Hedge Fund Investor

Allan is 29 years old and is currently an analyst in the event-driven investing group (merger arbitrage, distressed debt, special situations) of a large hedge fund. He completed an undergraduate degree in business administration at Simon Fraser University, and an MBA and a law degree at Harvard. He was in graduate school for four years and undergrad for five years.

Stephanie: What made you decide to become a hedge fund investor? How did you decide on that field? How did you become a hedge fund investor?
Allan: My decision to become an investor was the result of my love for the markets, investing, research and analysis. I love the competitive aspect of investing — every day you are competing with the entire market and your ideas and analysis are constantly being proven right or wrong (which is great as long as you are right more frequently than you are wrong).

I decided to work for a hedge fund for a number of reasons. As an investor, working for a hedge fund gives you much more flexibility than other investment jobs (for example, a mutual fund). Rather than simply investing in long equities, you have the ability to invest in any security that provides a good risk-adjusted return, long or short. We make investments in stocks, bonds and all types of derivatives, and 90% of our trade ideas are hedged in some fashion. Hedging allows an investor to isolate the risks he/she is willing to bear, as well as to create the most desirable risk-reward payoff. Hedge funds also have the ability to generate market-neutral returns (uncorrelated to the broader markets) with very low volatility.

I also decided to work as a hedge fund investor because of the high level of responsibility and flat hierarchy that are found at most hedge funds. Even as a relatively junior analyst, you usually report directly to a portfolio manager and thus there is only one person between your investment ideas and the investment actually being made. As an analyst, you are expected to know more about the companies you follow than anyone else at the firm and your opinion and ideas are highly valued by the portfolio manager.

Finally, hedge funds are the ultimate meritocracies. Responsibility and financial rewards flow to the people with the ability to produce superior risk-adjusted returns. There are very few artificial barriers to career development and performance can be measured fairly objectively.

Stephanie What do you like about your job?
Allan: I like my job because the work itself is extremely intellectually stimulating, the environment is fast-paced and dynamic, and you can have tremendous impact and responsibility early on in your career. I also like the fact that there is no wasted time, no need to make PowerPoint presentations, and no client to service. All of my colleagues are working toward one goal, and have a sense of urgency that quickly dissuades anyone from spending time on something unless it is truly adding value.

Stephanie: What is your least favourite part of the job?
Allan: Losing money — whether only temporarily or because your investment thesis was fundamentally wrong — is a horrible feeling. The more investments you are responsible for, the harder it can be to sleep at night.

Stephanie: What advice do you have for someone considering becoming a hedge fund investor?
Allan: Ensure that you are intellectually curious, have a very competitive spirit and have a love for the markets.

Stephanie: What kind of an education do you need to be a hedge fund investor? What kind of education did you get?
Allan: An MBA is becoming almost necessary for a job at a large hedge fund, although there are a few positions for people with a finance undergraduate degree and a couple of years of work experience. I completed a BBA (Finance), MBA and a JD.

Stephanie: Do you have a favourite or lucky number? What is it and why?
Allan: I do not have a lucky number — I don't believe in luck.

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