How To Land A Job At A Hedge Fund

When looking to land a job at a hedge fund, the first thing you need to ask yourself is am I ready for the intense environment that working at a hedge fund provides? If the answer is yes, then it’s time to get started. But beware: landing a job at a hedge fund can be just as intense as working there.

To land a job at a hedge fund, it starts where every career does: networking. Roy Cohen, a career coach that has written books such as The Wall Street Professional’s Survival Guide, says that you need to have a specific approach when it comes to networking for hedge funds. Cohen points out that most executives within the industry have short attention spans and feel rather uncomfortable when it comes to networking. There’s no beating around the bush – take a second to make them feel comfortable and then let them know your intentions.

Another interesting point about hedge funds is that they do not hold “job-seeker” conferences. The reason is simple: hedge funds are unregulated and keep their business under wraps. They don’t broadcast their business. As a result, it’s necessary to use every contact you have that is within the business.

Networking with hedge fund executives is different than most fields. Be prepared for the fast-pace environment.

Networking with hedge fund executives is different than most fields. Be prepared for the fast-pace environment.

After finding which head fund you want to target, make sure that you’re prepared for the meeting. Show them that you’ve done your research on the company as well as other companies. Hedge funds are investing in other companies – you need to have a suggestion as to why they should invest somewhere else. When Cohen was looking for a job as an analyst, he prepared an analysis of a company that he thought the hedge fund should consider. This is one way to prove that you’re prepared for the competitive environment as well as showcasing your stuff.

Throughout the meeting, make sure that you are focusing on clarity and confidence. Have very concise answers to why you want to work within the company and how they will benefit as a result of your work. Also, prepare yourself for off-beat questions; many executives within the industry want to see how quickly you can react and adapt to changing situations.

In terms of your resumé, you want to be as specific as possible and use metrics wherever available. Hedge funds base their investments off of hard facts. If you had a sales position in the past, note specific accomplishments such as your sales numbers.

Know how to best describe yourself to someone. Most interviewers will put the ball in your court, seeing how you can sell them. Your interest and your experience are most important when it comes to hedge funds; they show that you can keep up in the fast-paced environment. Also, be sure that you know the fund. What asset are they managing? What sector are they focusing in, and what strategies are they implementing? These are things that are hard to find out – be prepared to dig deep in research.

If you think that all these preparations are a bit over the top, then you probably aren’t ready to work at a hedge fund.

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Fed Expected to Increase Interest Rate Amidst Economic Growth

mark tuminello economic growthA recent survey of economists has shown that there is a general confidence that the United States economy is on a solid, self-sustaining path. Many expect the Federal Reserve to raise interest rates as early as the third quarter of 2015. This information comes out as growth estimates are not being met and a disappointing first quarter of 2014, yet almost all economists of the 48 surveyed by Reuters thought the recovery to be durable as job growth continues to rise.

Millan Mulraine of TD Securities noted that the ‘successful transition to self-sustaining growth will remove one layer of uncertainty and provide the necessary condition for the Fed to consider raising rates.

Economists predict that the economy will grow over 2% this year, but not as high as 2.5%, a popular early prediction. 2015 could experience growth up to 3%. The lowering of this year’s predictions is a result of the poor performance in this first quarter, which was hampered by a particularly cold winter. We can expect a high rebound rate, but altogether the first half of 2014 will come to growth of just 1%.

The good fortune is modest, to say the least, but faith in recovery is good news nonetheless. Last month job growth finally recouped all the jobs lost during the recession, a major milestone in the recovery. The pace of job recovery is expected to continue by an average of nearly 250k per month. Unemployment, with this kind of growth, may fall below 6% by 2015.

More than the numbers, this survey marks a changing attitude, a perception shift from just a year or two ago. Consumers seem to be more ready to spend, personal donations to charitable organizations are up, and business is adding jobs and preparing for growth. This growth on all fronts really does need to continue in order to maintain economic growth.

A negative coming out of the survey is wage growth, which isn’t expected to improve much in the coming year.

When the Fed raises the benchmark interest rate in late 2015, economists think it will be a raise of half a percent, which would more than double current rates. The Fed has already scaled back the amount of bond purchases. All of this could be sped up or more aggressive depending on how numbers change month to month.

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What Is Risk Reversal?

mark tuminello risk reversalRisk reversals can be used in a number of situations.  They are sometimes in the form of delta hedging, when an investor wants to protect assets from downside risks in price.  He wants to buy a put.  If he is okay with limiting his upside potential on the starting asset, it’s possible to sell a call to finance the purchase of the put.  It is thusly possible to create a position at no initial cost, one that is protected from major downside price movements.

Risk reversals are basically a put of a strike traded against a call of a higher strike.  So a 95/105 risk reversal means that 95 puts are bought and 105 calls are sold (or the puts are sold and the calls are bought).  More often than not, the put and the call options are out-of-the-money upon initiation of the risk reversal.

Another time someone would consider a risk reversal is as a way to get trading option skew.  If the trader things that the ratio of puts to calls is too volatile, it might be smart to consider selling puts to buy calls.  That’s a risk reversal.  Because a trader will be more interested in the volatility than the dollar values, he will delta hedge the combo (another term for risk reversal) when executed as a skew play.  In this way, the delta hedge serves the risk reversal as a way to focus the exposure to volatility.  Delta hedging options, lest we forget, means the strategy hinges on volatility instead of directional movement.

Here’s an example of when a trader would price a risk reversal as a skew trade, making him more interested in the implied volatility levels.  If his model uses volatility levels of 25 percent for the put, 20 percent for the call, he will consider whether the put is too high or low.  It’s important that his model is very accurate in terms of implied volatility.

Pricing and managing risk reversal is one of the more difficult option strategies.  It helps to select the combo with the put and call at similar levels of vega, gamma, theta, vomma, and vanna.  This way, many of them will cancel each other out.  This tactic is often used when combos are used as skew trades.  The trader can in this way minimize exposure.

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What’s a Hedge Fund?

mark tuminello hedge fundsIt may come as a surprise to finance professionals, but many people don’t truly know what a hedge fund is.  The following is a very broad and simple look at hedge funds and how they work.

First, a hedge fund is a privately owned company.  This is different from a mutual fund, which is a public corporation.  The point of a hedge fund is to invest money and make enough money that they significantly outperform the market.  When you invest in a hedge fund, they reinvest your money into other financial instruments.  Because hedge funds are private, they are not subject to regulation from the Securities and Exchange Commission (SEC) like a mutual fund is.  This makes them more risky.  On the flip side, there can be higher returns.

Lack of financial regulation is just one factor that makes investing in hedge funds so potentially lucrative.  Another factor is the way they pay their managers.  Hedge fund managers are compensated with a percentage of the returns they earn.  If you’ve invested in mutual funds and had to pay fees despite poor performance, you’ll understand why this idea is so attractive.  Hedge fund managers have real motivation to make money for their clients.

The types of financial instruments used by hedge funds also sets them apart, such as derivatives like collateralized debt obligations, futures contracts, and options.  Using these tools, hedge fund managers can profit even when the stock market is going down.  Products like these use only a little money (also known as leverage) to control quantities of stocks and commodities.  These devices can offer high returns, but are completely speculative.  It’s all about correctly predicting whether the stock market will rise or fall over the life of the investment – hedge funds pay out by a particular place in time.

While hedge fund managers are paid a percentage of earnings, they don’t share risk in the same way.  If the fund loses money, they simply receive no compensation.  In this way, managers of hedge funds are risk tolerant.  The risk is completely on the investor.  Investors also become part owners of the LLC, which means they could lose their investment if the hedge fund goes bankrupt.  Also, options have to be delivered within a certain amount of time.  Hedge fund managers try to time the market, which some say is practically impossible.  Even if managers are correct about the longterm results, an unexpected economic event could cause them to lose the investment.

New hedge fund regulations were enacted in 2010, with the Dodd-Frank Wall Street Reform Act now regulating the industry.  Hedge funds above $150 million now register with the SEC.  There are many new regulations in effect that are designed to protect investors, banks, and the national economy.

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Innovation in the Financial Marketplace

mark tuminello finance innovationInnovation is an important part of the American psyche.  There’s no doubt that we are seeing a huge amount of innovation around us these days, with news of cloud computing, robots, driverless cars – these movements will transform our lives in ways we can’t quite predict.  We admire innovators for their work, for finding ways to make old systems better and for the economic opportunity that often follows.

So where it this beneficial financial innovation?  This is the subject matter of a recent piece on Businessweek.  Whether financial innovation is an oxymoron or not, it feels like we’re often finding fancier ways for doing the same old thing.  Credit-based derivatives and securities are really just leveraged bets.  On the other hand, dismissing financial innovation is unwise.  Perhaps the issue is that we’re not properly recognizing those in the industry who really are innovating.  Charles Schwab’s discount brokerage, Grameen Bank’s micro lending in developing nations, Kickstarter’s social funding platform – these are innovations that are profitable and have something positive to offer society.

The article goes on to outline ‘social finance.’  Nonprofits out there are looking to receive funding from global markets for funding programs that fight some of the worst problems.  These include homelessness, disease, incarceration, etc.  It’s no secret that many of these causes are underfunded, and some innovators are hoping to find an efficient way to raise money.  The idea started in England and has since been utilized in Australia and North America.

Here’s how it works.  Investors earn their return only if measured goals are hit.  In this way, success of any given program becomes very important to investors.  Successful nonprofits will be able to raise funds more effectively, and money will be directed to programs who are achieving goals.

This is a potentially big marketplace, with plenty of work to do.  Money is tighter than ever, with government budgets bringing round after round of cuts.  If this were to catch on in the mainstream, results could be exciting both for investors and nonprofits.

The idea is still young, with only a few test runs so far.  The earnings are below market-rate, which is currently a big hurdle.  And how exactly these nonprofits pay back dividends is also a question.  For a recent financing by the Center for Employment Opportunities, the government agreed to pay back investors if the program was successful.  They integrated 2,000 former inmates from a prison in to the work force.  It was a huge achievement, and the government was happy to pay back a little more to investors who took the risk.

One of the reasons this is so exciting is that it is believed that big investors will be excited about the idea of values-based investing.  If this could also provide a return – these innovators could be on to something big.

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Know It Before You Say It

Mark Tuminello complexPaul Krugman wrote recently about the way in which political scientists write, how they articulate ideas, and for what audience they are writing.  There is a debate going on between how accessible political writing ought to be.  Some say that a broad audiences can’t understand much of new political writing, while other think they are, themselves, writing for a broad audience.  Krugman astutely points out that what’s really at heart here is how well the writers themselves understand what they are saying.  He feels that laypeople are capable of understanding concepts, but not when writers are hazy on the subject matter and consequently can’t articulate it coherently.

While math and political jargon can be essential for a flowing conversation between knowledgeable parties, it can sometimes prevent us from testing our fundamental knowledge on a topic.  After all, if I can’t explain myself in plain english, do I really understand it?  Assuming English fluency, stating a concept plainly ought to be a simple matter of translation.  Well, maybe sometimes it’s more simple than complex, but the point remains.

What can result is that specialists go on discussing theories that are quite unimportant or flawed.  Krugman’s effort to find a simple way of explaining real business cycle theory to undergrads were fruitless.  There was not a single intuitive description by an RBC specialist.  What he finds instead are endless collections of statistics and complex theory.  Had a few of them taken a break to describe the theory in an intuitive way, they might find out that much of the current discussion is only tangentially important, important only to the central math, but not the issue at heart.

For those of you who believe that there are economic theories and principles that your non-economist friends wouldn’t understand, couldn’t understand – or even worse, that explainable concepts are not worth pursuing, it’s time for a reality check.  If you can’t explain your work in a way that could be understood by an intelligent individual with no economics training, you might not know what you’re talking about as well as you think.

So make sure you’re able to articulate your thoughts into plain words.  That jargon that so often speeds up a conversation, the math that prevents us from having to re-explain every time a theory is brought up, can sometime impede, not enhance, our deeper understanding.

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Good & Bad News for the UK

Mark Tuminello poundThere was some positive news coming out of the United Kingdom about their economy, as they enjoyed nearly 2% growth last year.  This marks a huge improvement from the past few years, even if not quite up to the same level as the mid-2000′s.  UK leads the EU in economic growth with this statistic.  What’s more, manufacturing orders hit a three-year high, according to the Industrial Trends Survey by the Confederation of British Industry’s latest report.  A third of businesses reported an increase while just a fifth reported losses.  Even the International Monetary Fund has joined in the optimism, upgrading it’s economic growth forecast for the United Kingdom to 2.4% for 2014.

A recent article from Forbes takes a harder look at all this optimism, though.  While these numbers are great, it is mostly a result of success of large companies.  The truth is that small and medium sized companies are still having a hard time financing their growth, which is potentially hurting the chance for new players to get into the game, and potentially harming innovation and new ideas.

This sudden and welcome economic growth has been spurred on largely by a slowly recovering housing market and consumer spending.  How long can this growth be sustained on the backs of consumer spending?  That’s precisely what the Business Minister is wondering.

The goal is to achieve sustainable growth with long-term potential.  And for this, we need small and medium sized businesses to thrive.  These businesses account for 50% of employment in the private sector in the UK.  While looking at overall positive numbers, we ought to be considering that lending to businesses is down nearly two billion pounds from last month, more than half of which were for small and medium sized businesses.

The government is introducing initiatives to provide these businesses some access to finance in lieu of traditional methods like bank loans.  The real job, apparently, is to get the word out about these options.  Business owners need to know about resources before they can provide assistance.  Across six plans, the government is prepared to fund nearly three million pounds.  Six thousand businesses have received some funding through these initiatives.  Funding is also being provided to banks with the understanding that they will lend to smaller businesses and households.  More plans are in the works.

However we get there, it is paramount to a sustained recovery that we keep small businesses in mind.

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Time to Sell Twitter Stock?

Philip Pearlman, an avid trader and stock market analyst has concluded that it might be that time.  In a recent article posted on Yahoo Pearlman states that its original value was at $50 to begin December but it was able to recover and was up 40%.  But as Pearlman says, “nothing lasts forever.”  The stock was down 5% the morning of December 27.

So how could the stock come up so quickly and then now it is finding its way back down?

Pearlman gives three fundamental reasons.

Mark Tuminello TwitterFirst, Twitter may be able to develop searches that are tailored to their users and allow these searches to be monetized bringing in good revenue for the social networking site.  Twitter would be using tools similar to Google searches and would be able to place relevant ads right next to a user’s search.  This has Pearlman excited about the future for Twitter and says that Twitter will have “kinds of value few yet foresee.”

Second, hedge funds have successfully, to what Pearlman states, “gorged” on Twitter shares.  With the end of the year approaching there has been a strong play at chase performance and hedge funds “were going to pile” in the low period.

Third, Twitter stock has looked impressive at times holding at level 40 and sometimes rising to level 50.  Because of the increase though the stock has “stretched” a bit which has caused a dip.  Pearlman calls this a “parabolic” shift in nature.

If you have paid attention to the big move that has happened in December for Twitter Pearlman explains now might be a good time to lighten up on the stock.  The hedge fund and the chase is now considered to be out of the market mostly.  Still be encouraged in Twitter however.  It appears that it has longevity and with potential moves towards search engine reconstruction it may be a winner for 2014 once again.

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