There is no one certain career path to Hedge Fund stardom as a Hedge Fund Portfolio Manager there are a couple of routes which tend to lead to a Portfolio Manager role in a relatively short period of time if your performance is up to par. The two primary roles are Investment Banking Analyst and Proprietary Trading Analyst/Trader. This is not to say that these are the only paths to follow, or these paths guarantee stardom and Portfolio Manager responsibilities; but in most cases these are tried and true paths to attaining a leading role as a Hedge Fund Portfolio Manager.

Investment Banking Analyst

Hedge Funds often recruit from Investment Banking Analyst Programs.  If you are at the top of your class you can expect to be recruited to join a Hedge Fund during your second or third year of the Analyst Program, or after you have completed one year of the post MBA Associate program. You generally join the Hedge Fund as an Analyst/Associate and will perform research for the Portfolio Manager or for several Portfolio Manager’s.  During this research stint you will become knowledgeable in one or two specific sectors while also learning the investment philosophy/style of the lead PM.

After a period of time and proving your abilities you will be given a small part of the portfolio to manage. This will likely happen within 12 to 24 months but varies by Fund, if it does not happen within three years I would look for another opportunity with another fund. The percentage of the Hedge Fund’s portfolio you are managing will become your P/L for the fund and your main responsibility. As you prove yourself, by creating alpha for the fund you will be given a larger and larger asset base until you are either running a separate fund within the fund firm or are a Co-Portfolio Manager for the main fund.  The time frame for this advancement depends on numerous factors including your performance, the main Portfolio Manager’s desire to hand over money/assets to you and the fund’s partners willingness to accept you as a new partner.  In some cases funds will call this role a Junior Portfolio Manager saving the title Portfolio Manager until the employee becomes a partners of the fund or is handling a large portion of the firm’s overall assets.

It is during this P/L responsibility period that you have the most control of your professional future especially if your performance is strong. Once you can show a 12 month positive and competitive track record many firms will be interested in recruiting you to their firm for more senior Portfolio Managers role.  After 12 months of solid returns you may start to look at going on your own, although it is typically better to have an 18-24 month track records before you make this move. In many cases staying your present employer may be the best choice if the partners are open to offering new partnerships so do not forget to consider this option. Many firms would prefer take on a new partner than loose a money maker.

Proprietary Trading Analyst/Trader

The second path that traditional leads to Portfolio Management at a Hedge Funds begins by joining the proprietary trading group of a large Investment Bank or Trading firm. Typically if you join one of these groups upon graduating from school you will be put into an Analyst/Junior Trader role.  In this role you will be on the trading desk and directly responsible for providing analytical support for the rest of the trading team which in many ways is its own little Hedge Fund. Based on your performance and ability to pick up specific skills sets you will either be pushed towards a more research oriented role or a more trading oriented role.  Either of these roles can lead to the Portfolio Management spot within a Hedge Fund, although the trader role generally facilitates this promotion quicker.

Every group has a specific strategy/style which they follow and you will become extremely knowledgeable working with the group’s main trading strategy.  As you progress you will be given more and more responsibility. Typically you will reach a role where your are either trading a portion of the group’s overall portfolio or are the main researcher on the team and work directly with the traders to help them make investment decisions. In either case you are acting as a Portfolio Manager.

It is at this point that you must decide your next step.  For many individuals this means asking to have their own team and an asset base provide by the investment bank to form a new separate entity within the proprietary group. You may also consider leaving to start your own fund.  Why do people leave proprietary trading groups for the larger payouts a Hedge Fund can offer especially if you are able to raise assets for your own fund.

Most people who leave a proprietary trading group do so to start their own fund. As a professional your greatest strength or hiring desirability is once again after you have had discretionary control over a specific amount of assets for at least 12 months and have performed well during this time period. Some funds prefer to see professionals coming from the proprietary world to have a longer track record but this is on a fund by fund basis. The challenge when working with a proprietary shop is to market yourself or gain name exposure/recognition to those funds that may be looking to hire.  Since the proprietary trading groups do not have to market to gain assets, the identity of their members is much harder to find, making it harder for successful proprietary traders and team members to be known.

Final Analysis

Whether you take the more traditional Investment Banking Analyst career path or the Proprietary Trading Role either path can take you to the coveted Hedge Fund Portfolio Management role.  The easiest way to reach this goal is usually to start your own shop, but this is also the most risky, and has the highest path of failure unless you have been successful at another firm for at least 12 months as a Junior Portfolio Manager.