Hedge Fund Analyst to Portfolio Manager

It is a bit of a Catch 22 – no one wants you to manage a portfolio if you have never managed a portfolio before, so how to do you make the jump from analyst to PM? There are basically four ways to do it:

  1. Get promoted internally
  2. Start your own fund
  3. Go to a multi manager
  4. Switch funds to one that is willing to take a chance

1. The easiest way is to work for a fund that internally promotes, but getting a hedge fund analyst job can be very difficult, so it is unlikely you will be able to be so picky that you can wait for a spot to become available at a fund that is open to internal promotes. Also, the business is so volatile that the fund might not be around by the time you are ready to become a portfolio manager, so I wouldn’t target only funds that promote internally. The fund I went to work for told me if I worked hard, I could get promoted to portfolio manager, but after two years, I realized that such a promotion was unlikely. The fund had two portfolio managers and that was it. End of story. That being said, I have seen several of my friends make the transition, but it isn’t very common. The internal promotions I have seen happened because the existing portfolio manager was fired or left for another opportunity. It is rare that management will simply promote an analyst to PM simply because he or she is ready.

2. Starting your own fund is another option. Unless you have a super rich family, this option is probably the hardest. If you want to start a fund, you need seed capital, an outstanding pedigree, and some type of track record. Most funds do not give you a portable track record. You can get around it, but you have to be able to verify your past successes. Starting a hedge fund can also be extremely expensive. In a post-Madoff world, you can’t simply start a fund in your garage anymore. Well you can, but you certainly won’t attract institutional capital or probably even many high net worth clients outside of your parents’ friends. Outside of getting some start up capital, it will still cost a minimum one million dollars by the time you are done with office space, Bloomberg contracts, technology build out, fund administrator, accounting software, a CFO, and legal documents. If you have the right background, can attract the capital, and have the money to start up a fund, then it is the cleanest way to control your own destiny, but it certainly isn’t easy

3. Going to a multi-manager is a good choice for a young portfolio manager. While there is a lot of turnover, you have to take a chance, and this is a good opportunity to swing the bat. The big three, SAC, Millennium, and Citadel are the most obvious places to start, but there are also several smaller options that are great opportunities as well, including Diamondback and Plural Investments. If you can convince the recruiters of the multi-managers you are ready to step up and become a PM, it is a good way to break the Catch-22. The interview process will be very difficult, and you will still have to provide evidence of ability to make money consistently, the ability not to let emotions get in the way of decision making, and he ability to manage risk and people. Plural Investments is the new kid on the block, but they have been known to take the most chances on less seasoned PM’s, while Millennium has become known as a place where the veterans go to finish up their career.

4. The last chance to make the switch is to switch from an analyst role at a big fund to a PM role at a smaller fund. I have seen this happen several times, and it usually comes when a smaller fund is looking to grow and add more people but can’t afford to hire a “big gun,” or when the partners of a small fund know (or get to know) an analyst very well and recognize his or her talent. This path usually comes from someone who is a very good networker, and from someone who has shared many successful ideas with the other funds over a decent period of time. I have seen some people get carve-outs at the smaller funds, and some move into senior roles right away. This is a great option if you are willing to take a risk and hope the fund can grow into big shop where you can have a seat at the table.