The buy-side consists of many opportunities that fit different past experiences and personalities. There are a few key distinctions between the private equity and hedge fund industry. First, private equity is a more long-term approach to investing whereas hedge fund investing can be a more fast-paced environment. A private equity fund typically has an investment time horizon of 3 to 5 years with the life of the fund reaching the latter part of this timeframe. A hedge fund manages capital for an indefinite time period; however, limited partners are typically able to withdraw their capital investment by giving notice.
In a private equity fund, limited partners typically have to wait until the fund realizes or exits its investments before being able to withdraw their capital investment (an alternative can be that limited partners can transfer their interest in the PE fund in the secondary market). A hedge fund investment can mean buying an equity stock and selling the stock in a week’s time. This example of a shorter term investment period is the reason people consider hedge funds more exciting and faster-paced than the long-term and conservative private equity industry. Therefore, a private equity investment professional may not see results from his or her hard work until later on when the fund’s investments are realized whereas a hedge fund professional may see the hard work pay off in less than a week in certain circumstances. This makes a hedge fund’s performance more tangible than a private equity firm. For example, during my tenure as a private equity pre-MBA associate, I was part of one investment during a period of two years. However, a pre-MBA hedge fund analyst might have made 50+ trades that included his analysis. Another key difference between a private equity firm and a hedge fund is the atmosphere in the office. A hedge fund is a more entrepreneurial environment and individuals wear more informal attire. For example, a hedge fund professional may wear business casual during the week and casual attire on Friday’s whereas a private equity professional can expect to wear business formal (definitely in meetings) or business casual everyday. Given that private equity professionals are not as worried about where the markets stand on a day-to-day basis, the atmosphere in the office is quiet and formal. A hedge fund professional can expect to sit on a trading desk where a private equity professional will typically receive a personal office.
These are a few basic distinctions between a private equity and a hedge fund career. There are also firm specific distinctions, such as investment strategy, that should be considered when choosing a career path.