The hedge fund analyst career track is much different from the typical sell-side career track. Hedge funds are typically much less structured, less formal, and have fewer tiers and titles. As a general rule of thumb, a career track for an analyst usually consists of: 2-3 years as analyst, 1-3 years as senior analyst, and then a portfolio manager (if at a single P&L fund you might have to leave to accomplish a PM role). As a trader, the general rule of thumb is 1-3 years as an execution trader followed by 1-3 years as a trader or senior trader with P&L responsibilities.

Analyst compensation varies very much by fund and performance but, as a general rule, investment bankers or MBA students with little-to-no prior experience will earn a $90,000-$120,000 base with a bonus that is 1-2x the base amount. New traders with little-to-no HF experience can expect a base of $50,000-$80,000 with a bonus that is 1x the base amount. It is much harder to lay out compensation for the hedge fund industry than it is for investment banking, private equity, and others. Hedge fund compensation is very much tied to the performance of the fund: If the fund makes money, employees are heavily compensated, but if the firm loses money, they do not get paid. It is not uncommon to hear of hedge fund analysts in their mid- to late-twenties making well into the half million-dollar range per year or more.

Life of a Hedge Fund Analyst

Analysts are the heart and soul of a hedge fund. Analysts at a hedge fund typically have a well-developed passion for following the stock and bond markets and a passion for developing ideas either on the direction of the market or individual securities. Analysts perform the in-depth research, analysis, and due diligence required to make an investment decision. They support senior analysts and portfolio managers to build investments into the fund’s portfolio.

The career path for analysts into a hedge fund is much less structured than into investment banking or other financial services sectors. An analyst may work for two to five years before either being promoted to sector head or leaving the firm. At the lowest entry point, a college undergrad may join a hedge fund as an analyst, but typically firms are looking for traditional hires in investment banking, equity research or other buy-side careers.

The most junior-level analyst for a hedge fund based in New York City will require an undergraduate degree and a minimum of one year of work experience. Typically, junior analysts support the investment managers in screening, researching, analyzing, and monitoring external investment managers. A junior analyst would have the opportunity to move into a more senior role of analyzing companies to issue buy or sell recommendations to the portfolio manager. A more senior analyst would be a member of the investment committee for the fund and would report directly to the portfolio manager. Moving up the ladder is strictly at the discretion of the portfolio managers.

Hedge fund analysts work market hours: getting into work around 7 a.m. and leaving around 6 p.m. This is quite a change from the 90-100 hour investment banking hours some are accustomed to. Typically, hedge fund analysts are not expected to work weekends or holidays. At some hedge funds, including SAC, analysts hold weekend phone conversations with their portfolio manager to go over new ideas and positions within the fund.

Hedge Fund Analyst Responsibilities Over Time

Life of a Hedge Fund Portfolio Manager

The fund’s Portfolio Manager (PM) either went out and raised the money (single P&L model) or was assigned a certain AUM to invest (multi-manager). Either way PMs have the sole responsibility for trading decisions, hiring, monitoring risk, and managing the back office operations. Very often the founder of the hedge fund is the portfolio manager. The compensation structure can be very lucrative, with portfolio managers earning fees of “2 and 20.”

The job of a hedge fund portfolio manager is not to know the future, but rather to understand that it is uncertain and to construct a portfolio that should generate attractive results under a wide variety of outcomes.

A large component of portfolio managers’ responsibilities is risk management—managing risk well turns volatility into opportunities. Liquidity is a key part of the risk management philosophy, i.e. going to cash may be the best option in certain scenarios. Portfolio sizing is also critical to the risk/reward balance. A large percentage of can come from being outsized in high conviction trades.