My Journey as a Hedge Fund Analyst in New York
A day in the life of a hedge fund analyst involves working on new investment memos, building and updating detailed financial models and helping businesses make valuation judgement in investments and projects with their hedge funds.
In fact: In today’s article, we have Aniket Nikumb sharing with us his journey as a hedge fund analyst.
As you read on, you’d learn about: the life of a Hedge fund analyst, hedge fund descriptions, and every other thing you may want to know about becoming a hedge fund research analyst.
Quit my Job to Pursue an MBA
After 3 years of professional experience post qualifying as a Chartered Accountant, I decided to go for an MBA having realized that I lacked professional and educational global experience.
I felt my perspectives were limited to India alone and that an MBA from a foreign Business School would be the right next step for my career.
Deciding Which Business School is Ideal for You
After conversing with a good number of Columbia Business School (CBS) students and alumni, I decided that CBS was the perfect choice for my career goals.
CBS is unique in its Value Investing Program which consists of a special class of 40 MBA second-year students.
Through more than 7 intense classes, these students are exposed to some of the best investors in the world who provide a practical illustration of how they practice their art.
Our professors included academians like Bruce Greenwald, Joel Greenblatt, Michael Mauboussin as well as portfolio managers and analysts from some well-established Funds such as First Eagle, Maverick Capital, Aravt Global, Blue Ridge Capital, etc.
I think the decision of choosing between a local or global MBA school is completely personal and depends on the following factors:
- Career goals (whether or not you want to expand your career horizons outside India)
- Personal circumstances (relationship status, financial strength, risk-taking with loans)
- Professional experience (whether or not you’ve gathered professional experience prior to acquiring your MBA or not).
It is nonetheless important to choose a school that can rightly make a maximum impact on your career goals.
I recommend that people make their choices on the basis of their personal research and not just on newspaper ranking of schools and friends’ decisions.
How Did I Manage the Financial Implications at CBS
Considering the opportunity cost of absenting myself from the workforce and the detailed cost of financing my studies at CBS for two years, this was a really huge financial decision I took.
However, I was privileged to be awarded multiple scholarships from the school and so I was able to meet up with the financial demand through a combination of personal savings (from 4 years work experience), family support and school-year internships/ other school jobs.
The average cost of an MBA at a top-ranking school is US$110,000 per year, which sounds like a lot but should not deter anyone from applying.
I say that because after securing admission to a good school, it is usually quite easy to acquire a loan in the United States (US).
That notwithstanding, it is a good idea to be financially prudent in expenses since things are averagely more expensive than in India.
What is Hedge Funds?
- Most people live very busy lives and are incapable of carrying out a deep study of the market for rewarding investments. They can, therefore, decide to hire the services a professional for such purposes.
- Think about it as hiring a professional to – Manage + Grow your money.
- An investment fund is an institution that – Pools money from various sources + Invests on your behalf.
- Hedge Funds involves greater risk and so are usually only available to large investors (such as pensions funds, endowments, charitable organizations and high net worth individuals in Western countries).
- These funds are typically smaller ($100m-$10b of assets), more concentrated (hold 10-20 stocks vs a typical mutual fund holding 50-100 stocks)and more aggressive than a typical investment fund
- For instance, Hedge Funds can go long (but the share price goes up) or short (but the share price goes down) or even activist (argue for replacing the directors via shareholder vote when they feel the company is mismanaged).
What a Hedge Fund Team Comprise of?
Team sizes are typically small and are comprised of 4-10 people.
A hedge fund will typically have:
- Portfolio Manager: Finance professionals who manage investment portfolios
- Investment Analysts: I am in this role. We research and recommend (buy/sell) the Portfolio Manager
- Fund Operations: CFO/COO/Compliance Officer (usually 1-2 people)
I will now go on to talk about Investment Analysts and Fund Operations.
Before expounding on the role of a Hedge Fund Investment Analyst, we need to first understand the role of the Fund Operations team.
The hedge fund operations are somewhat related to what Chartered Accountants major in. I am an Investment Analyst and typical Chartered Accountants cannot execute my duty.
In fact, a lot of Chartered Accountants and finance experts are into the ‘Operational aspect of the fund’.
Operations tend to be a lean function which majorly consists of one or two people who perform the roles of CFO, COO and Compliance Officer at the same and also manage all back-office functions for the fund.
Below are the roles carried out by the Operations unit:
- Compliance across multiple jurisdictions in which the fund operates.
The job activities include:
- Calculating and reporting fund performance to investors, tax and other compliance (such as FEMA, anti-money laundering, etc.).
- Accounting and other day-to-day office administration activities.
- Even though the Operations team does not directly work on investments, many consider them to be as important (if not more) as the investment team.
- The COO/ CFO is typically a senior person who might possess 10-15 years of experience in similar roles of responsibility.
- Most investors in the fund need to be assured that every activity is in order – that there is no instance of fraud or non-compliance by the fund manager. This makes the experience of the COO/ CFO of utmost importance for the business.
- In many cases, he can also function as the Head of Investor Relations and liaisons with current and potential investors in the fund on any queries or questions they might have.
Hedge Fund Investment Analyst
I am an Investment Analyst and typical Chartered Accountants cannot carry out my duty. In fact, a whole lot of CFA’s are Investment Analyst.
The day-to-day activities of a hedge fund analyst encompass various roles and responsibilities.
An Investment Analyst recommends buy or sell decisions to the Portfolio Manager.
Being a hedge fund investment analyst requires being everything from a forensic accountant to an investigative journalist.
What is the Role of an Analyst at a Hedge Fund?
- Evaluating potential investment ideas by performing detailed diligence on them (Including management, competitor, supplier, ex-employee interviews).
- Reading company materials (investor presentations, annual reports, investor call transcripts).
- Building and updating detailed financial models (in excel) for current and prospective investments.
- Making a valuation judgement on the business.
- Constantly combining the knowledge of accounting and finance with strategic management to make this judgment call (usually with incomplete information) about the future.
- Handling the overall investment project which can last from 2 to 8 weeks depending on the analyst’s familiarity with the industry and complexity of the idea.
Day in the Life of a Hedge Fund Analyst
Life in a hedge fund is a double-edged sword with about of its own stress (especially when markets go down!). It involves long hours, extensive travel, and intense pressure to deliver.
On the other hand, an analyst’s job is never boring (no two days are usually the same). It comes with an opportunity to acquire more knowledge and ability to make significant impacts on clients and the firm at large.
What Qualifications Are Required to be a Hedge Fund Analyst
I am an Investment Analyst and typical Chartered Accountants cannot carry out my job.
Instead, Chartered Accountants and finance experts major in the Operation aspect of the fund.
A lot CFA’s are Investment Analyst.
After graduating from my MBA program at Columbia, I started as an Investment Analyst at a New York-based hedge fund – BRX Global, New York.
However, prior to my MBA, I had experience as a Private Equity Investor at Apax Partners (Mumbai).
Most hedge fund analysts have attended a top undergraduate program and also have 2-4 years of experience across top-tier firms in investment banking, consulting and private equity.
Nevertheless, the ability to generate diligent stock ideas remains of utmost importance. Educational qualifications are entirely secondary.
Firms typically have a very small workforce, hence candidates with experience are usually preferred.
Apart from qualifications, you need the following:
- The most important thing is the Passion to learn. The curiosity to go above and beyond in diligence and tact around the markets is also very important.
- If you’ve never bought a stock in your life, it is difficult to convince someone why they should hire you to pick stocks!
Creativity and Discipline
- You have to demonstrate creativity and discipline in the research process and convince your potential employer that you can outsmart the very smart people who are already in the industry.
- Almost everyone will ask for an investment idea and people can very quickly tell if you are bluffing or have done solid work.
- It is important to practice the ‘STOCK PITCH. The ability to narrate a complex story very quickly in minutes and delve in details based on the questions is very important.
- Educational qualifications only get you through the door.
- Inside the conference room, the only thing that matters is the quality of your ideas and research.
- One good way to demonstrate your work is to bring 2-3 ideas you've worked on and can discuss.
- Everyone appreciates learning something they don’t know.
- Nothing excites people in the industry more than a candidate who brings a money-making idea into the room.
- Every job in today’s world demands good inter-personal skills.
- The analysis one might do is only half of the story, communicating it succinctly to your employer is of utmost importance.
How to Get a Job at a Hedge Fund
Hiring in hedge funds is very limited as most teams are small (less than 10 people) and require an extraordinary scope of advancement and professional success.
Recruiting is a combination of industry referral and reaching out to fund managers with your research in a bid to show your passion.
Networking is very important.
Accepting internships – even unpaid ones – can pay off when positions become available as your employer can provide a good reference.
Everyone in the industry is always looking for new ideas, so if you can develop a good idea buttressed by solid research, you will almost certainly get a meeting.
Given the sizes of the industry and firms, most of them do not follow a structured recruiting process provided hiring is few and far in between.
Another way to start making connections at hedge funds is to build a name and reputation in another (but related) field in finance.
Hedge funds often recruit from Investment banks or sell-side equity firms thereby poaching the top talent after they have honed their craft.
Interview Tips for an Opportunity as a Hedge Fund Analyst
- Interviews are almost entirely based on STOCK PITCHES.
- You have to go in with 2-3 interesting stock ideas on which you have done extensive research.
- When I say research it should include a detailed financial model of the company, thorough understanding of its operations and ideas of what you think the company will earn in the nearest future.
- Writing a comprehensive report is a combination of desktop research and rapport with people already in the industry.
Here is an example to help you understand better:
If you were to write a report on Jubilant Foodworks (JUBI IN, the master franchisee of Domino’s Pizza in India), it would be a good idea to first speak to customers, store managers, employees and competitors to understand the state of matters in the industry.
In JUBI’s case, since Nov-2016, the business saw huge progress after it underwent a menu renewal and a reduction in prices to make pizzas better and more affordable.
At the same time, no other restaurant chain in India has the same scale as Jubi (the 2nd largest competitor is Subway with 1/3 the number of stores). This gave them a significant edge in marketing and delivery (similar fixed cost infrastructure on the supply chain that is used over larger sales volume).
Furthermore, the restaurant industry generally benefitted from a cut in GST from 18% to 5%.
The CA background was important for an understanding of the implications of this law as well as a realization of the fact that it meant customers could afford the product.
It deals with the construction of a narrative about the company and industry by understanding the whole ecosystem as a business person would.
As you can see in the chart below, the stock went up from 450 to over 1500 within a span of 18 months.
Strategic Ways to Get into a Hedge Fund
Have an Investment Idea
- When it comes to applying for an opportunity as a Hedge Fund Analyst, one MUST have 2-3 investment ideas that can be used as currency to get a foot in the door.
- You can email your investment idea to people and ask them for 15-20 minutes to discuss the idea. However, you must know that most people are busy with their lives and will not be inclined to go out of their way to help.
- Coffee chats to ask for ‘advice’ is probably not respectful of other people’s times. So all I can say is if you want a person to meet you, give him a reason to meet you.
- On the other hand, you can also send a couple of work samples(a short 2-3 page report in PDF) to people. Most people will appreciate the gesture and help you by giving you feedback.
- Everyone in the industry is always looking for new ideas, so if you can demonstrate a good idea backed by solid research, you will almost certainly get a meeting.
- Networking is very important.
- Writing to school alumni, or other people originally from India or someone whom you might have mutual connections with usually works better – but be prepared for a hit rate of 20-25%.
- I networked with dozens of people over coffee chats and sent out hundreds of cold emails.
- I interviewed with over 70 firms pitching them ideas and asking them for feedback.
Understand the Recruitment Process
- Hiring in hedge funds is limited as most teams are small (less than 10 people) and possess an extraordinary scope of advancement and professional success.
- Given the size of the industry and firms, most of them do not follow a structured recruiting process provided hiring is few and far in between.
- Recruiting is a combination of industry referral and reaching out to fund managers with your research to demonstrate your passion.
- You must also practice a 1-2 min Tell Me About Yourself.
- Accepting internships – even unpaid ones – can pay off when positions become available as your employer can provide a good reference.
- I worked for free at two hedge funds.
Build yourself a name in the industry
- Another way to start making connections at hedge funds is to build a name and reputation in another (but related) field of finance.
- Hedge funds often recruit from investment banks or sell-side equity firms, poaching the top talent after they must have honed their craft.
If you want an idea of what you could include in your email, here is an example:
I would write a short note saying ‘My name is xx and I am interested in the investment industry. My previous work background is xx and I am a current MBA student at Columbia Business School.
I have been working on a couple of investment ideas and have attached a short write-up.
Could I request 15 minutes of your time to come in and discuss the ideas and get some feedback on how I can improve my pitches?
How I Got a Job Opportunity at a Hedge Fund?
During the two years, I was in business school, I worked for free at two hedge funds over the school year, networked with dozens of people over coffee chats and sent out hundreds of cold emails.
I interviewed with over 70 firms, pitching them ideas and asking them for feedback.
However, the biggest challenge I faced was that most employers were steering clear from recruiting students without permanent US work authorization in light of the ensuing immigration challenges.
But it was my dream to work in an investment fund in New York, the financial capital of the world; so I had to make things work for me.
In several cases, I would reach the final rounds but be eliminated because of my immigration status It was disheartening to go through this for months while my friends were all getting amazing job offers.
While it was enticing to run back home, I decided to give my very best into living my dream here.
After almost 7 months of back-breaking legwork, I was finally offered a position by a firm that was willing to see through the formalities and go through the legal maze of sponsoring an immigrant. I, therefore, began a new phase of my career as a Hedge Fund Analyst.
Landing your first job in the hedge fund industry is no cakewalk. Building a hedge fund career takes a lot of determination and networking stamina.
I was lucky to discover my passion early on in my life, so I can even ‘tap dance’ to work every day.
While it is natural for inertia to set in when one has a comfortable job, it is important not to get caught up in the complacency but to take that risk as Prof Deepak Malhotra says – to ‘Quit Early, Quit Often’.
You've Got All You Need to Become a Hedge Fund Analyst!
Since you've been adequately armed with my firsthand knowledge and experience of what it takes to become a hedge fund analyst, the only thing left is for you to MAKE A MOVE.
Go on and get that additional business qualification and surround yourself with knowledgeable and experienced people from the finance industry, start practicing to pitch and you'll be on your way to becoming a hedge fund analyst.
It Is Not the Size of the Man in The Fight, But The Size of the Fight in The Man.
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