My Journey: Investment Banking to Hedge Fund

Submitted from a Street of Walls Contributor:

Before I go into the details of my recruiting process from investment banking to a hedge fund, let me first start with some background information on myself. I come from a non-target school and was able to network my way into a NYC bulge-bracket firm’s internship program and was able to leverage that into a full-time offer. Even before I started in banking, I knew working at a hedge fund was what I wanted to do. I had a stronger interest in the markets, but banking provides the tangible and intangible assets needed to succeed on the buyside.

Starting in October/November of my first year, analysts start to receive emails from all of the various headhunters in NYC. Unlike PE interviews, the HF interview process is extremely volatile. Many HFs hire on an as needed basis, so recruiters never have a good sense as to how many jobs will be available or when they will be available. As a result, one needs to be extremely patient. To put my process in perspective, I didn’t go on my first hedge fund interview until April of my first year (but still received an offer in July and left after my first year).

The headhunter interviews are extremely important. Many analysts overlook these interviews because they think they are just meeting with women who are clueless about the banking/hedge fund world and will be a cake walk. Analysts that do this make the complete wrong impression and it ruins the recruiting process. Remember, these headhunters are the direct contact to the buyside; their job is to place the best candidates with the buyside. If they recommend a few bad analysts, the buyside firms get angry and may switch recruiting firms. So, make a good impression, be personable, be able to talk about your resume inside and out, why you chose to do this over this; if its on your resume, you better know every detail about it.

Another important tip that I learned through the process is most headhunters favor kids who know what they want to do post banking. Every single HH is going to ask, “Do you want to do PE or HF?” YOU NEED TO HAVE A DEFINITE ANSWER AND WHY; with the WHY being extremely important. HHs like working with kids who can sell them, I want to work at a hedge fund and this is all I want to do. Most of the HHs will try to persuade you to PE, because those jobs are more readily available for banking analysts, but you must stick to your guns and never flip-flop.

As I stated before, the HF interview process is very volatile, so analysts need to be very patient. When PE recruiting starts, analysts will have 2-5 interviews a day and they will have jobs within a few days (PE process is very short at a particular firm.) Those interested in HFs need to not get discouraged, I even thought about my decision but in the end knew HF was where I wanted to work.

When you finally land your first HF interview, you need to be prepared for a tough, long, difficult process.  The HF process can be anywhere from 4-8 rounds and take multiple weeks from start to finish. The first interview is with HR and they will do personality/fit and a few brainteasers. The brainteasers are simple math and logic questions, no need to over think this part of the process – most don’t care if you get it right or wrong, just how you think about a problem.

My second interview was a meeting with the PM of the fund. He asked a lot of questions about my experience at the bank and a lot about the deals that I have worked on. They want to make sure you understood the deal and also they want to hear your perspective of the deal; was it a good deal?, why? What about if they used more leverage? Don’t you think company x would be a better fit? Key here is to know your resume and deals inside and out and be very personable.  Be prepared with at least 5 good, thoughtful questions.

The next round of the interview will be a modeling test/case study. Unlike PE interviews, HFs do not really care much about LBO and accretion/dilution models, they care about operating models. Building a fully functional is imperative to getting a job in a HF. Building a functional model and getting you balance sheet to balance is only a “check the box” for the interview. The most important part and what separates candidates is knowing, understanding and making logical assumptions to the model. Why are margins improving, how are you thinking about this, what if this happens – how does this affect the model. THIS IS HUGE!

Every fund will ask you to walk through the model/case study with an analyst or pm. Make sure you do your homework on the company, understand every single line item in the model and also have a point of view on the company; is it a long or short and what is your time frame. Also, you need to be able to talk about risk/reward of your investment and understand the opposite viewpoint. Remember, they will have you model a company that they know and cover, so do not BS. If you don’t know it, say you don’t know, but you can follow up afterwards.

When all was said and done, I ended up going on 15+ interviews at 5 funds, while making 3 final rounds. The interview process is very draining, but rewarding at the end. This was a quick overview of how the process works. There were other interviews along the line with other analysts where they asked about your interest in the fund, why hf and your knowledge of the markets and finance. Remember, be confident and patient. I went from a non-target school to bulge-bracket in NYC and left after 1 year to a $5 billion+ AUM fund. It can be done, but one needs to be patient and do as much homework as possible.

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