Due to the usually large amount of assets that hedge funds manage, they are under intense pressure from investors to produce enviable returns. After all, the investor is paying hefty fees for the shrewdness and brilliance of the hedge fund manager. The investor is entrusting the manager with a substantial amount of capital and counting on him to produce results that he can’t produce on his own.
That is why an extensive amount of study and research must go into the investments made within a hedge fund. Hedge funds have the luxury of investing in anything from traditional stocks and bonds to currencies to strip clubs. Anything goes. Therefore hedge fund managers realize that there is a world of opportunity awaiting them, they just need to find where the potential lies.
An analysts’ main job is to seek out these investment opportunities for hedge funds based on extensive research by locating undervalued securities or commodities, mispriced currencies, distressed companies, or a number of other situations which may eventually reap great returns. Analysts partake in growth studies of various companies to see if they are worth investing in. They look at numbers, trends, management or any factor that may tell a tale about their potential.
Risk analysis is another position employed by hedge funds. Risk analysts will work closely with the portfolio manager to assess risks on investments and tailor the strategy accordingly. They will also analyze market risks across various asset classes while developing risk models or profiles.
To sum it up, duties of analysts may include:
- Seeking out investment opportunities
- Locating undervalued securities and other discrepancies to capitalize upon
- Using quantitative methods to analyze market trends
- Looking at Risk vs. Reward
- Analyze and report hedge fund performance with suggestions on how to improve
- Working closely with the legal and compliance departments as well as the Portfolio Manager and traders
- Maintain reports of data, findings and valuation methodologies
- Creating monthly, quarterly and annual reports
To secure a job as a hedge fund analyst, a vast understanding of trading and hedge funds is required. Analysts have strong math and quantitative skills, along with knowledge of securities, equities, options, futures, commodities and currencies. Most analysts also have a degree in Finance. Interpersonal skills and excellent writing skills are also a must since you will be working very closely with others within the hedge fund, especially the VP and those at the top, presenting documents that you have constructed based on your research. Starting positions in the analysis field are generally around 40K, but Senior Analysts can make upwards of $250,000 a year or more, depending on the size of the hedge fund.