HEDGE FUND OVERVIEW and CAREER INFORMATION

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• HEDGE FUND OVERVIEW and CAREER INFORMATION
• Schwab Enterprise, LLC

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DISCUSSION TOPICS

• Introduction
• Hedge Fund Primer
• Hedge Fund Market Trends and Recruiting Trends
• Preparing for Hedge Fund Interviews
• Career Tracks and Compensation

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INTRODUCTION
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INTRODUCTION

• Schwab Enterprise, LLC
• Schwab Enterprise is a search firm dedicated to
  hedge fund recruiting. Searches for all
  functional levels and at all levels.
• Hedge Fund client asset classes include equities,
  debt, commodities, and currencies.
• Hedge Fund functional roles include analysts,
  traders, marketers, business development and all
  levels of operations/infrastructure personnel.

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INTRODUCTION
HEDGE ME, 3rd Edition Career guide for students
interested in hedge fund analyst and trader
positions Available on most major online book
retailers and on www.schwabenterprise.com
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DISCUSSION TOPICS

• Introduction
• Hedge Fund Primer
• Hedge Fund Market Trends and Recruiting Trends
• Preparing for Hedge Fund Interviews
• Career Tracks and Compensation
• QA

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Hedge Fund Primer
WHAT IS A HEDGE FUND? A hedge fund is a
regulated investment structure designed to
manage a private investment pool. It establishes
a method of manager compensation, the number and
types of investors, and the rights and
responsibilities of those investors regarding
profits, redemptions, taxes, and reports.
As of February 2006 all hedge funds with assets
greater than 25 million and with investor
lock-up periods of less than two years have to
register with the Securities and Exchange
Commission (SEC).
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Hedge Fund Primer
WHAT IS A HEDGE FUND JOB? A hedge fund job is
categorized as a buy-side job. The buy side
refers to asset management firms that invest the
capital of individuals and institutional
investors. The sell side refers to the
functions of an investment bank/brokerage firm.
Essentially the sell side can be thought of
primarily as a facilitator of buy-side
investments the sell-side makes money through
fees and commissions for these facilitating
services.
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Hedge Fund Primer

• WHY GET A HEDGE FUND JOB?
• - Those who are drawn to a hedge fund position
  typically enjoy the public markets and working on
  the buy side/principle side, in the heart of the
  capital markets where they can make or execute
  educated guesses on the direction of the markets
  and/or particular equities
• - You are not limited only to profiting from
  upswings you can profit from downswings as well
• The financial compensation for performing well
  can be very rewarding
• Meritocratic and refreshingly non-political

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Hedge Fund Primer
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Hedge Fund Primer

• Reality
• Some managers DO live up to the stereotypes
• Some DO provide higher risk alternatives to
  traditional money managers
• Some DO provide very short term trading
  strategies
• Many provide substantially lower risk
  alternatives provide protection against market
  declines and neutralize certain market risks

• Stereotypes
• Hedge fund managers live off the highs of a
  fast-paced trading environment
• They are focused on short-term trading based on
  gossamer information leads and weak or rushed
  analysis
• They are market timing fanatics hooked to their
  Bloomberg terminals, reacting to the smallest
  news bites

Source Joseph Nicholas, Investing in Hedge
Fund Strategies for the New Marketplace
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Hedge Fund Primer
STRATEGIES 1) Fixed-Income Arbitrage 2)
Equity Market Neutral 3) Convertible
Arbitrage 4) Risk Arbitrage 5) Distressed
Securities 6) Event-Driven 7) Macro
Investing 8) Sector Specialists 9) Equity
Hedge 10) Emerging Market 11) Short Selling

• ASSET CLASSES
• EQUITY
• FIXED INCOME
• Corporate
• High Yield/Distressed
• High Grade
• Government
• COMMODITIES
• Precious
• Non-precious/Base
• CURRENCIES
• REAL ESTATE
• Other

Source Joseph Nicholas, Investing in Hedge
Fund Strategies for the New Marketplace
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DISCUSSION TOPICS

• Introduction
• Hedge Fund Primer
• Hedge Fund Market Trends and Recruiting Trends
• Preparing for Hedge Fund Interviews
• Career Tracks and Compensation
• QA

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MARKET TRENDS AND RECRUITING TRENDS

• Market trends
• Hedge fund industry still in growth mode
  (financial capital, human capital) though rate of
  growth has slowed
• Blurring of the lines between hedge funds and
  private equity firms, hedge fund and investment
  banks
• Continued activity in long/short, event-driven,
  distressed investing
• Evolution to two tiers of hedge funds start-up
  versus established funds
• Certainty regarding 2006 SEC regulations after 1
  years of speculation/discussion. One of the
  factors causing business costs to increase.
• Recruiting trends
• Job market is strong and steady but Company
  search now for the perfect fit, silver bullet
• Rise in need for operations/infrastructure
  personnel
• Growth mode for hedge funds/fund of funds not
  similar to growth mode for investment banks,
  consulting firms, etc No armies of HR/Recruiting
  Teams Silver bullet mentality
• No formal hiring season, mostly ad hoc hiring.
  Multi-billion dollar firms are appearing on
  campuses, most still simply post if they even go
  the School route. Hence need for individualized
  searches.

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MARKET TRENDS AND RECRUITING TRENDS

• Recruiting trends (continued)
• Highly fragmented market for job seekers
• Personal network
• Alumni network
• Recruiters
• Job posting boards
• On-campus recruiting
• Positions
• Analyst
• Generalist
• Industry specialist
• Researchers
• Trader
• Execution
• Profit Loss
• Marketing
• Marketing/Business Development
• Investor Relations
• Operations/Infrastructure

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DISCUSSION TOPICS

• Introduction
• Hedge Fund Primer
• Hedge Fund Market Trends and Recruiting Trends
• Preparing for Hedge Fund Interviews
• Career Tracks and Compensation
• QA

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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

• Read books on Investing, and on different Hedge
  Fund strategies (see www.schwabenterprise.com for
  full list)
• Warren Buffets Berkshire Hathaway Inc. annual
  reports
• The Intelligent Investor A Book of Practical
  Counsel
• You Can Be a Stock Market Genius, and The Little
  Book That Beats the Market
• Margin of Safety Risk-Averse Value Investing
  Strategies for the Thoughtful Investor
• The Financial Numbers Game Detecting Creative
  Accounting Practices
• Investing in Hedge Funds Strategies for the New
  Marketplace, and Market Neutral Investing
  Long/Short Hedge Fund Strategies
• The Quest For Value A Guide for Senior Managers
• Fooled by Randomness The Hidden Role of Chance
  in the Markets and in Life
• ANALYSTS Follow the markets on a regular basis
  and develop a clear and consistent point of view,
  do not simply keep up with information/data
  DEPTH over BREADTH
• 1 or 2 stock picks versus several with less depth
• Keep up on current events that may be affecting
  the Hedge Funds/industry and think about how this
  may affect the industry going forward, develop
  point of view (see www.schwabenterprise.com for
  full list)
• www.albournevillage.com, www.iialternatives.com,
  www.hedgeindex.com, www.hedgefundalert.com,
  www.thehfa.org, etc.
• Know Thy Interviewer Educate yourself on
  particular hedge funds SEC filings, 13-F, 13-D,
  13-G, ADV make sure to spend as much time as
  possible understanding the firm you would like to
  meet with. Do your homework on firm, not just
  homework on how/what to present.

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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

• Analysts, Traders Identify which shop would best
  MATCH your interests, in terms of
• Asset Class
• Equity, fixed income, currencies, etc
• Company Focus/Organization
• Industry specific vs generalist
• Investment Strategy/Style/Horizon
• Long/short, macro, distressed debt, risk arb, etc
• Momentum, event driven, etc
• Long term vs short term

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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

• Analysts, Traders
• In general, hedge funds looking for smart
  individuals that are enthusiastic and are willing
  to roll up their sleeves to do work.  With
  undergrads, it's more about their attitude and
  their growth potential because there is only a
  limited amount of experience they bring to the
  table after graduating.  Of course, they should
  highlight their intern experiences but many hedge
  funds view hiring undergrads as an advantage
  because these individuals can be trained to fit a
  firm's investment style and methodology
• - Head of Business Development, Multi-billion
  dollar NYC hedge fund

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HOW TO PREPARE FOR HEDGE FUND INTERVIEWS

• Analysts, Traders, Operations
• How do you differentiate yourself from your
  classmates and other Ivy League candidates? One
  way is through a summer internship at a hedge
  fund or in finance Also people who own their own
  stock portfolio can differentiate themselves and
  those who show a genuine interest for the public
  markets You need to stand out, a lot of
  undergrads are applying now to hedge funds you
  must differentiate yourself
• Some of the larger hedge funds may bring on
  undergrads straight out of school, not the
  smaller funds. The best way to get in ? For
  liberal arts students (non-finance, non-quant
  majors) seeking analyst roles or trader roles,
  either by first going to an investment banking
  program or applying directly to a hedge fund for
  an operations role or investor relations or
  mid-office role.
• Very important are summer internships, a great
  way to get in the door or to get interviews.
• - Chief Administrative Officer,
  Multi-billion dollar NYC hedge fund

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DISCUSSION TOPICS

• Introduction
• Hedge Fund Primer
• Hedge Fund Market Trends and Recruiting Trends
• Preparing for Hedge Fund Interviews
• Career Tracks and Compensation

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CAREER TRACKS AND COMPENSATION

• CAREER TRACKS
• Difference between hedge fund and other career
  tracks
• Less structured
• Less formal
• Fewer tiers/titles
• Analyst career track general rule of thumb
• 2-3 years as analyst
• 1-3 years as senior analyst
• PM
• Trader career track general rule of thumb
• 1-3 years as execution trader
• 1-3 years as senior trader, sometimes with PL
• Marketing career track BD versus IR, prior
  experience
• Operations/Infrastructure career track - function
  of prior experience, skills

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CAREER TRACKS AND COMPENSATION

• COMPENSATION
• Undergraduate hires
• Junior Analysts
• BASE 55k-60k
• BONUS 0.5-1.0 base
• Undergraduate hires
• Execution Traders
• BASE 50k-55k
• BONUS 0.25-0.5 base

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CAREER TRACKS AND COMPENSATION

• COMPENSATION
• Undergraduate hires
• Marketing (Investor Relations)
• BASE 55k-60k
• BONUS 0.25-0.5 base
• Undergraduate hires
• Operations
• BASE 50k-55k
• BONUS 0.10-0.25 base

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CAREER TRACKS AND COMPENSATION

• COMPENSATION
• Corporation/Company 10-20 years
• Traditional Investment Banking 7-10 years
• Consulting 7-10 years
• Law 7-10 years
• Hedge Fund 3-5 years