The new skills you’ll need to get hired as a hedge fund trader

Hedge funds will always be on the prowl for competitive, aggressive alpha seekers, but traders who want to thrive in tomorrow’s marketplace must also learn to both embrace technology and look beyond their desks at what is shaping the community as whole.

Today’s hedge fund job market is more cutthroat than ever and new challenges for the industry are creating greater demands on traders.

Already spread thin, hedge fund trading desks will assume more responsibilities in the next few years, as electronic trading proliferates among corporates, FX and centrally-cleared swaps, as well as additional recordkeeping and compliance requirements, finds a new report by TABB Group.

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“Hedge funds tend to run really mean and lean. A head trader may have operations responsibilities, vendor responsibilities,” says Adam Sussman, a TABB partner and director of research who co-authored the study with research analyst Colby Jenkins. “Within certain strategies, they would be trading multiple securities. If you are using capital structure arbitrage or global macro, you will be trading multiple products. Over the last few years, especially in hedge funds focused on equities, they have been putting into plan what has been in long only funds. Larger hedge funds are looking more institutional in nature.”

Gone are the days of getting by just on your stealth trading skills, as hedge funds of all sizes and strategies are facing the same crunch and scrutiny and traders are forced to grow more tentacles.

“In order to get ahead in your career you are going need a broader set of skills. You’re going to need to understand technology, need to understand the business side of things, market structure and trading across multiple instruments,” says Sussman.

Traders who often are glued to their screens must continue to keep a firm eye on their immediate moves while also looking beyond their own role, their own firm, and understanding how to open up in a very secret, private world that has long operated beyond the glare of authorities and outside observers.

Hedge fund traders must become “generally engage with the community,” says Sussman. “Too often, people are too wrapped up in day to day responsibilities they do not understand the broader community.”

In a hyper social world of incessant distribution of information, finding the right tools and data providers is a battle in itself. Sussman suggests good old-fashioned networking and word of mouth as the best way to navigate the many platforms. Hedge fund traders must break out of their own tiny universe and attend conferences and just talk to other people in the industry, a daunting prospect for many who are hard-wired to protect everything that happens in the course of a trading day.

The TABB Group report on “Better Practices for the Age of Transparency” concludes that: “Beyond the trading desk, the role of the hedge fund trader continues to be dynamic. There is increased pressure to formalize trading and brokerage relationship practices in place in response to investor demands, regulatory oversight and a mature organizational management layer.”

That’s a lot to learn and it calls for a paradigm shift among those who have been trading, often at the same firms, for years. Change will come slowly, predicts Sussman.

“I think we are navigating through some unknown waters and it will take some time,” he says.

For new entrants, as well as those still displaced by the financial crisis, breaking into an industry where people tend to keep their jobs for a long time isn’t getting any easier. That’s good news for the firms that are hiring.

Global behemoths such as Marshall Wace, Millennium Management, CQS and BlueCrest Capital Management, have been on a recent hiring spree, scooping up industry leaders who are finding too many barriers to entry to open their own small shops.

Meantime, the industry is bracing for stricter standards after highly publicized claims by the U.S. Attorney’s office in Manhattan that the one-time $14 billion fund, SAC Capital Advisors, routinely recruited and hired portfolio managers and research analysts who could help perpetuate an ongoing practice of insider trading.

“It’s a very competitive environment for job seekers today, so I do think employers have the opportunity to find employees or new hires that will punch well above their weight,” says Sussman.

It may be some time before hedge funds start tapping top talent from other types of firms, says Sussman.

The report found that “The human element is not only alive and well within the order flow allocation process, but it is also prevalent when it comes to choosing a specific sales trader or an algorithm. Good service is rewarded.”

Loyalty has largely been lost in banking and other industries where turnover is typical, especially post-crisis. Once you’re in at a hedge fund, you can stay there as long as you perform along with the funds, and there are no implosions or massive fraud cases.

“Within asset management and hedge funds on the trading desk, there does tend be a low turnover rate,” says Sussman. “There is a lot to be said about familiarity and trust between portfolio managers and traders.”

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