The buy-side hedge fund manager has, for years, become the end goal of many people working in finance, and educations and careers are structured on reaching that pinnacle of the profession. And why not? That position usually pays tens of millions of dollars (and sometimes much more) including salary and bonus, securing the employee for a lifestyle of wealth.
But there are many steps to go from start to that goal, and each one is fraught with peril. But what are the steps?
Step 1: Investment bank analyst
The first step usually involves getting hired at an investment bank as an analyst, typically a two-year position that introduces the employee to the world of high finance. This is the most grueling part of the process, with 100-hour workweeks not just the stuff of legend, but a common experience for many.
Step 2: Junior buy-side analyst
From investment banking, employees who stay in the industry will often go either to the sell-side or the buy-side, with buy-side analysts working at hedge funds, asset managers, family offices, or similar firms where the goal is to manage the money of the ultra high net worth individuals who have capitalized the company. Buy-side analysts start as junior research analysts or associates, although this position is sometimes just called “analyst”.
Step 3: Senior analyst
The move from junior to senior will vary from company to company and situation to situation, but the job is decidedly different: a senior analyst will typically have more capital to invest in and will have more resources (either meaning more external research or more junior analysts working under her) with which to make investment decisions. This is a perilous position with significant responsibility; it can pay well, or it can end in being fired for making a bad decision.
Step 4: Portfolio manager
Over a long career of successes, wins, beyond-expectations outperformance, and generally crushing the market, the financier will be promoted to portfolio manager, where she definitely has a team working for her and a significant amount of money (in many cases over $500 million, sometimes much more) to manage. At this position, PMs will likely have invested their own capital and have significant skin in the game. That means big losses and big rewards are on the table–being a PM will pay a lot, but it will also mean a lot of sleepless nights.
Pitfalls Along the Way
If this sounds like an easy progression, remember: it’s not. At each step of the way the top performers are retained and underperformers are let go, thus filtering out those who had a lucky streak and finding real bonafide strong performers. And each step involves significant hard work, pressure, and the need to expand your knowledge basis beyond the basics of finance like the time value of money (most hedge fund analysts are forced to make decisions on very complex companies with state-of-the-art operations that require significant understanding of their sectors to grasp, let alone make sound decisions on). There’s a reason why a lot of people do not pursue this path, and accept a lower paying and less stressful alternative.