How to Become a Hedge Fund Associate - Essay Example

Introduction The Career to be analysed fall under the hedge fund industry where a hedge fund can be defined as an investment fund which is available to restricted investors and one which expects those investors to pay a performance fee. Hedge funds are privately run and can be likened to equity funds. These sorts of investments have gain considerable mileage within the financial sector as they have grown substantially. The name hedge comes form the fact that managers running a hedge account need to make additional trades in order to minimise the risks associated with their current portfolio. Price fluctuations are usually reduced through purchases of both long term and short term positions within the same securities. Hedge funds differ form other types of careers on the financial sector because of the nature of business. Hedge funds are not as regulated as other investment or financial institutions. Consequently, most of them may not be as well structured as the other conventional investment institutions. Hedge funds are usually centred on the hedge fund manager. This is the person who will conduct most transactions; he may be in charge of marketing, human resource, operations and many others. (Alec, 2007) However, it should be noted that in larger hedge funds, there is more division of labour as there may be operational managers and others. Even the manners of conducting business within these hedge funds will depend upon the type of organisation chosen. Therefore employees are expected to be versatile. Existing work experience In order to make it in the fast paced yet exiting career in hedge funding investment, one needs to be well versed with the tricks of the trade. This can only be attained through work experience. Currently, the work experience was obtained through internship at a small hedge fund company at the heart of the City. The work experience was an enriching achievement. This is because there was an opportunity to learn first hand how hedge fund companies are run. The atmosphere was extremely busy since members of staff were not too many yet the tasks at hand were quite enormous. The environment was quite stimulating because there were instances when efforts would be rewarded there and then. However, there were also some times when it would be bitterly disappointing. It was also established that the hedge fund sector requires a lot of networking. Most of the prominent personalities in the firm were deeply engaged in the hedge fund business. They had started out as graduates but made efforts to link themselves to all the right groups in order to gain vast experience in the sector. It was also found that investing in the hedge und industry is not as negative as some people have made it out to be. The hedge fund industry can act as platform for improving people’s lives through provision of better products. (Caslin, 2004) It was also found that there were some analysts who came in as graduates and then worked their way up to become associates. The analysts were expected to know much about spreadsheets. They were also expected to be keen and hardworking. Their efforts were recognised by the institution hence leading to their promotion. It was also found that in order for analysts to do well in the profession, there was a need for them to have accounting skills from the beginning. There were certain types of accounting certifications that favoured specific jobs. It was therefore necessary to understand which position an individual was interested in before they could do a certain course. Work experience also enhances deeper understanding of the internal dynamics driving the hedge fund business. It was found that most of the people who climbed up the ranks happened to be those who understood the political, economic (both micro economic and macro economic) reasons causing customers to make certain decisions. Those who did not understand these variables seemed to be stuck in the middle level section. (Asness et al, 2000) It was also found that one needed to be very versatile within that profession. The hedge fund industry has numerous opportunities for individuals but they have to make sure that they reach their targets. One needs to have very good reflexes; one is also expected to master their bargaining skills. Additionally, there should be more accurate analytical skills and good knowledge of the market conditions. If all these conditions are met through work experience, then one will be well on their way to achieving their career objectives. Initial career objective at the onset of the degree Before the completion of the degree, the career objective considered was; ‘to become a competent and well trained Trader at a hedge fund Company’ The reasons why this line was chosen was because of the cat that it was the most typical position within the Hedge fund business. Traders carry out some or all of the following activities equity futures bond futures option sales All the following areas need high levels of commitment from the specific individual. For example a hedge fund trader handling equity needs to be well versed with people skills because they will have to convince consumers about the benefits coming from this investment. On the other hand, a trader dealing with the incomes will need to have the ability to handle to investments in volatile economies. Additionally, derivative trading requires certain engineering skills as it is quite technical. Career objective as a graduate As it can be seen form the lists above, there were too many options available for a trader and such a career objective was too broad. There was a need to introduce more specifics into this line. There was also need to make room for mobility within the career path a being a trader is not the final destination for any one’s career. (Sherwin Rosen, 1987) This is why the career objective chosen is to become a proficient associate in a hedge fund. There are immense possibilities available for associates. They may start out simply as associates but with time, they can climb the corporate ladder to reach the ultimate destination of the head of a hedge fund institution. This is an example of how one can climb up the ladder as seen below; associate vice president executive director managing director The reason why the position of an associate within a hedge fund firm was chosen is because there is a possibility for upward mobility. Associates have a wide knowledge base that allows them to grow. Growth can b achieved through shifts within various departments found within a certain institution or through the familiarisation process. When one works for a certain institution for a long period of time they posses the ability to move up and become better at what they do. (Seymour, 2003) Associates also have the option of shifting between countries or product range offered by different hedge firms. It is therefore possible to find that an associate has received a very good foundation for their career. Analysis of hedge fund The Human Capital theory was put forward by Smith Adam. He defined human capital as that part of technical knowledge and skills that can be seen in labour. Consequently, there is a need to move away from the traditional definitions of labour where labour was considered as one of the factors of production. Smith brought out four major types of capital necessary for any type of business. These were buildings for revenue generation, machines used in business, modification of land and lastly human capital. (Becker, 1993) Smith believed that in order for one to have certain talents within their work place, they need to acquire knowledge through the use of all the avenues available to them. This could include the use of education, apprenticeship, study and many others.The process of acquiring this knowledge can be considered as some sort of investment. This is because they will involve an expense and the knowledge will remain with that individual or use in his or her life. It may be related to a machine that requires certain finances for acquisition but as soon as it has been acquired, it will bring in more profit for a given company. Smith considered human capital as skills and these skills could be improved through education and the issuance of on the job training. He also believed that the more one invested into human capital, the higher their rate or returns. However, it should be noted that this has a limit. One cannot simply invest continuously without checking on excess consumption. There is a limit to the level of returns and these must be considered by any shrewd business man. Other theorists have asserted that knowledge as it is can be expanded and it also self generates. For example, an accountant will start out with basic knowledge acquired from their learning institutions. However as time progresses, they become more and more knowledgeable in the profession. Therefore one can say that they self generate. According to the human capital theory, knowledge can be transferred from one individual to another and this has the effect of minimizing the level of scarcity of that knowledge. (Marx, 2006) The same theory can be applied to a hedge fund career. One may start out as a simple graduate trainee within a certain company. However with time, they gain experience about the intricacies of their profession. This is what Smith described as the investment. By gaining work experience, one in the hedge fund profession, one is bale to gain competitive advantage over some of their competitors. Additionally, one can also improve their ‘human capital’ through further education. In the hedge fund sector, it is important to get extra knowledge through such improvements like doing masters degree in business administration or any other related course. This will go a long way in ensuring that one has the right qualifications to stay ahead of the competitors. The career objective is to become a competent and well trained hedge fund associate. This will need excellent grades in the undergraduate degree. Most reputable institutions usually require top class degrees. Additionally, one needs to have a good and solid academic background. Certain institutions usually keep it at a minimum of about 2.1. However, this is not the only thing that my get one to this position academically. Individuals are expected to have post graduate education for example an MBA. Academic presentations should also be supported by a wide and diverse level of experience within the field. (Caslin, 2004) How to enhance chances of achieving career objectives The first thing that is necessary in order to become a competent hedge fund associate is to get numerous internship offers. This allows one to get a feel of the general aspects of the hedge fund industry. Thereafter, there is a need to engage in more specialised arrangements after observing which area is most interesting or suitable. During internships, it is important to have a mentor who will probably have more experience and will have the ability to teach the tricks of the trade during the process. The internship is also instrumental because it allows graduate to have the ability to work in teams. This will give them access to a wide and diverse pool of knowledge necessary to succeed in the business. Additionally, by participating in hedge fund internship programme, one is able to achieve numerous skills within the field. First of all, they can learn the analytical skills. Additionally, they can also improve on their client handing skills because they will get a better feel of what it is clients need. There are also opportunities to learn new ways of doing things. There will also be some knowledge on how to strategise. Individuals who wish to make it in this career need to improve their levels of competency through associate programmes. (Samuel Bowles & Herbert Gintis, 1975) One such example is through an IBD associate programme. In this program, candidates are given a feel of what all the areas in the field entail. They are taught about numerous packages and products and are expected to decide on which aspect suits them most. Sometimes, the programme offers certain levels of rotation so as to give candidates a choice of hat they would want. However, since it is already known that the career objective is in the hedge fund sector then one needs to put more emphasis on this during their first year in the course. Thereafter, associates are expected to concentrate on their field of specialty. In the second year of the program, associates are given the chance to work with movers and shakers of their respective institutions. These are usually project managers. After interaction with such people and in their final year, associates within this programme are expected to lead a competitive process within their organisation of choice or do other tasks. This will go long way in ensuring that they are well prepared for their career objective Conclusions Becoming a hedge fund associate is not easy. It requires a combination of the right academic qualifications, the right attitude and lastly the right experience and network to survive in this industry. (Ceridian UK Ltd, 2007) Reference: Alec (2007): Hedge Fund Careers, retrieved from http://www.alec.co.uk/hedge-fund-careers.htm Marx, K. (2006): Capital; volume III, pp. 465-6 of the International Publishers edition Becker, G. (1993): Human Capital: A Theoretical and Empirical Analysis; University of Chicago Press Ceridian UK Ltd. (2007): Human Capital White Paper; Journal for Ceridian UK Samuel Bowles & Herbert Gintis (1975): The Problem with Human Capital Theory-A Marxian Critique; American Economic Review, 65, 2, pp. 74-82 Sherwin Rosen (1987): Human capital: The New Palgrave; A Dictionary of Economics, v. 2, pp. 681-90 Seymour W. (2003): Intellectual Capital in Twenty-First-Century Politics; Ashfield, MA: Paideia Asness, C. et al (2000): Do Hedge Funds Hedge? Journal of Portfolio Management; Vol. 28, No. 1, pp. 6–19 Caslin, J. (2004): Hedge Funds; British Actuarial Journal, Vol. 10, No. 3, pp. 441-521 Read More