Hedge funds look for graduates

Hedge funds represent a new opportunity for graduates interested in a career in financial services.

While investment banks have slashed graduate hiring since 2000, hedge funds have been making tentative moves on to the graduate market, in many cases for the first time.

Firms such as Sisu Capital and Financial Risk Management have advertised vacancies to undergraduates in the UK.

The numbers are not huge. Big investment banks take on more than 100 graduates each per year, and in good times often several hundred; it is unusual for a hedge fund take on more than ten.

Few hedge funds offer structured graduate training programmes; most are small affairs in which training is ad hoc. But for those in the know, hedge funds are a popular place to work.

Yazann Rohami, head of a students' investment club at Cambridge University, said: 'People who are not that familiar with financial markets don't consider working in a hedge fund. But for people a year into a banking job, that is the place to be.'

It's not hard to see why. In recent years, the volatility of financial markets has driven investors to allocate more money to hedge funds.

Hedge funds are largely unregulated and serve either institutions or wealthy individuals. They invest in complex products, using such techniques as hedging and arbitrage to manage risk - classic 'rocket scientist' territory.

As global share and bond prices have declined, money allocated to hedge funds has increased as investors try to offest the falls. Some, but by no means all, hedge funds make big speculative investments that can go badly wrong - or very right.

A report by Hedge Fund Research said global hedge fund assets under management rose 10.6% to $600bn during the first 9 months of 2002.

Yet most undergraduates have limited awareness of hedge funds. Rohami says this is because very few funds participate in the milk round. Although some advertise vacancies through university careers centres, it is often up to students to approach hedge funds directly.

This is where the problems begin. Mike Tiley, head of the careers centre at the London School of Economics, said: 'Hedge funds tend to be rather secretive. They have a certain mystique and students think they are rather sexy, but it is very difficult to find out anything about them.'

A financial careers advisor at a top European business school agreed: 'Because hedge funds are not regulated, it is hard for students to research them. They tend to operate in the shadows.'

One student joined a hedge fund, but was not told the esoteric investment strategy until he had signed a contract, she said.

Joining in a hedge fund can be hard to plan in advance. Unlike investment banks, few funds have established recruitment calendars. Instead, they tend to hire people precisely when they need them, meaning graduates or MBAs must be available as required.

Financial Risk Management (FRM) is an exception. The fund, which has offices in London, the US, Australia and Guernsey, has just launched a two-year graduate training programme in which trainees rotate between marketing, research and operational roles.

The first programme at FRM will begin in London in January 2003 with places for 6 graduates who selected a few weeks earlier. The start date for future programmes may be adjusted in line with the standard graduate hiring calendar.

Neelima Shah, head of graduate recruitment said candidates should be, 'bright, proactive and willing to show that they have got the edge.' European languages are an advantage. The firm specifies that UK candidates must be in line for a 2.1 in any subject of degree.

While Financial Risk Management is boosting its graduate intake, other firms are cutting back. Simon Batten, head of recruitment at the hedge fund Odey Asset Management, said redundancies in investment banks mean the firm now chooses more experienced hires, though it did hire graduates in the past.

'In this environment, we prefer to take on people that are coming out of investment banking and have two or three years' experience on an analyst programme.'

Tanya Lutyens, a headhunter at the search boutique, Lutyens DaCunha, said analysts with three to five years' experience in an investment bank find it easiest to move into hedge funds.

Many leading hedge funds, including JO Hambro Capital Management, Adelphi Capital, and Marshall Wace Asset Management, said they didn't recruit graduates at all.

The large investment banks and fund management houses can provide an alternative route into hedge funds. Firms such as Gartmore Investments, Goldman Sachs Asset Management, Morgan Stanley Asset Management and Merrill Lynch Asset Management, all have hedge fund arms.

Andrea Duncan, graduate recruitment manager at Gartmore, said students interested in working for the company's hedge fund business would not be able to do so initially.

All graduate entrants at Gartmore come as trainee researchers and initially specialise in a particular industry, she said. After time, they could then offer some ideas for hedge fund investments, but that would merely be one element of their job.

Students finding a graduate position with an independent hedge fund can look forward to a lifestyle very different to that in a large investment bank. If in London they may not be based in the City: many hedge funds are based in the West End.

They will also be working in a small firm instead of a multinational institution: SISU Capital has just 16 employees.

Some things, however, are the same. As in investment banks, pay is high but job security is restricted. Neelima Shah said the package offered to graduates at FRM is competitive with investment banking, at about 30,000-35,000 per year.

A graduate working in a hedge fund said: 'Plenty of hedge funds have closed down when investors have taken their money back. You never know whether your fund will be next.'