Hedge Funds And Hiring: Recent Grads Need To ‘Create Their Own Luck’

May 30 2012 | 4:36am ET

They’re young, they’re ambitious and they’ve just graduated from high-end schools with degrees in business, mathematics or engineering. Their goal? A job at a hedge fund.

Bob Olman of Alpha Search Advisory Partners says hedge funds remain attractive to grads because “the upside potential is higher there than at a mutual fund, bank or a broker-dealer…Ambitious grads are also drawn to the fact that you can launch a hedge fund at a relatively young age if you have the right track record and a strong following.”

Olman also says the perception of hedge funds as employers has evolved. Whereas in the past, they weren’t seen as offering much in the way of job stability, “[t]hat’s changed since the financial crisis as funds have reinvented themselves and become real institutional asset managers. They now have all the infrastructure of a true institution and that creates more stability.”

Olman recently spoke to a group of undergrads, grad students and alumni at Columbia University’s Fu Foundation School of Engineering and Applied Sciences, an audience he described as “overwhelmingly technical people;” many of whom hope to work one day at a hedge fund.

While most hedge funds don’t hire recent graduates—especially on the investment side, which is where most newly minted MBAs hope to be—it’s not entirely unheard of, and Olman offered a number of tips to those hoping to break into the industry. First and foremost, he says, you must familiarize yourself with the firm to which you’re applying:

“Most funds have a strong corporate culture and I advise [grads] wanting to break into the industry to find out what the corporate culture is for any specific fund they want to work for.”

“Most funds are small, with headcounts of 90 people or less. A bank or a broker dealer employs thousands if not tens of thousands globally—thus the environment is completely different.”

In a small office, the “fit” matters. Paul Friedman, chief compliance officer at BlueMountain Capital Management, a hedge fund with about $8 billion under management, agrees. He told FINalternatives that BlueMountain’s corporate culture has a strong influence on its hiring:

“We think that the culture we have here, which emphasizes collaboration, is integral to how we make money for our investors. So, much of what we do in the hiring process is dictated by our view of ourselves as protectors of our culture. We think that two or five or 10 heads focused on something [are] more likely to get to the right answer than someone working in isolation and so we look for someone who thrives in that culture. We look for someone who doesn’t hoard information, and is willing to work as part of a group rather than in isolation,” says Friedman.

“We also avoid people who have a ‘me first’ mentality. It’s not really compatible with how we do business and so we want people who aren’t going to demand things for themselves if it’s not compatible with the needs of our investors and the broader firm. Related to that point, anyone who is excessively Machiavellian probably wouldn’t do very well here and we try to filter out people like that through the hiring process.”

Friedman says another quality they value in a candidate is an ability to “go before a group of people, defend a concept and do it persuasively.”

Olman says hedge funds are also looking for people “who are self starters and think out of the box” and says one way grads can prove to prospective employers that they fill that bill is through independent research.

“Research should focus on areas like valuation models, risk management or models for systematic trading in futures or options,” says Olman. “I’ve seen many situations where one candidate may be more qualified than another on paper but the lesser-qualified candidate gets the job because they were enthusiastic and able to demonstrate that passion via independent research.”

Of course, to make the pitch for your independent research, you have to get the interview—or at least some face time with a hedge fund executive. Olman has some advice on that, too:

“Find ways to get an introduction to a manager. Hedge funds like to hire someone with references from someone they know and trust—this could be an alum or a professor that serves as a consultant to a fund and/or may come from Wall Street.”

Start with your alumni association, he says. “A finance professional who is actively involved with their alumni association is more willing to make an introduction. A connection to alum can be enough to change you from an unknown to a tangible candidate.”

Another option is to reach out to a manager and ask for an “informational” meeting to get an opinion on your independent research.

“A manager’s time is tight,” says Olman, “but if the research is compelling enough, especially if it has to do with risk management or pricing, they are more willing to give their opinion.”

Another route, he says, is to go to the prime brokers, which run free referral services for their hedge fund clients. “More often than not, they refer only extremely tenured people but they also take on junior people from time to time. Many students aren’t aware of this. Students should also consider linking up with the software vendors that supply the hedge fund industry.”

Charities, he says, are another way to connect with hedge fund managers. Hedge funds, says Olman, give “enormously” to charities and students should consider getting involved—“volunteering time, soliciting for them, etc.” because “the connection they make at an event can eventually be that foot in the door.”

Industry conferences can also provide access to managers, and while the average college graduate can’t afford the four-figure registration fee for GAIM or SALT, there are other events well within their financial reach:

“The Connecticut Hedge Fund Association just had a conference about currency wars where Roy Lennox, number two at Caxton for almost two decades, spoke. There were no more than 75 people there, which would have made the chance to speak to Roy afterwards and get a dialogue going a lot better. The cost? $75 for a non-member. There are networking events like this all over Manhattan, nearly all of which are inexpensive.”

Olman says foreign students attending U.S. universities face an extra hurdle in that many smaller funds aren’t interested in taking on the necessary paperwork to employ them. On the other hand, he says, “There’s a lot of hedge fund expansion going on in Asia and if you are fluent in English and Mandarin or Cantonese and if you have an engineering, technical or quantitative background, you’re in demand. For international students in the U.S, starting off at the corporate headquarters to get exposed to the culture, then transferring to a foreign office once your visa winds down could a viable option.”

Friedman, who admits it’s “pretty atypical” for BlueMountain to hire investment professionals out of university, suggests the best path for a would-be hedge fund employee to follow is “to go to a large bank as an analyst covering a specific sector where they’re learning how to do financial modeling, learning to read financial statements, learning about industries and learning about companies. We also have some history of taking people from consulting backgrounds, so we have a number of professionals who spent some time at McKinsey.”

Olman says his top message to students: “Create your own luck.”

“It’s up to students to seek out every avenue they can to get the meeting. Job ads aren’t as effective because of the imbalance of opportunities and candidates. Fewer ads mean a deluge of candidates, many of whom are more qualified. I urge students to create their own proprietary pipeline by being active, not passive about it.”

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