Showing posts with label financejobs. Show all posts
Showing posts with label financejobs. Show all posts

Wednesday, 15 June 2016

How to Predict Company Earnings?

22:46:00

How to begin with to predict company earnings?

Considering oneself to be in the shoes of an Investor, for instance, it is obvious to face the dilemma of choosing the right stock that are easy to predict and forecast so it can meet your investment objectives and generate good contribution. The question arises as to how would you make the choice from among thousands of companies?
The quickest ways being relying on the consensus view initially and studying the past trends of the company. Consensus estimates of leading analysts are readily available on major financial blogs and websites.
Many would argue that these are the best ways to choose the right stock for forecasting while many would be against it.
My opinion says that relying on the past or the people are not the worst decisions especially for an investor seeking forecast closer to the current time period (this year or the next year).
It may not be suitable for longer period estimates because past analysis involves various adjustments against sales and hence growth rates calculated might vary from period to period.
Also, the choice of method to calculate the growth rate can influence the calculations, for example, geometric average, arithmetic average or complex techniques like time-series model.
Similarly, consensus though is better informed if there are more number of analysts in the market, however, a large number of analysts influencing the consensus can also lead to the ‘Risk of Herding’.
Analysts usually base their forecasts on the guidance from the company’s management, and the management follows the practice of under-estimating so as to beat the consensus and witness a rise in stock price, than to miss estimates and witness a price decline. So in a way following the consensus is not a wise decision for longer period forecasts.
Moving away from the consensus or the past trends, another investment barometer would be to use metrics and reasonably calculate the probable earnings for long-term forecasting. For this, it is required to gather factual data and applying analytical tools based upon your earning driven rationale. Also, as an analyst, you should understand that forecasts act as a guide and can only fall within a reasonable range of precision. Hence, it is advised to always calculate optimistic, moderate as well as pessimistic estimates.
Well, coming back to the point of predicting the earnings. I would like to give you a real-life example of two Indian-listed companies, Titan Industries, and Unitech Ltd.

What are company earnings?

What is the earnings figure we are considering here? It is Earnings Per Share or EPS.
Let’s look at the following table and see which company’s EPS is easy to predict.
Company earnings
Which one do you think is easy to predict?
Company Earnings Estimates
You are right!  It is Titan Industries which is giving strong EPS and that too in upward trend. No doubt, the share price reached Rs. 4000 in 2010 from Rs.40 in 2001 (100times growth).
What propelled this growth? Many factors. More on this, later.
The point I want to make here is, go for companies that are easy to predict and then do the forecasting. There is no dearth of such companies in the market and as a security analyst, your job is to find such gems.
Having seen how one should go for companies with steadily growing EPS, it is important to know that you can conjugate the concept of Stock Charts with P/E Ratios to estimate the earnings of a company.
A Stock Chart shows the graphical mapping of stock prices over a defined period, say for a quarter or a year.
Let us assume a stock of which you want to know the estimated earnings for the last quarter (Q4). The stock chart depicts stock prices of Rs.400, Rs.450, and Rs.600 for Q1, Q2 and Q3 respectively and it seems that the price is moving to Rs.750 in Q4.
Predict company earnings
Past data shows the following Price Earnings:
Predict company earnings1
Averaging out the P/E of last three-quarters.
Average P/E = (40 + 32.5 + 17.5) times / 3
= 30(times).
The maximum limit (since prices are showing an increasing trend) for Earnings per share in Q4 will be:
EPS in Q4    = Estimated stock price in Q4 / Average Price Earnings
=  Rs.750 / 30(times)
=  Rs.25

Linking company’s operating data to its Future Earnings

Professors in the field of forecasting company earnings often have conflicting views regarding whether or not the company’s operating details impact its future ability to earn. In support of
In support of sustainable growth, I would highlight how Reinvestment and quality of re-investment result in the future growth of earnings.
Expected growth in Earnings per share can be viewed as a function of the following:
Re-investment Rate * Projected Return on Equity
(Re-investment Rate means the proportion of after-tax operating income that is retained and re-invested into new assets for future growth.)
Assuming a Re-investment Rate of 25% and projected Return on Equity of 30%, one can expect growth in EPS of 7.5%.
This way of estimating earnings based upon growth rate not only highlights that growth is not costless, but also defines the difference between growth that creates value vs. Growth that destroys value.

Applying Business Fundamentals to estimate Earnings 

The very simple way to predict a company earnings apart from financial fundamentals like EPS, Current Ration, Growth ratio, etc. we can also look forwards to other areas through which we can predict the earning of the company that could be the external business factor that effects the earnings of the company indirectly.
Local government support in building infrastructure – the more is the focus of the government in promoting the industry and building the infrastructure you are to be rest assured that it is going to give a good earning to the company since the cost of manufacturing will be reduced because of the support of infrastructure facilities like electricity, water, ports, highways, dams, etc. With the reduction in cost of production, your earnings are sure to go high.
Future tenders or contracts received by the company – Another important aspect of predicting a company earnings is by analyzing the tenders and contracts which the company is due to execute in future, through which one can predict the earnings of the company, further if there is any foreign exchange contract then the fluctuation in currency can also be analyzed to predict the earnings of the company.
Analyzing the investment of companies in other company – Many a time companies tend to park few of their funds with other companies, you can analyze and find out the financial and growth of those companies to predict the earnings in the form of capital gain for the investee company.  
To conclude, what ever be the process chosen to estimate the earnings of the company it is futuristic and the probability of achieving the future earning prediction cannot be 100%, analyst always try to figure out how to reduce the gap and try to reach the 100% probability and keep on finding / developing new ways to predict the earnings. But one thing is for sure since the future is not ascertained neither can be the earnings of the company we can always forecast based on the past happenings and future possibilities.


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Wednesday, 23 September 2015

Do You Need MBA for Finance Careers?

20:05:00
Does an MBA degree hold value in 2015?



Times have certainly changed from the 1990s when an MBA degree from prestigious universities held immense value, both in India and abroad.
Almost every graduate pursues an MBA but is it essential for a lucrative career?
Before I delve into what role MBA plays in finance, especially corporate finance, KPO, capital market and the banking sector, it is essential to understand the expectations associated with MBA, as in whether the degree aligns with your long term career graph. MBA and its program benefits vary from one school to another.

Do you NEED an MBA?

A primary way in which MBA contributes to your career is by providing practical management and leadership skills, which is a necessary trait to work and survive in any kind of organisation, whether it is banking or otherwise.
The nature of management education has changed over the last few decades.
Previously, the courses used to majorly focus on quantitative data analysis necessary in finance and its related operations.
The quantitative aspect still resides but merges with more qualitative aspects so that MBA degree holders don’t have a myopic view of an organization and expands to aspects like organisational behaviour, leadership and strategy.
Garth Saloner, the Dean of Stanford says:
“The [quantitative] skills of finance and supply chain management and accounting and so on, I think those have become more standardized in management education, have become kind of what you think of as a hygiene factor: Everyone ought to know this.”
Over the years, quantitative skills imparted during MBA training stopped short of equipping learners with adequate skills.
It was felt that as the career progressed, the learners needed to employ leadership and management skills. For instance, senior people within an organisation require different interpersonal skills.
As Saloner goes on to say “the softer skill sets, the real leadership, the ability to work with others and through others, to execute, which is still in very scarce supply.”
Coming back to our discussion, the role of MBA in corporate finance, KPO, capital market and the banking industry is varied.
Certainly, an MBA in Finance is suited to further career in various industries like investment services, commercial banking, corporate banking and real estate.
The MBA course gives learners a chance to gain both financial and business skills, equipping them to work in variety of enterprises.
Even while still in MBA school, they get chances for high paid internship opportunities and much higher salaries on completions. The MBA programs are available on both full-time and part-time basis.
The purpose of the MBA program is to offer foundation to subjects like Strategy, Economics, Leadership, Statistics and Marketing.
Certain schools offer a greater number of business-related courses in management but the majority of courses focus on banking, financial and investment topics.
If you are interested in joining any of the corporate finance, KPO, capital market and the banking market organisations, you should do MBA as it teaches risk management, stock market analysis, financial foundation, global economic growth, knowledge of financial instruments, futures and options, market trading, bankruptcy, market volatility, investment banking and corporate finance.

The Employability Factor of MBA

Does having an MBA degree give access to favorable career options? Ultimately, the purpose of the degree is to acquire employable skills.
The employability of MBA degree holders, again, is varied.
An MBA in Finance or Business doesn’t guarantee entry into the world of corporate finance, KPO, capital market and the banking industries. All the four segments hire MBA degree holders’ right at the executive level.
The employability of an MBA degree holder is very less in a KPO when compared with banking, capital market and corporate finance world.
A report by Aspiring Minds titled National Employability Report by MBAsshowed that the employability of MBAs in the KPO sector is 2.92% and 7.98% for business consulting and Analyst function.
Between these two data, an Analyst finds better employability in KPO than those interested in the business side of KPO.  This is because while Analysts may not have good spoken and written English skills, their data crunching skills are much in demand in not only in KPO but also in capital and investment markets.
Those who are involved in the business consulting role communicate with clients on a day-to-day basis, have excellent English speaking and writing skills and possess excellent quick thinking skills.
The Aspiring Minds employability report states that MBA employability varies between males and females in both business consulting and Analyst function.
One of the major employability factors for MBA candidates is English scores – employers give higher value to the person’s spoken and written English skills.
Further, there is a difference of employability between Tier I and Tier II cities; the employability curve falls drastically and the knowledge gap between Tier II and Tier III cities is too big.
As such, MBA candidates from Tier II and Tier III cities have to sweat more to find employment with MBA.
As you must be aware, the capital market and investment sectors are somewhat of an elitist, their hiring processes are gruesome, they are tremendously ‘picky’ and look for various skills and knowledge-levels and only an MBA degree won’t suffice.
The employability is higher with colleges located in metro cities because employers believe the candidates there receive higher exposure and access to better education.
It is seen that it is not the personality traits which reduce employability but domain knowledge and cognitive skills. MBA in Finance and Marketing candidates have higher employability in the KPO and Investment sector.
Talking about campus placements, top MBA colleges help candidates get hired 58% higher than the bottom MBA colleges which have an employability of only 2%.
The average campus placement is 8% and only about 30% of the colleges show campus employability higher than 8%. Further many employable candidates aren’t campus hired because recruiters don’t visit beyond top 1000 campuses and lastly, 59% of the employable candidates are given Analyst position.
Conclusion
The role and responsibilities that come with any of the finance industries vary and the purpose of MBA is to give you a foundational knowledge.
Knowledge and learning shouldn’t stop with completion of MBA; it continues and people like you should opt for advance courses more suitable to your respective finance fields.
Source- Financewalk.com
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Wednesday, 2 September 2015

Lifestyle of Investment Banker

17:16:00

Investment Banker Lifestyle – You must have probably heard a lot about investment banking and would have a fair idea of what an investment banker does and also wish to be one. But how well do you understand the investment banker lifestyle? Wouldn’t it be great if you have a clear picture about what your life will be as an investment banker so you are well prepared to make that as your career? That’s where this article would guide you.
An Investment banker life is considered to have long working hours, working on weekends, lot of hard work and little sleep. Let’s have a closer look at it. This write up on investment banker life will help you know the following

Why become an Investment bankers?


I would not be wrong to say that the candidates today are quite mesmerized by the image of an investment banker. The image here I am referring to is the one, where we see even young investment bankers dropping out of quite expensive cars wearing polished suits. Seldom do people realize that such investment bankers put in a lot of hard work, working under stress situations and round the clock for months.

Earn lot of money

There is no doubt about this particular reason being the biggest motivating factor for people to get into investment banking.
The salaries and bonuses one could earn are extremely luring which would get you in his career and motivates you to stay in. The fat salary and the bonuses which could go up to three to five time the salary makes up for all the hard work you put in.
There are a few career options which give opportunities to earn money as investment banking does. Having said so if we have to compare it with entrepreneurship it could be on similar lines. But again the risks involved are greater than working as an investment banker. Hence, investment banking can be a safe bet when it comes to compensation. Especially considering the amount of bonus an investment banker gets for the slogging is quite worth it.

The lifestyle

Many a times it is the lifestyle this job affords that some get attracted towards. With high salaries, you could very well have enough money to visit luxury hotels in exotic islands, gobble on some fine food and wine. Several people enjoy being able to live a rich person’s routine life such as attending art exhibitions, hang out and spend time with the fat cats.

Status symbol

Being an Investment Banker, you are attached with a tag of being a financial wizard and a symbol of financial success. This tag brings in a lot of prestige and gathers a lot of attention when anything in finance is discussed. Your opinion on investments, loans, and mortgages will become important to all your near and dear ones.

Passion for finance

There are some people who are motivated to get into the field of finance from a young age. They have a sharp sense of finance, who have analytical mind from the start and are the ones that can digest information quickly. Such usually get into investment banking as soon as they complete their financial degrees in the university.

Higher Expectations

What I am referring here is a kind of background and surrounding they come from which urge people to get into investment banking. Most of their family members and friends belong to hedge funds, investment banking and hence are motivated to follow suit.

Career foundation skills

Getting into investment banking gives you loads of opportunities hone your PowerPoint presentation, communication and Excel skills. There are other skills that you learn would teach you how to work and survive in this difficult and challenging industry. Also, you get to add quite a few impressive points in the resume. Many people become investment bankers to get the most out of this profession, learn as much as possible and leave before it’s too late. An exit from investment banking may open up new doors for you in finance careers such as private equity, venture capital, and hedge funds.

Intelligent People

Another attraction for people to get into investment banking is that you get to work with some intelligent minds who have sharp brains and are driven individuals to prove their financial abilities.
Learning is intense and you get to work with some of the brightest and most demanding people on Wall Street. You would be exposed to top business leaders and know how they think, how they create strategies and the thought processes behind their decisions.

Investment Banker Lifestyle

Truly speaking there is no “typical day” for an investment banker as your tasks will vary every day. You can be expected to prepare financial models (project how much will the company grow in the next 85 years), preparing pitch books (why you should sell your company to ABC Corp. at $20/share), working on deal memorandum and everything else that goes into a deal.
Have a look at the below infographics on Investment Banker Lifestyle
Investment Banker Lifestyle

Myths and Facts of investment banking

Myth #1: Investment Banking is a very dazzling industry, and my work will be full of handing demanding transactions and deals.
Truth: Don’t expect this to be the true especially at the analyst or associate level. The tasks would be the ones that come down from the senior managers and would be basic grunt work. Although, it does pay back when you handle much more meaningful position in the company, higher up the ladder.
Myth #2: The job gets better with time and position. 
Analysts spend quite a lot of time in getting control of the life in investment banking w.r.t the long hours and random work assigned by the seniors. With this, they gain experience and as time goes they are assisted by various other interns and fresh recruits who share the work responsibility.
Truth: It is not simple as it may seem. You need to spend some time to figure out who would be the best to assign a specific work. Also, you would be responsible for the work they perform and involves risk.
Myth #3: Investment Banking is not as hectic as people fuss about.
Truth: Strength of mind and character and competition are vital elements to Investment banking. And competition exists because there are losers and people in investment banking are resolute to make you one. The politics and competitive scenario is not everyone’s cup of tea and you need to very well survive, pour in your sweat and tears if you want to earn that heavy salary.
Myth #4: Advanced Mathematics skill is a must
Truth: Majority of the stuff you do in investment banking is going to be simple in terms of the mathematical skills you use. Being an analyst or even as an associate you would be spending most of the time in administrative kind of work.  Even in case you fall into some technical group you would spending time on qualitative tasks rather than number crunching.
Myth #5: Investment banking is only for males
Truth: this cannot be regarded as a complete myth  as Investment banking has been male dominated.  The ratio is such that on an average there is around 1 in a 4 female investment banker and accepting the fact that this is substantial enough the gender discrepancy is decreasing day by day. It gives us enough positive sign that things are going to change for the better.

The Downsides of an investment banker’s life

Long working hours

  • If you are someone who wants to work in regular office hours and have a social life a career in investment banking is not for you. Want to know why?
  • At bulge bracket banks, you would find the analysts working for more than 100 hours a week. The day would start might be at 10.00 am or even earlier and end at 2.00am and weekends could not be an exception.
  • When working on the big deals and during the beginning stages of it, it is not at all uncommon for the analysts to be up all night and get through the work.
  • It could be comparatively better at the Associates level, where the average number of working hours could range from say 80-90 hours per week, from 9.00 am to 11.00 pm and working either of the day on weekends.
  • When it goes higher up the chain at a Vice President level the hours would improve. VP’s, if at they have to work on weekends or late nights, can do it from home.
  • Managing Directors have a significantly better work schedule when they do not travel they could report at 7.00 am and leave by 6.00 pm. However, MD’s have a lot of traveling to do perhaps 3 out of every 5 days on average, where they need to do a lot of marketing and pitching.
  • It is also possible that sometimes Analysts and Associates could go out for pitching and sometimes would be spent in office. Having said this lifestyle and the working hours vary across bulge bracket banks and could be better.
  • Many experienced in this industry would say that more than the number of working hours, it is because of the unpredictability of the working hours which makes it erratic. You do not have any control over your social life and will have to sacrifice lot of your personal time.

Unpredictable nature of work

  • The work is not constant and would vary and would be expected to work on the pitch books, prepare financial models, putting across the deal memorandum etc.
  • In the morning, you would find for yourself a fresh stock of work required to be done on the marketing pitch book or live deal work.
  • The higher ups get to office early and check on the last night’s work that you left. But you would receive the comments and review on the work much later on the evening which you would have to finalize before you leave for the day and your VP gets into the office in morning.
  • The work gets hectic only after lunch as you get the list of works to be done through the day. Time would be majorly spent on going through the pitch books, creating deal models, working on numerous transaction alternatives.
  • Through this, the work majorly is done on spreadsheet software like the Excel and presenting your models effectively in a power point presentation.

Stress

  • As a result of the above two downsides we discussed comes STRESS. Also, investment bankers deal with huge amount of money and there are a lot of expectations from them to convert deals into profit.
  • These conditions lead to pressure to perform and many a times it is observed bankers get wound up with insomnia, eating disorders, alcoholism, and other health issues.
  • There is always urgency to the task assigned to you, it’s not a day or two limited urgencies but more of a day-by-day urgency.
  • You could also receive phone calls in the middle of good night sleep in case you are handling certain foreign accounts.

No leniency for errors

As an investment banking analyst, you would be expected to learn your job quickly and perform to a very high standard. You would have to ensure the responsibilities are completed on time paying close attention to detail as there would be no room for mistakes.

Work pressure

As we already saw that as investment bankers you would be working with many strong and bright minded personalities. But with this upside comes lot of pressure to perform as you would be compared to your colleagues and will have to outperform them if you need to go up the ladder. You will find that you could make very few friends as this industry itself is deeply competitive and people are hungry for profits and higher bonuses for themselves.

Performing not so important tasks

Although it is true that analysts can be given lot of responsibilities early on in their careers they will every so often be expected to work on tasks which are not that desirable such as copy pasting, photocopying, book meeting rooms etc.

When to quit investment banking?

You may be wondering why we are discussing this topic here in Investment banker life. But believe me once you are into investment banking this question is going to pose in front of you some or the other day and for some every day.
Investment bankers do consider leaving their jobs for various reasons which you could have already learnt from the above discussions in the article. Although there is nothing wrong in quitting what matters is quitting graciously at the right time for the right reason.
So when should you quit Investment banking? It would be very wrong to decide when would be the correct time to call it a quit. It is an individualistic decision which should be taken after considering a few important points;

Quit because you are having bad day at work?

No, never quit because of this reason. You will have plenty of those in investment banking. It is very normal to have a bad day when your decisions fail or you somehow do not deliver up to the expectations. It is better to learn from such situations give it some time and see if there is an improvement. If it doesn’t then go for it!

Do you see yourself as an investment banker for the rest of your life?

Let’s consider a situation that you have spent approximately 2 years in this profession. Observing the Managing Directors at your firm (who make millions, delegate the work and leave the office at 6pm) and think that you want to be that person then this is one indication that perhaps you would want to continue as a banker.

Have you spent enough time to exit investment banking?

You need to make yourself marketable enough before you decide to quit investment banking. It is hence always recommended that you must finish at least two years before you quit. It is better to gain anywhere between 2 and 5 years’ experience as anything less than 2 would be tagged ‘lack of experience’ and more than 5 as ‘too experienced’.

Does quitting mean you are failing?

You might feel as a banker that you have urge to quit because you are unable to handle the job well.  And you continue working hard day in day out but never satisfied. Don’t think that you have failed when you decide to quit. You have learnt a great deal in the times you have survived and it is more like working out what you want to do with your life rather than continuing something which you don’t believe in.

Money is no longer a motivation

We know that you would be paid really well as an investment banker. But there could be a point where you realize that money no longer motivates you to stay as an investment banker especially if you are not enjoying the kind of work you are doing. You could consider a quit if you think you can earn something less but take up a job which is not as demanding as investment banking.
It is always better to think what is important to you and what you wish to do ahead that will decide your decision to move on with something else but investment banking. Ensure you have planned what next? Once you have decided to call it quits.

Conclusion

We can say that investment banking is an industry which can provides loads of opportunities to learn, but you will have to find ways to survive with all that we have discussed. You would surely earn enough but discovering time to spend it is the hard part. The life as an investment banker is going to be hectic but those who wish to live through dedication, competition, risks and perform well then investment banking is the right choice for them.
Hope this article provided you with necessary insights of an Investment Banker’s life.
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Hedge Fund Jobs

17:15:00

Want to land up with a hedge fund job? Well it is not something uncommon today. What makes it the highly looked-for path in the finance domain is that it provides great prospects to have a thrilling work life and make piles of money. I am sure you are tempted to know how and why? Let’s get started
This article will summarize the below information;

What is Hedge Fund?

We will try and reveal all of hedge fund jobs, but before that let’s understand what is a hedge fund? Hedge fund is an investment tool which is private. How does it work? It is a pool of money from large wealthy investors. The fund rewards itself for that facility by taking a fat management fee (typically 2% of assets under management per year) and a carry (a percentage of returns over a benchmark) that is paid for performance.

Types of Hedge Fund Jobs

You could be hired for any of these hedge fund jobs;

Analysts

The analyst is often the typical entry level position in hedge fund careers. The hedge fund analyst also referred to as the investment analyst or research analyst.
Role: In this role you would be basically evaluating- company financials, economic and market conditions, investments such as bonds, commodities in order to invest for the hedge fund. Also you are required to analyze financial statements, prepare financial models, evaluate the risk of an investment, and find investments that comprehend with the hedge fund strategy in order to bring in maximum returns.
Pre-requisite: Working as an analyst in a small hedge fund would require a broad knowledge base whereas in case of a larger one it could be more extensive with specific know how of an industry, region or investment.
You could spend a lot of time in attending meetings, travelling and making phone calls which is why making contacts is vital for their success.

Accountants

As a Hedge fund accountant  you are required to manage the finances of the hedge fund and maintain the books of financial records accurately for the fund.
Role: The role includes recording the financial transactions, preparing and filing the financial statements, examine and report the profitability of the fund and reviewing the same. The work is important for the fund as it allows them to go back and analyze the funds profit and losses.
Pre-requisite: These accountants are usually Certified Public Accountants (CPA’s)

Sales and Marketing Manager

This position is for you to maintain client relations, particularly when the fund manager does not desire to take up this responsibility.
Role: Your job would involve bringing in capital for the fund. This is done by marketing the strategy and returns of the fund to prospective investors. The work would be more target based, for example you would be expected to able to bring in at least 10 million for the first year at the fund.
Pre-requisite: As a  marketing and sales manager you will have to manage and maintain client relations and continuously bring capital into the fund therefore someone in this role must be confident, persuasive and have good people skills.

Fund Managers

Maximizing the return on investment fund is the most important goal of the hedge fund manager.
Depending upon the size and type of strategy that is employed in the hedge there could be more than one type of hedge fund manager such as specific to the type of investment such as bonds, commodities or sector such as telecommunication or pharmaceutical.
Role: As a hedge fund manager you are responsible to select the investments of the hedge fund in certain specific proportions to make up portfolio. For selecting the investments you would be required to undertake research to study wide range of assets such as the stocks, currencies, bonds etc. and pick the best ones for the portfolio. So basically you are buying and selling those investments on behalf of the hedge fund for the corporations and individuals. You could also be partially if nor entirely responsible for the client relations and explaining investment strategies.
Pre-requisite: The job as a fund manager would require more experience as compared to managers and analysts who usually begin their careers as hedge fund analysts.

Pros and cons of Hedge fund jobs

Looking at the brighter side of the hedge fund jobs;
  • They allow greater level of individuality than other areas of the domain.
  • Compared to the investment banks hedge funds are generally smaller which gives them greater intimacy and control.
  • Hedge funds can be considered as a highly rewarding career option, it is not uncommon to see people in this field at the big funds pulling down $5 million a year. It is so because in hedge fund jobs one can easily quantify the contribution to the total profit of the fund.
  • You have the opportunity to do well and get noticed quickly. This can help you in getting up the ladder rather sooner and get compensated well for the same.
Looking at the darker side;
  • There have been many who haven’t been able to survive the competition and pressure and have failed miserably in managing the fund. In such cases one can be easily kicked out of business as there is room for failures.
  • Managing the hedge fund is not an easy task as it entails lot of responsibility. This is because the investors hand over huge amount of money with a promise of guaranteed return regardless of the market condition. In order to do this the hedge fund manager and others involved need to apply hedge fund strategies. Hence someone just cannot start managing those funds and requires experience to do it efficiently.

Hedge Fund Job Essentials

Being a fund manager isn’t the type of role that you can pick up straight after an MBA degree. The size and structure of the fund decides the positions which is where the candidate would be eventually placed depending upon the academic credentials and skills.

Skills required in Hedge fund Jobs

Listed below are the skills or characteristics that are required in potential hedge fund candidates
  • High intellect
  • Confidence
  • Competitive
  • Strong domain knowledge
  • Consistency and accuracy
  • Deep investing and finance knowledge
  • Financial Modeling Skills
  • Strong quantitative and legal skills
Apart from these you need to have a strong feel of the financial markets and sense the changes and act accordingly. The most important quality expected is credibility as you would be handling huge sum of money coming from public.

Hedge fund career track

There cannot be a very typical career path or hierarchy in the hedge fund organization strategy as it depends a lot on the size. There could only be two titles such as the analyst and portfolio manager excluding the fund manager.
For bigger firms compared to this, they could have more complex structures which could include multiple portfolio managers, managing directors, intermediate vice presidents etc. Have a look at the hierarchy and their role below starting with the highest position first;

Fund manager:

  • The fund manager is responsible for directing the activities related to the operation of the fund.
  • They make decision regarding the composition of the fund’s portfolio and look after its daily affairs.
  • Speaking about their compensation, they are compensated generously, but they also face great pressure because of the high risk of the portfolios that they manage.

Portfolio manager:

  • They basically determine the hedge fund strategy and make investing decisions and allocations.
  • The portfolios  is compensated via a modest management fee, as well as a performance fee based on the fund’s annual performance.
  • Fund managers only get a performance fee if the fund makes money.

Hedge fund analyst:

  • For those who just start their career in finance into the world of hedge funds usually begin with a job as a junior hedge fund analyst.
  • As an analyst you would conduct due diligence on investment decisions for which you would conduct deep research and analysis and support the team of senior analysts and portfolio managers.
  • After working for say about 2-4 years based on your performance you would be promoted to a senior analyst position.
  • At this level you are expected to have thorough knowledge of derivatives and financial products of the fund, directly reporting to the Chief investment officer.

Hedge fund trader:

  • Traders are considered to be the soul of a hedge fund firm.
  • Quantitative analysts work along with traders to create trading models based on Statistics and Computational Mathematics.
  • The traders are the ones who actually execute the strategy created by the portfolio managers. A decent education background coupled with trading experience could get you at this job.

Like in case of hedge fund analyst we have Junior and Senior level traders, A junior trader would have a degree and about two years of work experience. After working for five years or so, they might move up the ladder to become a senior trader. Within the traders clan we have the execution traders who execute the trade or ideas of the research team and there are there are others who do both the tasks of generating ideas as well as implementing them.

Hedge Fund Salaries

  • If you are someone with a few years of experience in the Investment Banking you would usually start with a basic salary (excluding bonus) of $75,000-$125,000. The bonus would vary according to your and funds’ performance but is usually 2-3x of your basic salary.
  • As a senior in this profession you would earn anything between a couple hundred thousand USD to $1 million, $10+ million, or even more. These huge figures could get really inspiring but keep one thing in your mind straight; your bonus would completely depend upon the funds’ performance.
Hedge Fund Salary
Source: indeed.com
You may find the salary numbers unusually high but ofcourse, there are many others who make much less and many more who fail altogether. All who participate in this industry take on high risk. It would eventually boil down to skill, timing and a little luck. In a recent salary review of starting compensation for recent graduates of the largest MBA programs, the highest average starting pay was in hedge funds.
According to Robert Half Accounting & Finance Salary guide (2015), hedge fund management firms are hiring and are in particular search for the positions of senior level talent to manage the portfolio companies, trade support and middle office professionals and also people with capability in accounting and finance for fund accounting, taxation, and investment valuation analyses.
The below diagram explains the average salary for various positions in hedge funds during the years 2014 & 2015 and shows an increase of approximately 3% over the previous year.
Hedge Fund Salary Change
  • It is important to note that the income of a hedge fund manager is majorly dependent upon the Hedge fund that is created than only on the base salary.
  • The payment structure you would have as a fund manager would include a fee for managing the fund and a performance bonus depending on how the fund finally earns.

Few guidelines for Getting Hired

  • Check whether your personality suits to the intense environment of Hedge funds. The competition here is to outperform and have an edge over your other counterparts.
  • Learn to analyze and synthesize data quickly.
  • Quantitative knowledge and capabilities
  • Make contacts and network with people in the hedge fund industry.
  • Prove serious dedication towards working at a hedge fund.
  • It is essential to do your homework well before so that you are alert of the kinds of investments a fund makes and how they work.
  • Dedication towards Finance field with certifications like CFA, FRM etc.

Conclusion

Hedge funds are here to stay in fact the industry is going to grow and get competitive with time. But is very important for you to be sure for the reason you want to get into hedge funds. Would it be the work or money? Make sure the work excites you and not just the money. This field requires people who are passionate about investments & markets, not because they want to make a few million bucks. Good luck to you as you envisage a Hedge Fund career.
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