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 judgments on 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’ll learn about: the life of a hedge fund analyst; hedge fund descriptions; and everything else you may want to know about becoming a hedge fund research analyst.
Aniket is a Chartered Accountant, CFA Charterholder, and MBA graduate of Columbia Business School in New York. He currently works as a hedge fund analyst at BRX Global in New York.
I resigned from my job to pursue an MBA.
After qualifying as a Chartered Accountant, I joined McKinsey & Company, Mumbai (India), as a management consultant and later Apax Partners as a private equity investor in Mumbai.
After 3 years of professional experience after qualifying as a Chartered Accountant, I decided to go for an MBA, having realized that I lacked professional and educational global experience.
I believed that my options were limited to India and that an MBA from a foreign business school would be the best next step in my career.
Choosing the Best Business School 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 seven 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 people like Bruce Greenwald, Joel Greenblatt, and 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 to choose 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 have accumulated professional experience prior to obtaining your MBA).
It is nonetheless important to choose a school that can have the maximum impact on your career goals.
I recommend that people make their choices on the basis of their personal research and not just on the basis of newspaper rankings of schools and their 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 of work experience), family support, and school-year internships or other school jobs.
The average cost of an MBA at a top-ranking school is $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).
Having said that, it is a good idea to be financially prudent in spending because things are on average more expensive than in India.
What exactly are 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 of a professional for such purposes.
- Think of it as hiring a professional to manage and grow your money.
- An investment fund is an institution that pools money from various sources and then invests it on your behalf.
- Hedge funds involve greater risk and are usually only available to large investors (such as pension funds, endowments, charitable organizations, and high-net-worth individuals in Western countries).
- These funds are typically smaller (assets range from $100 million to $10 billion), more concentrated (holding 10 to 20 stocks versus a typical mutual fund holding 50 to 100 stocks), and more aggressive than a traditional 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 be activist (argue for replacing the directors via shareholder vote when they feel the company is mismanaged).
What does a hedge fund team consist 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: This is my position. We investigate and advise (buy or 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.
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 involved in the “operational aspect” of the fund.
Operations tend to be a lean function that mostly consists of one or two people who perform the roles of CFO, COO, and Compliance Officer at the same time and also manage all back-office functions for the fund.
Below are the roles carried out by the Operations unit:
- Accounting
- Taxation
- Compliance across the multiple jurisdictions in which the fund operates
The job activities include:
- Calculating and reporting fund performance to investors and meeting tax and other compliance obligations (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) than the investment team.
- The COO or 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 and that there is no instance of fraud or non-compliance by the fund manager. This makes the experience of the COO or CFO of utmost importance for the business.
- In many cases, he can also serve as the fund’s head of investor relations, liaising with current and potential investors on any queries or questions they may 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 CFAs are investment analysts.
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, and 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 judgement 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
A Day in the Life of a Hedge Fund Analyst
Life in a hedge fund is a double-edged sword with plenty of 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 the 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 operational aspect of the fund.
A lot of CFAs are investment analysts.
After graduating from my MBA programme 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 programme 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, so candidates with experience are usually preferred.
Apart from qualifications, you need the following:
Passion
- 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.
Have Ideas
- 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 into 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.
Inter-personal Skills
- Every job in today’s world demands good interpersonal skills.
- The analysis one might do is only half the story; communicating it succinctly to your employer is of the 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 referrals 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 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, a thorough understanding of its operations, and ideas of what you think the company will earn in the near future.
- Writing a comprehensive report is a combination of desk research and building 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 Food works (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 November 2016, the business has seen 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 benefited from a cut in the GST rate 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.
Strategic Ways to Get into a Hedge Fund
Have an Investment Thought?
- When it comes to applying for an opportunity as a hedge fund analyst, one must have at least two to three 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 to 20 minutes to discuss it. 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” are probably not respectful of other people’s time. So all I can say is that 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.
Network
- Networking is very important.
- Writing to school alumni, other people originally from India, or someone with whom you might have mutual connections 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 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 for advancement and professional success.
- Given the size of the industry and firms, most of them do not follow a structured recruiting process, as hiring is few and far between.
- Recruiting is a combination of industry referrals and reaching out to fund managers with your research to demonstrate your passion.
- You must also practice a 1- to 2-minute “Tell Me About Yourself.”
Do Internships
- 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 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 Did I Get 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 of 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 to living my dream here.
After almost seven 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.
To Conclude
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, 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.
