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DISCUSSION TOPICS

• Introduction
• Hedge Fund Market Trends and Recruiting Trends
• Preparing for Hedge Fund Interviews
• Career Tracks and Compensation

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CAREER TRACKS AND COMPENSATION

• CAREER TRACKS

Difference between hedge fund and other career
tracks

• Less structured
• Less formal
• Fewer tiers/titles

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CAREER TRACKS AND COMPENSATION

• CAREER TRACKS

• Analyst career track general rule of thumb
• 2-3 years as analyst
• 1-3 years as senior analyst (if such a title
  exists, otherwise analyst)
• PM
• Trader career track general rule of thumb
• 1-3 years as execution trader
• 1-3 years as senior trader, sometimes with PL
• Marketing career track BD versus IR, depends on
  prior experience
• Operations/Infrastructure career track - function
  of prior experience, skills

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CAREER TRACKS AND COMPENSATION

• COMPENSATION

• Experienced hires (MBA students) with little / no
  prior hedge fund/asset management experience
• Analysts
• BASE 90k-120k (smaller vs larger funds)
• BONUS 0.5-2.0 base
• Upward trend in Analyst compensation, up 11 in
  2005 vs 2004
• Carry/Profit Sharing only applicable at smaller
  hedge funds
• Execution Traders
• BASE 60k-80k
• BONUS 1.0 base

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CAREER TRACKS AND COMPENSATION

• COMPENSATION (cont.)

• Experienced hires (MBA students) with little / no
  prior hedge fund/asset management experience
• Marketing (Investor Relations)
• BASE 90k-120k
• BONUS 0.5-1.0 base
• Operations
• BASE 60k-80k
• BONUS 0.2-0.5 base

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CAREER TRACKS AND COMPENSATION

• COMPENSATION (cont.)

Corporation/Company
10-20 years
Traditional Investment Banking
7-10 years
Consulting
7-10 years
Law
7-10 years
Hedge Fund
3-5 years