High-earning roles, reserved for a select group of graduates
A typical investment is usually in stocks, bonds and cash. Alternative investments, however, cover a broader range - including wine, real estate and art.
In this article we will look at hedge funds and private equity.
Hedge fund managers invest in traditional as well as alternative asset classes, aiming for absolute returns regardless of market movements by employing a range of investment strategies.
Private equity funds invest in companies that are not listed on the stock exchange, from ‘seeding’ smaller firms (through venture capital) to buyout funds, which invest larger sums in established companies and usually use debt to finance the transaction.
The top five hedge funds ranked by assets under management (AUM) are Bridgewater Associates, Brevan Howard Asset Management, Och-Ziff Capital Management, BlueCrest Capital and Man Investments, according to the Preqin Hedge Fund Analyst.
Within private equity, the biggest funds by assets under management are Goldman Sachs Principal Investments, Blackstone Capital Partners, TPG Capital, The Carlyle Group and Kohlberg Kravis Roberts (KKR), according to Towers Watson.
Roles and career paths
There are three key areas in the front office of a hedge fund: analysis, sales and marketing, and trading. Analysts look at the companies, markets and financial products the hedge fund invests in; sales and marketing liaise with investors and persuade them to put money into the fund; and traders act on the analysts’ recommendations and place trades.
In a private equity fund you’ll start out as an analyst looking for possible investment targets. After working as an associate, you then move into the role of principal, appraising whether a deal is worth pursuing and sorting out legal issues. At the top are originators, usually partners in the firm, who sniff out deals.
Most graduates move across to private equity after a couple of years in investment banking. The hours are better – you usually leave the office by 7-9pm – and earning potential can be greater.
Hedge funds are not big recruiters of graduates, but an increasing number do have programmes to recruit juniors. Man Group president, Luke Ellis, says the firm looks to hire “driven, committed and energised” individuals who are “smart, creative and excited by financial markets”.
In order to work in the hedge fund industry you also need to be confident in your own abilities: “We expect everyone to share ideas at whatever level,” he says.
If you want to work in private equity, firms will expect you to come armed with “outstanding business and investment judgement, great analytical skills and strong relationship skills”, according to Johannes Huth, head of KKR Europe.
“Our investment professionals must be able to identify and assess attractive investment opportunities and build relationships with management teams, external advisers and industry experts,” he says.