Archive for May, 2008

What Hedge Fund Strategies will be the best in 2008?

Friday, May 30th, 2008

As we get ready to enter the last month of the first half of 2008, I find myself trying to determine which Hedge Fund Strategies will end 2008 not only up but be the top performers. 

Presently there seems to be a few strategies that are positive for the year (at least up until May 1st the most accurate recent numbers I can find); such as Risk arbitrage and Managed Futures.  But the majority of strategies are down for the year. 

As I look over the different strategies there are three which I believe will be up by the end of the year:

  1. Industry focused Long/Short Funds
  2. Event Driven
  3. Credit Arbitrage

 

I will be the first one to admit that most people feel some of these strategies will have a strong second quarter such as a Financial Services focused long/short strategy and a Credit Arbitrage strategy.  But what sets my opinion part is that although I believe that Financial Services focused long/short funds will have a strong year, I believe that some other sectors will be even stronger. 

Event Driven funds may surprise many investors in the second half. I believe these funds will perform very well because as the credit crisis resolves itself all of the money that is on the side lines will be put to work to purchase solid assets at a significant price reduction from only a year or two ago. This money includes Private Equity and Hedge Funds as well as corporations who are looking to grab market share for a fair value.

 

Also, I believe Credit Arbitrage may become the hardest place to make money simply because so much money will be chasing after so few deals.  But if you are invested with a well connected proven player in this strategy I believe you could have a very strong return year, even though the risk is still very high.

We still have a long time 7 months until 2008 is over and who knows what the second half of the year will bring, but I know I am excited to watch. What strategies do you think could be money makers in 2008?  

 

  

Tips for Working with Recruiters

Thursday, May 29th, 2008

1. Always accept a recruiter’s call unless you have previously spoken with the recruiter and were not impressed with them. Even in this case I would take a few minutes to listen to the opportunity as it could be that dream job you have been waiting for.  If you are not able to talk at the moment of the call, let the recruiter know you are busy and have them call you back in 5 minutes or you can call them back when you are free.

2. Identify and get to know a few recruiters you respect and feel comfortable with and become a valuable recruiting tool for them.  Offer them leads on possible candidates and introduce them to your associates if you are not interested in a particular opportunity. A large part of most recruiter’s compensation derives from their ability to close searches. If you work with them and provide leads you are positively affecting their bottom line which they will remember.

3. If you have not been contacted by a recruiter but identify a job posting on a niche site such as PrivateEquityJobs.com and are interested in the posting follow the instructions that the recruiter has provided in the job posting. Helping the recruiter understand why you are the one for the specific position is extremely important and will be greatly appreciated by the recruiter.  Even with a niche job board the recruiter may receive a large number of resumes and you want your email/resume to stick out and grab their attention.

4. Have an open and honest conversation with the recruiter when they follow up with you about your resume. Answer their questions to the best of your ability and make sure you stress the most important qualities you are looking for in a new role. If the recruiter asks about compensation, be frank with them and let them know not only what you are presently making-both base and bonus- but as well what you want to make in your next role.  If you do not know what a competitive compensation number is for a role, ask the recruiter their professional opinion. Most professional recruiters will already have a good idea of your compensation and can offer you advice about how well you are paid compare to your peers. 

5. Always demand to be told where your resume/credentials will be sent before the recruiter submits them. Be open with the recruiter about firms where you may have already submitted your information. As a candidate the recruiter is just one of the many channels you are using to effectively search for a new job and you do not want your channels to cross it looks unprofessional for both parties. It is alright to work with multiple recruiters although do not be surprised if some recruiters are turned off by this.

Keep in mind that even though a recruiter might not be able to help you with your current job search, a good relationship with the recruiter may bring you your next great opportunity.  Having good relationships with recruiters in your industry keeps an extra set of eyes out there watching and monitoring the job market for you.  Having a network of recruiters you trust and respect is always an intelligent and professional idea especially in today’s quick changing job marketplace.

The Changes within the Private Equity Revenue Landscape

Tuesday, May 27th, 2008

Over the last few years, Private Equity and more specifically the revenue channel of certain Private Equity Funds has changed drastically.  In the past Private Equity firms have always charged a management fee and a performance fee similar to the fee structure of Hedge Funds. The performance fee was usually collected after a capital transaction occurred, such as a portfolio company being sold.

In the last few years, however, some Private Equity Funds have come to realize that two sources of revenue were not enough, and just as important the ability to pay large bonuses only after a capital transaction occurred made these funds less attractive places to work in the eyes of many professionals. Therefore, a few Private Equity funds created an additional revenue source, usually defined as a Special Dividend. 

This Special Dividend is structured to be paid to the company’s owners (the Private Equity Funds), as defined within the initial transaction paperwork.  For instance, it could be paid on the day that the first transaction closed, i.e. the day that the Private Equity Fund bought the company, which in many cases creates a nice one day return.

Another method allows for payment at a set upon date within the life span of the ownership of the company, or if certain goals/targets are reached.  For instance, the dividend could be paid towards the end of a given year, providing the fund some concrete return numbers to show their investors or potential investors while maintaining ownership in the company.  From the Investors perspective they are seeing a return on their money rather then sitting on hypothetical numbers.

For certain investors this new revenue source is seen as a positive concept allowing their Private Equity Funds to wait longer on creating value within their portfolio company, or to wait for better market conditions to sell their portfolio company then was previously possible.  This additional source of revenue enables the Private Equity fund to have more money which can then go back into the portfolio company if the PE fund feels this is necessary. Instead of the portfolio company having to maintain the cash in their accounts, the Fund may now use to their discretion; the revenue channel to help the portfolio company better perform.

Critics argue that these special dividends are just a way for the professionals at the PE fund to receive more compensation, and cause the Private Equity Fund’s performance numbers to look better in the short run.  With their being less risk on the part of the PE Fund, since the fund has basically been paid back a portion of their initial investment, the Private Equity fund may not be as vigilant with their investment.

In many cases to pay this Special Dividend the companies must take on additional debt to make the payment, this applies more debt to the new company’s balance sheet, which in most cases is not viewed upon positively except by those individuals who received the Special Dividend.  This is one of the most controversial aspects of this new revenue source, who does it really help?

Although this source of revenue creation is new and is being implemented by a very small portion of funds it will be very interesting to see how it emerges in the Private Equity space.  The real question is; “Is it here to stay?”  It is probably too soon for us to make a fully educated answer to this question but unless the large Institutional Investors start to object I would guess that it is and likely will become a greater portion of deals to come. 

This is especially true in the case of very large deals where being able to take money off/out of the deal on day one helps to lower the risk for the Private Equity Fund while not diluting their ownership in the portfolio company.  Furthermore this revenue allows the Private Equity Fund to return money to their investors making the investor happy with a return of capital and the Private Equity Fund’s employees are happy with an additional transactional bonus being given to certain individuals within the fund.

I would be very interested to hear from Private Equity professionals and Investors; how do you view implementing a Special Dividend revenue channel? Do they out weigh the fiduciary responsibilities of the fund or is this a concept that will be looked back upon in the future as having had a negative impact on the market?

I ask for individuals to post their thoughts in our comment section of the blog or email me directly.

Enjoy your Memorial Day

Saturday, May 24th, 2008

I want to wish everyone a safe and enjoyable long Holiday weekend.  As well I ask, as you enjoy this long weekend with your family and friends to remember what Memorial Day is about; to Honor those individuals who have made the ultimate sacrifice and given their lives in the line of duty for the Unites States of America.

I have attached a link for anyone who would like to learn more about Memorial Day, formerly called Decoration Day.   www.usmemorialday.org

Where is the Alpha in the Hedge Fund Marketplace?

Wednesday, May 21st, 2008

In my May 7th Blog, entitled “What is a Hedge Fund?,”  I discussed a recent Hedge Fund conference that I attended, where one of the panels of large experience Institutional Investors discussed the reasons they invested in Hedge Funds.  The majority of the panel responded by saying, “To achieve Alpha for their overall portfolio.” 

I would agree with this comment and state that most investors use Hedge Funds to gain Alpha for their portfolio especially alpha uncorrelated to the market and for diversification purposes.  If the main reason to invest in Hedge Fund is to create Alpha then which Hedge Fund strategies should you invest in?

Although there is not a perfect answer to this question and honestly the answer probably changes on a regular basis depending on the market, I would make the comment that you should look at investing into strategy/sector specific funds or more importantly into funds with track records of less then three years.  Being this focused does raise your investment risk level but with this risk comes a significant raise in your reward potential.

Recently, there have been numerous articles that would agree with this belief and there have been studies in the past which show that the typical Hedge Fund’s best returns are early in the fund’s life, when the fund’s are not managing large sums of money and conviction on the part of the fund in their investment ideas is high. 

Many investors would state that the real risk with these smaller funds is operational in nature and that is why it is important to perform Operational Due Diligence on these funds when performing your Due Diligence. In many cases these funds rely on outside vendors to support them in the business and therefore it is important to understand who their vendors are, and perform your due diligence on the vendors as well.

In regards to the large Hedge Fund ($1 billion in size as a general guideline) with a broad investment focus it is significantly harder getting performance, especially in market capitalizations which have become less efficient over the past few years such as large cap stocks. This does not mean it is impossible, but very few accomplish this task on a yearly basis.

Large funds can use their capital to become a voice or an activist with some of their holdings and in return the Hedge Funds goal is to increase the value of those holdings but this is a specific strategy and hence would fall into the category where we believe you can achieve Alpha. As well, large sector focused long/short funds or large geographically focused long/short funds would fall into the category of Alpha producing category.

Therefore I am not saying to not invest in large Hedge Funds, for there are many good large Hedge Funds, but if you take an overview of the entire market and you had a higher risk appetite or desire to really gain Alpha for your portfolio then you should look into smaller asset sized funds.  Your risk level will increase but so can your reward.

Disclaimer: The content of this blog is in no way a means of financial advice or a solicitation to sell private equity or hedge funds. None of what I write in the PrivateEquityJobs.com blog is ever an offer of financial or investment advice or products in anyway. The PrivateEquityJobs.com blog is a forum to exchange views, discuss trends, and provide business-to-business private equity and hedge fund industry leads.

Private Equity Infrastructure Jobs

Tuesday, May 20th, 2008

As the institutionalization of Alternative Investments continues to grow especially with Private Equity firms and Hedge Funds, professionals in the space are seeing numerous career opportunities/paths emerge.  This growth is happening at the large billion dollar funds as well as the smaller shops, especially those with an operational focus.

 

As is the case with Hedge Funds, it is the Institutional Investors who are driving the changes concerning infrastructure roles within the Private Equity space.  Both Alternative Investment strategies have some similar infrastructure roles, especially within Accounting and Administration, but it is their differences which are very interesting.  While both types of strategies have concerns within risk management, the underlying risk is usually different which creates for the need for special infrastructure roles.

 

Whether Hedge Fund or Private Equity firm, the senior roles within Accounting such as CFO and controller have become very important to the Institutional Investors.  In most cases the individuals being placed into these roles have worked with the Hedge Fund or Private Equity practice at a Big 4 firm. Although not required many of these individuals also have their CPA accreditation.

 

In many cases these Senior Accounting officials must have the skill set to effectively communicate with the Partners and Limited Partners of a fund.  Within the Private Equity world these senior accounting individuals have taken on an Investor Relations role, perhaps not a full time role but definitely a supporting role. 

As assets have become harder to gather and Institutional Limited Partners have become increasingly hands on with their investments we have seen an increase in full time Investor Relations roles within PE firms.  These professionals are not responsible for gathering the assets, but rather servicing the assets once in the fund and making sure all of the proper paperwork and communications are received by the Limited Partners in a timely manner.

 

One of the big differences between the strategies is that more and more Private Equity funds, especially operational focused funds, are hiring experienced Executive Recruiters to bring their recruiting knowledge and rolodex base in-house.  The main responsibilities of these Executive Recruiters are two fold:

 

  1. Assess the Human Capital need of any potential investments: including reviewing and considering the need for new management team members

  2. To help source, identify, and hire those new team members as required

 

In the past this job was done through the fund’s network of relationships and although the fund’s network is still a major contributor to this search it is only one of many channels used. Both Partners and Institutional Investors are placing a real value on this role and want to see this role separated into a sole position.  To further express the significance of the Human Capital role, many firms are steering these individuals on a partnership route immediately upon joining the firm.

 

 

Furthermore technology continues to offer more ways for these firms to run and communicate effectively; many firms are defining technology departments within their firms.  In some cases these technology departments hold a second role and that is from a Due Diligence standpoint when investments are being vetted by the Investment team.  This skill set/responsibility has been proven in many transactions to be a contributing factor to the success of the transaction.

 

Overall these infrastructure roles are becoming more in demand everyday, as is demonstrated by their career paths. The roles are now taken very seriously by the funds and hence their Limited Partners.  Over the last few years we have seen the sum of these roles grow tremendously, both in regards to their presence in the marketplace and the respect they have garnered in and among funds.

 

 

How to Make the Most of Your Summer Internship

Monday, May 19th, 2008

Ever wondered how to make the most of your summer internship but don’t have the time to read book after book on the subject?  Well, I’m The Résumé Girl and I’ve read all the self-help career books so that you don’t have to and compiled an easy-to-use, at-a-glance “top ten list” to help you make the most of your summer internship.  So, here’s tips #1 - #5 and be sure to stay tuned until next week for tips #6 - #10:

Tip #1  Set personal goals before you startKnow what you want to get out of your internship by taking time before you start to clarify why you are doing the internship and articulate what you hope to get out of it.  Then, set personal goals for yourself by considering what ideas you would like to learn more about, skills you hope to build on, and people you would like to meet.

 

 

 

Tip #2  Bring legal documentation with you on your first dayYou’ll either need a passport or both your driver’s license and Social Security Card as proof of your eligibility to work in the United States.  If your getting paid for your internship, you’ll also need to be prepared to complete a federal W-2 form, so learn about what this document is beforehand and come prepared to complete it on the first day of your internship.

 

 

 

Tip #3  Take the initiative and meet regularly with your supervisorSome internships are more structured than others.  So, if your supervisor does not ask you to meet with him/her on a regular basis, take the initiative and ask them if you could do this.  In this meeting, take the time to ask your supervisor for both positive and negative feedback and also update him/her on the progress of your internship projects.

 

 

 

Tip #4  Maintain a great attitude and always be professionalApproach all tasks with enthusiasm and professionalism no matter how menial the task may be.  Remember that your internship is essentially an extended job interview and to always act professionally no matter how other interns or full-time employees might behave!

 

 

 

Tip #5  Keep track of your accomplishments, projects, and responsibilitiesBe sure to keep track of all of your summer accomplishments, projects, and responsibilities or hire The Résumé Girl to do this for you!  You’ll not only need a comprehensive list of your accomplishments, projects, and responsibilities to help you with your exit interview, but you’ll find that you’ll need to update your résumé at the end of your internship and having this list prepared will expedite the résumé writing process and reduce your stress significantly!

 

 

 

About The Résumé GirlLike my tips?  Want to learn more about how I can help you?  Visit my website www.TheResumeGirl.com to schedule your free initial consultation!

 

Hedge Your Bets at the Track

Friday, May 16th, 2008

Tomorrow is the second race in the famous Triple Crown and as the winner of The Kentucky Derby; Big Brown is a favorite to win the Preakness Stakes. Whether Big Brown wins the race and goes on to win the Triple Crown -which would be the first time in 30 years-I am sure some in the racing world are wondering what will happen to the horse racing business after this year.  The reason being-Big Brown is owned by a new type of horse owner-a Hedge Fund.

My guess would be International Equine Acquisitions Holdings, will report a strong return to their investors especially if Big Brown goes on to win the Triple Crown.  Although even with just the Derby win under his belt I guess his stud fee will help this firm’s performance for many years. 

I think a bigger more interesting question should be asked: Will the success of this strategy and its uncorrelated returns to any traditional financial market lead to other copy cat funds being formed?  If I was a betting man I would bet big on the answer being yes.  And if this occurs then is the horse racing business in for an explosion to the upside on cost as we have seen happen in the commodities universe specifically with oil and natural gas?

Will Hedge Funds and their large pools of money start attending these horse auctions with the hope of walking out with the next Big Brown? If Hedge Funds do start to attend these auctions then you can expect the prices at these auctions to break new records and for many more horses to be bought, for the funds will most likely try to spread their risk out over numerous horses. 

These new record breaking prices will most likely trickle down into others cost and revenue producing areas of horse racing such as stud fees, sponsorships and race winnings.  As the race purses, sponsorships and stud fees increase in value more investors will try to get into the strategy and I would presume more people in the general public would be interested in watching the races both in person and on TV.

If the strategies are proven to work and the returns can be spread out over a long time period especially with stud fees and sponsorships then I would expect some institutional investors to invest in this strategy in the next 3 years or so, perhaps thru their emerging manager platforms.  Once this occurs people presently involved in horse racing may be in for a very pleasant surprise.

As you watch the Preakness Stakes tomorrow; I ask you to remember you may not only be watching a historical race in regards to the Triple Crown but you may be watching the horse, Big Brown who is responsible for changing the horse racing business for ever.   

 

Resumes for Private Equity and Hedge Fund Space

Thursday, May 15th, 2008

As we have discussed in previous blogs your reputation is extremely important in the close knit community of Private Equity and Hedge Funds.  But what if you are applying to a position and no one in the firm knows who you are? Then a properly worded and crafted resume becomes extremely important.

A well written and composed resume can be the difference between being asked in for an interview or having your resume put in the do not call pile.  The tough thing about creating your resume is there is no one perfect answer in regards to what a resume should look like. However certain styles seem to work better for particular industries and in some cases the preferred resume style may even vary by the roles within the industry.

The typical resume in the Private Equity and Hedge fund space consists of one page and is written in one continuous font and with very little formatting involved.  Your name and the name of you employers may be bold but otherwise there are very few changes.  The resume should also be written in bullet point format with each bullet point being a concise, action oriented comment about your position. 

Although I am not a resume expert, as an executive recruiter I have seen thousands of resumes during my career and I do have a key few points which I believe are very important:

  • Concise bullet point descriptions, action oriented descriptions of your responsibilities
  • No spelling or grammatical mistakes - mistakes express a non detail oriented person
  • Ideally one page
  • Make the resume easy to read, line up company and title as well as the date on opposite side of page
  • If you are coming from an investment banking program, a deal sheet should accompany any resumes you send out
  • If you have any discretionary Portfolio Management duties make sure to include your most recent returns numbers, I would also suggest you have another sheet with your performance number for at least the last 5 years including how they compare to your benchmark
  • Make sure to include any awards you have received from either your employer or peers

Because a resume is such an essential component as one tries to advance their career, PrivateEquityJobs.com has decided to team up with an experienced and knowledgeable resume writer who has direct experience in the alternative investment field.

“TheResumeGirl” possesses hands on expertise in this field. She worked as an analyst for an investment banking analyst program as an analyst before joining a large Hedge Fund and has has written hundreds of financial resumes for professionals in the field. She therefore knows exactly what these firms look for in a resume, and is ready to help them find that in your resume. She will be a regular contributor to this blog and hopefully she will write some articles for our newsletter.   Her first blog, coming this Monday, we believe will be a tremendous help for those students interested in entering this field.

PrivateEquityJobs.com looks forward to working with The Resume Girl in the future.

Front Office Roles in Hedge Funds

Wednesday, May 14th, 2008

Front office Hedge Fund jobs include roles in portfolio management, research, marketing and investor relations.  These have always been the roles most professionals have strived to attain not only for the prestige that comes with the titles, but also the compensation which accompanies this prestige.  The question most professional have is how do I attain one of these roles?

Within a Hedge Fund there are two main career paths for these front office roles; the Portfolio Management/Research path and the Marketing/Investor Relations path.  I call these career paths because almost all front office position start out in the same areas and follow a progression to reach the more senior roles. For instance almost all Portfolio Manager start off in research.

Portfolio Management (PM) is the Holy Grail of Hedge Fund positions. This is the role most people dream about while sitting in their Economics 101 class in college.  These are the individuals you see profiled in the papers, not only for their investment ideas but increasingly for reports on their year end bonus checks-some as big as a billion dollars. 

In many cases the Portfolio Manager is also the founding partner of the firm, but these PM’s have had to follow the same career path and due their time as a Portfolio Manager for another firm before striking out on their own.  To attain this title you will have started off in the research department in most firms, and in a rare case the trading arena.  To be hired as a Research Analyst at a hedge fund, completion of an investment banking analyst program or equity research analyst program is typically a requisite.

Once you have started with a Hedge Fund the time it will take to become a Portfolio Manager depends on the firm.  I personally know of some firms which hope to turn Analysts into PM’s within 12 to 18 months.  Others firms believe in taking significantly more time to make this transition, still others will never turn an Analyst into a Portfolio Manager.  Once a Portfolio Manager has had some success they often decide at some point to strike out on their own in order to bring in bigger rewards while also increasing their risk profile.

The second path within a Hedge Fund is the Marketing/Investor Relations path.  This path is not nearly as structured as the Portfolio Manager path. The typical individual starts in an Investor Relations role learning how to work and communicate effectively with Accredited Investors including high net worth individuals, foundations, endowments and pensions.

Many professionals and investors may look at an Investor Relations role as reactive in nature, but the successful investor relations professional is always proactive. They are constantly servicing and communicating with the client. Strengthening the client relationship in good times can cause money to stay with the fund when the fund’s performance suffers. After a few years of servicing these clients and potential clients most Investor Relations professionals, especially those that have been proactive in their present role, will become marketers. 

The job of a Hedge Fund marketer is to gather assets for the firm.  This is done through many channels and usually includes a fair amount of travel and entertaining.  This is not usually a process which happens overnight and hence these Marketers have to stay very focused on their goal and follow a defined process.  It can take many meetings and conversations before a potential client is ready to invest.  Marketers are constantly meeting new people as well as following up and strengthening relationships with other potential clients.

The Investors Relations role teaches individuals how to work with clients but in a Marketing role they must both identify potential new clients and turn these new clients into investors. This is not an easy task and hence the compensation for these roles is typically very competitive and much higher then those of Investor Relations professionals.  As well marketing professionals usually have a performance driven component to their compensation.

Hopefully this posting will help you identify the career path you should follow to attain your goal within front office Hedge Fund positions.  Knowing that these paths exist and where they lead can help you make educated decisions as you advance your career in this space.

Final thought: The easiest way to see if these paths truly exist at your firm or a potential employer is to ask the senior individuals where they started in the firm.