A Comprehensive Guide to Entry Level Corporate Careers — Part 6 of 6 (Updated for June 2021)

This is part 6 of 6 for a comprehensive guide on entry level corporate careers. You can navigate to the other parts using the table of contents below:

1. Part 1 — Consulting, Product Management
2. Part 2 — Project Management / PMO, Business Analyst, Data Analyst / Scientist
3. Part 3 — Software Engineering, Strategy & Operations
4. Part 4 — Sales & Marketing, Supply Chain Management, HR
5. Part 5 — Corporate Finance, Investment Banking, Private Equity
6. Part 6 — Hedge Funds, Asset Management, Venture Capital

Hedge Funds

• Pay: 4/5
• Pay Trajectory: 5/5
• Promotion Cadence: 2/5
• Difficulty: 1/5
• Brand Recognition: 3/5
• Option Value: 2/5
• Work/Life Balance: 2/5

There’s a certain mystery to the hedge fund industry-it’s largely fragmented with little-to-no information on roles, pay, or the different types of funds. Part of this is by design; hedge funds prefer secrecy, so their strategies aren’t leaked to the competition. Part of this is due to its inherent fragmentation; a proliferation of smaller shops means less information per shop. Despite its mystery, with its enormous pay, the industry attracts an impressive flow of ex-investment bankers and the lucky entry-level college graduate.

Hedge fund analysts search for market mispricings across their chosen asset classes to drive superior, uncorrelated returns against the passive market. Hedge funds invest across a wide array of asset classes, each with their own strategy: long/short equity, long/short credit, macro, foreign currency exchange (fx), distressed investing, etc. Within a hedge fund, each portfolio manager supervises a portfolio of positions within various securities and solicits investment ideas from his or her analysts. Positions are constantly assessed, reduced, increased, entered, or exited. In this way, the portfolio ideally provides a 15–20+% annualized IRR, similar to that of private equity, vs. the stock market of 7–8% annualized IRR.

Like their investment banking and private equity counterparts, hedge fund analysts’ pay mostly comes from their enormous bonuses, which are tied partially to the performance of their own individual investment ideas and partially to the fund’s performance. It goes without saying, pay volatility is extremely high. In a bad year, analysts are lucky to keep the jobs, making maybe only their base (upper 5-figures, lower 6-figures). In a good year, analysts could make $1M+. Performance pay typically will also increase with tenure, and if you survive long enough to become a portfolio manager, you’ll typically be granted a piece of the equity pie, boosting your pay even higher.

The high pay is derived from the business model, which traditionally is known as “2-and-20” whereby the firm charges fees consisting of 2% of assets-under-management (AUM — essentially the total sum of the clients’ money that the firm manages) and 20% of all profits. There can be various caveats to this, including a “high-water mark” that prevents the firm from making profits on gains they incur after a loss. Due to the rise in passive investing, economic pressures have forced this model down to “1-and-10” and even lower; the high pay is not what it once was. However, the allure of making several hundred thousands of dollars per year or more, doing something that requires significant intellectual horsepower, continues attracting the cream-of-the-crop.

PROS

1. It’s redundant at this point, but you’ll make $$$$$$: Like most of the Wall Street careers I’ve covered, money will flow like water while you’ll employed. The biggest difference is the volatility of your cash flow, but ideally, if you average each year’s earnings, they’ll approach a healthy mid-6-figures.
2. You eat what you kill, no BS: The hatred of office politics is shared by almost all of America. But you likely won’t have to deal with much of that in this industry. That’s because of the relatively flat hierarchy, rigid alignment of pay to performance, and the ease of measuring said performance. The only thing your boss, the portfolio manager, cares about is how much money your ideas make. It’s hard to politick your way out of that.
3. Pure, raw, intellectual horsepower: Suffice to say, you have to be wicked smart to handle this role. Lots of folks don’t have the opportunity to exercise their intelligence in their corporate jobs because it might consist of formatting PowerPoint logos 18 hours a day (*cough* *cough* INVESTMENT *cough* BANKING *cough*), but in the hedge fund space, you’ll use your brain every day to find the next money-making idea.
4. Flat hierarchy: It’s just you and the portfolio manager, two peas in a pod. Contrast this to a F500 company where there might be 20 different levels between you and the CEO. A flat hierarchy means it’s easy to make your ideas heard (and theoretically easier to get promoted, although that’s mostly dependent on the whims of your fund manager and market conditions).

CONS

1. Only the strong survive: Corporate America has always been about survival of the fittest, but nowhere else is this made more apparent than in the hedge fund industry. You have to consistently deliver performance, both in terms of your existing positions and future ideas, week after week to keep your seat. Any faltering will lead to massive cuts in your bonus, or, even worse, your termination.
2. Job stability? Is that a joke? Out of all the entry-level jobs covered in this career guide, the hedge fund analyst is hands-down the least stable. There are lots of reasons for this, ranging from the typical small fund size to poor risk measures that your fund put in place to poor performance on your part. It’s not uncommon for the market to wipe out entire funds with little warning.
3. Better love your job because that’s all you’re going to know how to do: Good, consistent, hedge fund outperformance is in part dependent on how competitive the asset class and the strategy the fund employs are. The more esoteric the asset class and strategy, the greater chance for outperformance. All this to say, when you work at a successful hedge fund, the only skillset you might end up developing is analyzing distressed bonds to buy in the African market. You can see how this isn’t particularly useful if you want to quit and go into sales and marketing, for instance. The extreme specialization of your skillset poses a great risk to any backup plans you might have in case you’re fired.
4. It’s not my fault! You put your heart and soul into your work. And yet, because the market didn’t realize your brilliance, the stock you pitched never appreciated, and the fund incurred millions of dollars in opportunity cost. Out you go! How could this have happened? It was a great pitch with a strong thesis, but for whatever reason, the market didn’t recognize it. The reality is, a lot of your performance is outside of your control, and it’s incredibly difficult to predict human behavior. But your boss won’t see it that way. Market whims could threaten your job at a moment’s notice.
5. Many will enter, few will win: Do you believe in second chances? Maybe you do, maybe you don’t. But the hedge fund industry doesn’t. It’s a relatively small industry, and once word spreads that you were terminated for underperformance, it’ll be next to impossible for you to find another seat at the table. You’ll likely only get one shot, after which you’ll need to figure out how to convince the hiring manager of your next job how you can add value with your African distressed bond investing skills.

Hiring Landscape: The landscape is highly fragmented. There are some massive funds out there, including Bridgewater Associates, Renaissance Technologies, Millennium, Elliott, Citadel, and Two Sigma that manage billions of AUM, but for the most part, the typical hedge fund size is $10–100Ms AUM. These funds might only have a seat or two available and won’t be actively recruiting (or perhaps only recruiting through a special headhunter). Your best bet is the shotgun approach whereby you contact hundreds of firms at a time in an attempt to impress.

In summary, the ideal candidate…

1. …absolutely, positively loves investing in his or her chosen asset class and can’t imagine doing anything else.
2. …loves the “eat-what-you-kill” mentality of sales but doesn’t like the lack of raw intellectual horsepower required.
3. …tolerates the high-risk/high-reward nature of working at a hedge fund, ready at any time to make millions or lose it all.

Asset Management

If the hedge fund industry only cared about hitting home runs, then asset management is all about solid singles and doubles. Asset management analysts are similar to hedge fund analysts in that they’re also in constant search of new investment ideas to pitch to their portfolio managers and earn outsized returns vs. that of the passive stock market. There are two key differences, however:

1. Asset management firms are more stable, typically with more assets-under-management, with clients who are less interested in swinging for the fences.
2. Asset classes are far less esoteric given the nature of the clientele. Most asset management firms will only invest in stocks and bonds.

The result? You’re trading less risk for lower total compensation vs. your hedge fund counterparts.

You’re far less likely to be terminated for underperformance since asset management firms like to take a long-term view on things. If you have a few ideas that don’t work out, the firm is large enough to absorb such losses. Even your investment ideas will have time horizons in terms of years vs. the months or possibly even days in the hedge fund world. The longevity of an asset management analyst is significantly higher than that of hedge fund analyst.

There’s additional risk hedging in the form of a more recognizable brand name in the event you want to switch careers. If you work at a Fidelity or a Putnam, it’s far more well-known that Insert Random Hedge Fund, LLC.

Overall, it’s highly likely that the expected value of a career in asset management is higher than that of hedge funds.

PROS

1. Good $$$ for a solid work-life balance: You’ll make hundreds of thousands of dollars per year working a healthy 40–50 hours per week, with a larger proportion of your compensation tied up in base salary. It’s honestly a great tradeoff, even if your performance bonus won’t blow people’s minds.
2. Express your intellectual side with less office politics: Like its hedge fund counterpart, the asset management industry espouses performance. There’s not much to politick when the investment ideas you’ve pitched are clearly generating above-market returns. Along with the hedge fund space and sales, it’s about as close to a meritocracy as you can get.
3. Clearly measure the outcomes you produce: There’s no confusion. From Jan 2020 — Jan 2021, the market yielded an x% IRR. Your investment idea yielded an x + 5% IRR. Winner winner, chicken dinner. Of course, it’s a little more nuanced than this; you have to factor in the opportunity cost of how the other ideas you pitched could have performed along with how much risk you assumed in opening the position. But the bottom line is how easy it is to track your contributions to your fund’s performance.
4. A relatively flat hierarchy. Like in the hedge fund sector, there’s you, the analyst, maybe a senior analyst, and then the portfolio manager. The flat hierarchy allows for easy transmission of your ideas.

CONS

1. It’s not my fault (part 2)! Despite your best efforts, the market isn’t necessarily going to listen to you. Just like in the hedge fund industry, you’ll have to explain to your portfolio manager why your ideas aren’t performing even if you nailed every possible case in your initial investment thesis.
2. Why is this taking so long?! Time frames are longer for the asset management space, and accordingly, they’ll expect your investment ideas to span longer as well. You won’t have feedback on your investment theses as quickly as your hedge fund counterparts. This reality results in a greater chance of you second-guessing yourself or your boss angrily asking you why your idea is down 10% even though it’s only month 3 of your 12-month investment horizon.
3. Who put this ceiling here?! Because these jobs are so cushy, the folks at the top won’t be in a hurry to leave. Unfortunately, like with most industries, it’s a zero-sum game at the management level, and you’ll be stuck at the analyst level unless someone leaves. Secular headwinds exacerbate this dynamic.
4. Can someone help me? I seem to be stuck (working at an asset management firm)! Like in the hedge fund space, investing is a very specialized skill. It’ll be difficult to convince hiring managers in other industries how your specific skillset can add value.
5. Industry secular headwinds: The debate between passive investing (in which investors dump money into an index fund like the Vanguard Total Stock Market Index Fund and leave it alone) vs. active investing (in which investors attempt to actively shift funds around to generate returns in excess of that of passive investing) has raged on for decades. However, within the last 10 years or so, investors have called the benefits of active management into question, specifically because active management has not performed better than passive management. As such, fees have been compressed, assets-under-management have shrunk, and fewer and fewer seats remain. These secular headwinds will make it difficult for you to develop your career.

Hiring Landscape: There are a few major asset managers with assets-under-management sizes in the billions to trillions range that will hire associates straight out of college, including Fidelity, Putnam, Wellington, MFS, and others. Overall, however, the industry is highly fragmented like the hedge fund space. While you might find a seat at these smaller shops, expect your compensation to be significantly lower.

In summary, the ideal candidate…

1. …prefers a more stable lifestyle with lower pay and lower hours than their peers in the hedge fund space but still loves investing.
2. …relishes the raw feedback the market provides on their investment theses.
3. …understands the secular headwinds facing the active management space and has backup plans available.

Venture Capital

Ladies and gentlemen, make way, make way! The sexier version of private equity has arrived!

The venture capitalist is a betting man. While those in private equity, hedge funds, asset management, or any type of investing industry are all betters, the venture capitalist takes this to the extreme. He’s the one who walks over to the roulette table and puts it all on 34. Or goes to the Blackjack table and asks the dealer to hit him when he’s got 20. Or goes to horse racing tournaments and puts it all on the horse that has 10-to-1 odds of placing in the top 3. At his core, he’s an extreme risk taker.

Venture capitalists invest client capital into high-risk, high-reward (typically tech) startups that are usually at the cutting edge of their industries. These tiny rocketships have the chance to shoot up and dominate an entire newly-developed industry. More often than not, however, they fizzle out on the ground. The venture capitalist invests in many rockets and hopes that one shoots up successfully. And your job, as a venture capital analyst, is to source and analyze these rockets, or startup investment opportunities, in an attempt to find the one.

Similar to your counterparts in the other investing industries, your bosses will reap the majority of the profits, whereas your pay will mostly be composed of base + performance bonus. You’ll become a networking ninja with startup founders, wooing them with promises of cheap capital (in the form of the founders giving up less equity) and a robust support system. Hopefully, you’ll also become part of the deal vetting process as well, building out complex financial models and pitch decks speaking to the merits (and demerits) of each opportunity. Make sure that the role doesn’t involve too much sourcing, which is codeword for cold calling people all day long.

Overall, venture capital is a sexy space that sounds like the ideal intersection of tech and finance, but watch out for a few items on the con list below, especially if you’re hired by one of these firms straight out of college.

PROS

1. You’re at the tip of the (tech) spear: As one of the most important funding sources for startup founders, venture capital is deeply intertwined into Silicon Valley. You’ll gain exposure to a wide range of personalities and subindustries within tech, medtech, fintech, food tech, and more (depending on what your firm invests in). You’ll have first-hand knowledge of many of the cutting-edge technologies about to hit the market way before the Average Joe does. If you love technology, this role is a way for you to get “backstage access.”
2. You’ll develop a healthy network: While meeting startup founders and other venture capital colleagues, you’ll naturally cultivate a robust network of opportunities that come in the form of investment options for your firm and future job referrals.
3. Your work-life balance vs. pay tradeoff will be well-optimized: Venture capital has adopted some of the “chill” work-life balance cultural aspects of its primary target sector: tech. Unlike your peers who are suffering through 100 hours a week in investment banking or private equity, you’ll be working 50–60 hours (maybe more when trying to close an investment) most of the time, a great tradeoff given your relatively high pay.

CONS

1. Make sure it’s not a 100% “sourcing” role: Something to watch out for are the “sourcing” responsibilities typically listed in the job requirements for junior venture capital analysts. Sourcing is the cold-calling grunt work that no one wants to do, so they’ll make you do it. At the junior level, it’s almost impossible to avoid, but you should ensure that your role involves a health balance of networking and analysis responsibilities as well. Otherwise, you might waste your years away learning nothing but how to smile-and-dial (which is a valuable skillset, but maybe not the only one you want to learn).
2. They might make you go get an MBA (and/or kick you out anyway): Like in private equity, hedge funds, and asset management, firms are very bottom-heavy, with the few at the top taking the majority of the profits. Consequently, there’s a limit to how far you might advance. A lot of venture capital firms will hire you as an analyst/associate straight out of college but then kick you out after two years to force you to get an MBA. Even worse, they might just kick you out permanently. And if you’ve learned nothing except “sourcing” during your two years, you might be in trouble.
3. Most of your investments will fail: Stated odds are 10:1 to 20:1 that your firm’s investment pays off. And that’s not even a home run, more like a single or double. Most of your investments will fail, so you’ll need a thick skin. But, on the flip side, you only need that one homerun to make it-as an example, Accel’s 2005 investment in Facebook has paid off 247 times over.
4. It takes a long time for you to see any success: Unlike the public markets (like in hedge funds or asset management), it takes years before you’ll see any results in the investment you’ve made (like in private equity). Additionally, you won’t see your capital returned until there’s a liquidity event, which means you don’t even know how well you’re doing in the interim (unlike in private equity, in which the ownership of an established company in a mature industry typically means you have at least some idea of what performance is like).
5. It’s a relatively inflated space right now: Venture capital is the presently hot topic, but there’s quite a bit of funny money chasing questionable ideas. Inflated markets mean a greater chance that your firm invests in something stupid or accepts founder equity at an inflated price. The degradation in due diligence results in greater job security risk for you if your firm loses too many of its investments.

Hiring Landscape: Top-tier firms like Accel, Sequoia, or Vista Equity Partners might hire out of undergrad, but most positions are reserved for ex-investment bankers or recent MBA graduates. Like the private equity space, capital is concentrated at the very top with a high-degree of fragmentation at the very bottom.

In summary, the ideal candidate…

1. …loves working at the cutting edge (of technology).
2. …doesn’t mind the extroverted personality required to constantly network with start-up founders to place capital.
3. …can tolerate the high degree of failure in investing and the repetitive “sourcing” nature of some of the work at the junior level.

Alright, that’s it! This wraps up our 6-part series for entry-level corporate careers. I know we missed on a lot of other careers, like accounting or the various other engineering disciplines, so if you have any requests on other career fields that you’d like us to cover, please don’t hesitate to let us know. We’ve got a lot of other great articles coming out soon-don’t forget to visit our blog frequently!

Thanks for joining us! Check out the links below in case you’ve missed any part of this series:

1. Part 1 — Consulting, Product Management
2. Part 2 — Project Management / PMO, Business Analyst, Data Analyst / Scientist
3. Part 3 — Software Engineering, Strategy & Operations
4. Part 4 — Sales & Marketing, Supply Chain Management, HR
5. Part 5 — Corporate Finance, Investment Banking, Private Equity
6. Part 6 — Hedge Funds, Asset Management, Venture Capital

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Originally published at https://www.varsityresumes.com on June 7, 2021.