Posts Tagged ‘Hedge Funds’

Ace the Case: How to Flex Your Intellect in a Case Interview

Tuesday, July 29th, 2008

Case interviews are great opportunities to showcase your smarts. They’re designed to assess your ability to deal with complex problems, to approach an issue strategically and thoughtfully, and to reach intelligent conclusions with the available facts in a short amount of time.

In other words, they’re checking out your judgment, intellect and quick thinking. And those are pretty important skills, so it’s wise to prepare yourself thoroughly for this kind of test.

With that in mind, here are some practical tips for a successful case interview. 

1. Listen Carefully

Maybe this sounds obvious, but it’s absolutely critical: listen very carefully to the problem or case. And make sure that you respond directly to the problem at hand, rather than a side issue. One of the biggest mistakes made in case interviews is misunderstanding the question or answering the wrong one. Try to stay focused.

To avoid any confusion, take the time to repeat the question back to your interviewer. This not only demonstrates your excellent listening abilities to your interviewer, but also ensures that you understand what they’re asking you to do.   

And during the case interview, listen closely for any extra information they give you. Chances are these are helpful clues — so pay attention!

2. Outline your Thought Process and establish a Logical Structure  

Case interviews, as we mentioned, highlight your thought processes. The hiring manager wants to see that you follow a rational, structured approach to problem-solving.

How do you do this? Outline four to five major issues that need to be examined upfront before you can address the big issue. And then describe your overall problem-solving approach to your interviewer. This demonstrates to your interviewer that you can take a complex problem and break it down into manageable components.   

The natural conclusion for your interviewer? That you’re logical, thorough, and mentally organized.

As part of your explanation, share why you are addressing each point, and convey where it fits into the overall problem at hand. If any part of your approach is wrong or missing something, the interviewer has a chance to redirect you at that point.



3. Ask for More Information


If you find yourself needing more information relax it’s perfectly acceptable to ask for clarification. In fact, most interviewers expect you to ask for it. Most of them want you to ask for it.




But, again, make sure you understand where each question fits into the overall picture. Don’t make the mistake of firing off a bunch of questions without understanding where they fit into the bigger picture, or without explaining to the interviewer why you need the information.



4. Talk it out


And this is why you need to talk it out: because the employer is far more interested in your thought process than the actual solution. So do your best to verbalize your mental journey, to walk your interviewer through your problem-solving process.

In some cases, you’ll run out of time before you even have the opportunity to present your conclusion. In these situations, it’s even more important to talk through your reasoning out loud.



5. Step back and Summarize from Time to Time


Take time to step back periodically and summarize the conclusions you have been able to form so far and what the implications may be.



This is especially helpful when you don’t have the time to talk through all the key issues or the entire case. The summary demonstrates to your interviewer early on in the case that you can synthesize information and draw conclusions.



And remember that the whole point of the case interview is to understand your ability to think and reason logically so don’t get hung up on solving the mystery. Rather, pour your energy into demonstrating a logical thought process.



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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 blog is ever an offer of financial or investment advice or products in anyway. The blog is a forum to exchange views, discuss trends, and provide business-to-business private equity and hedge fund industry leads.

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.