Thinking of joining a hedge fund? You are not alone

It looks like the perfect job description: 1. Bright, independent candidates wanted. 2. Unlimited income potential. 3. Easy to set up; and 4. Virtually no regulation from government authorities.

Sound too good to be true? It may be, but this is the dream that is luring hundreds of investment bankers away from their stable, corporate jobs into the giddy world of hedge fund start-ups. The trend was reflected this week by enthusiastic attendance at a seminar for bankers in London that explained exactly how to set up a fund.

Organised by HedgeSupport, a hedge fund advisory firm, the seminar covered everything from the basics of hedge fund management - who is involved, what the roles of different managing positions are, etc. - to finer details of international taxation and marketing a new fund to selected investors. A rapt audience of 70 people attended, including bankers hoping to make the move and a variety of professionals who specialise in support for new and established funds.

The hedge fund phenomenon is impressive. The number of funds tracked by Eurohedge, a research company, rose from 100 in 1998 to 517 last year. In the UK, authorisation from the Financial Services Authority to set up a hedge fund can take as little as three months and the process is confidential - enabling a banker to keep their job up to the very day of authorisation without their employer finding out.

The new manager then needs only a strategy and a few committed investors and the enterprise can get off the ground immediately.

One hopeful at the seminar, Laurent Leclercq, has been in the hedge fund arena for three and a half years - a wealth of experience relative to the very short span of the hedge fund boom - and is in the market for a new position.

His entry into the field was a lucky break; he was working for an asset management company which decided to start its own hedge fund in 2000. Because his background was in investment management and he understood the investment process, they asked him to take on a sales position as someone who could intelligently market the new fund to investors.

Leclercq said: 'I consider hedge funds to be the ultimate finance area, because unlike other areas, in a hedge fund all of the support staff must understand what the fund manager is doing.

'As a sales person I must have the same knowledge that the fund manager has. It is an everyday learning process and continually challenging.'

Other audience members commented on the motivations of those who start their own funds. 'Sometimes a talented fund manager in a bank decides to just leave and take their clients with them,' said one. 'People like that don't want their employer to know they're at this seminar.'

The idea of independence may be a myth, said one attendee who is contemplating the jump for himself: 'Many investment bankers are Type A personalities. They thrive on the delusion that they are in control.

"But in a hedge fund, though you may not be controlled by your bank, you are still responsible to your investors. There's high attrition from hedge funds, and I think part of the reason is that people realise this once they've been in the business for a short time. The notion of total control is an illusion.'

Others echoed this sentiment. Scott Wade, a HedgeSupport financial advisor for start-ups, said: 'We often hear from prospective hedge fund managers, 'Oh, yes, I will have a hundred million (in start-up funds)' and the first thing I say is, 'Will you really have a hundred million?'

Leaving a corporate structure requires careful planning as well as the ability to take on wider responsibilities, such as marketing, investor relations, and employing staff whose incomes depend on your performance.

Leclercq fell victim to this very problem. He is in the market now because the fund manager in his company simply left. He said: 'If you're working for Merrill Lynch and the fund blows up, it's not related to Merrill Lynch, it's related to the guy who was managing the fund. The company (and your job) do not disappear.'

He said many hedge fund managers have great confidence in their investment abilities, but do not realise the responsibility they have as entrepreneurs to their staff and their investors. In a traditional banking setting, the structure of the bank provides security and protection in a crisis.

Still, Leclercq believes hedge funds have the best 'risk-adjusted rewards' of all financial jobs and is enthusiastically seeking work. 'If you're thinking of joining a hedge fund, you have to do your own due diligence, just as if you were an investor - check out the background of the manager, the team, the performance of the fund and the structure.

"It's a small world and everyone is very open - it's not that hedge funds are riskier, it's just that there are different risks.'