Overview of Hedge Fund Industry

Historically, the hedge fund industry has been characterized by previously unimaginable wealth, secrecy and very little oversight. Often, hedge funds have operated more like elite private clubs than financial firms. The increased availability of information on these entities has not only elevated public curiosity, but surfaced new career options. Yet, desiring to work for a hedge fund, and landing the job are two very different things.

Hedge funds are unique operations with an eclectic team of people. Sending resumes and engaging in traditional job searches is a waste of time and energy; this niche industry requires a paradigm shift of search methods, relationships, and skills. If the right approach is taken, very successful results can occur.

What is a Hedge Fund?

A hedge fund is best described as a private partnership that seeks favorable returns using virtually unlimited financial products and strategies. The returns sought are traditionally considered “absolute.” This simply means that unlike mutual funds, hedge funds aren’t officially compared to the Dow or S & P indexes to establish performance rankings. Instead, they seek to create what is called alpha, which is performance above or in excess of the general market.

Barriers to Entry

Some reasons for the appearance of secrecy when it comes to hedge funds, is the obstacle to entry. First, there are very stringent rules against any type hedge fund marketing to the public. There are no commercials or magazine ads soliciting general investments in these funds.

There are very well-defined rules of who can invest. Investors must be classified as “accredited” by law. The SEC defines an individual accredited investor as a person with income exceeding $200,000, or $300,000 jointly with a spouse over the last two years. They must also have a reasonable expectation that this level of income will continue in the current year.

Hedge Fund Third Party Marketing

Even for those that fit the accredited investor definition, there must be an avenue to get in contact with competent managers who then must agree to accept new investments. This is not always an easy task and is the reason third party marketers exists.

A hedge fund manager, can engage third party marketers or sales agents, to make introductionsto prospective investors. These agents (sometimes called solicitors) enter into a fee agreement with the hedge fund manager. This arrangement is typically setup to provide the agent, for investors introduced by the agent, a percentage of the carry (or performance fee), as well as a percentage of the general management fee. The hedge fund manager continues to pay these fees as long as the introduced investor maintains an investment relationship with the hedge fund.

Of course, the structure of the industry provides many hedge fund job opportunities.

 

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