The benefits of working at a hedge fund include a high salary, great perks, and the opportunity to collaborate with some of the best quantitative minds in finance. This article presents a list of top skills that hedge fund firms look for in hiring candidates.

As expected, entry into the field is highly competitive and very selective. A successful trader working at a top trading firm may not qualify for a trading position in a hedge fund, even with tremendous trading success in the past. Great quantitative skills with a proven track record, a deep understanding of the hedge fund industry as well specific firms, the right educational background, and certifications like a CFA, CAIA, or CHA (chartered hedge fund associate) are all helpful. 

The skills that hedge funds look for in job candidates can be divided into two basic categories—knowledge-based skills (gained through education, self-study, and work experience) and personal skills in areas like communication, teamwork, and risk-taking.

Knowledge-Based Skills

  • In-depth knowledge of financial instruments and strategies: Hedge funds trade with client money in complex products often designed as combinations of different products with different strategies. For example, options can be combined with equities as an investment vehicle, or a complex version of barrier options may be prepared for investing client's money. If you lack clear understanding of financial products and markets, you will struggle in understanding the product combinations, dependencies, and factors driving prices and performance. A good candidate must understand various financial products including options, futures, commodities, interest rates, and exotics.
  • In-depth knowledge of markets: Attempting to trade complex combinations and strategies often leads to hitting a dead end with market regulations. It also requires the capability to understand competitors’ offerings in the marketplace, how they differ from one’s own offerings, and what advantage/disadvantage one's offering has over the others. Most hedge fund products have similar underlying concepts with different packaging. A good job candidate needs to be familiar with the existing marketplace, competitor developments, what the regulations allow, and what they prohibit.
  • Quantitative expertise: In a hedge fund, the research team comes up with an excellent trading model involving a combination of futures and a few exotic options. Unless the entire product team (including the research team members, risk analysts, and traders) has the ability to understand and question the underlying assumptions, assess the dependencies of mathematical calculations, and perform a scenario analysis, the model will remain prone to failures. Expertise in number crunching, statistical analysis, quantitative models, and calculation dependencies is a must for hedge fund associates, irrespective of the role.
  • Understanding of risk: Hedge funds are high-risk, high-return investment vehicles. However, high risk does not mean taking unlimited risk with no control. Rather, it means taking on a high risk with fair knowledge and being prepared with alternate plans when risk levels cross a predetermined threshold. Since hedge funds deal in complex strategies, risk analysis becomes complex. The job candidate needs to have good knowledge of risk assessment, not just of individual financial products, but also on portfolios and combinations.
  • In-depth knowledge of portfolio construction: How is the sale of ice cream related to weather derivatives? How are bond yields affected by currency valuations? Such correlations play an important role in creating a diversified portfolio of products, and a candidate should be adept in understanding and quantifying the intricacies of a portfolio.

Personal Abilities and Traits

  • Communication skills: Meeting high net worth clients in five-star settings requires social etiquette as well as the ability to convince clients to entrust their money with you. Even if you are not applying to be part of the client-facing sales team, you may occasionally have to face clients to explain complex products and how they will generate returns on their capital. Pitching in a complex idea to the team and getting a buy-in to get it executed is equally necessary. Hedge funds look for excellent skills in both internal and external communication in job applicants.
  • Teamwork: Products and services from hedge funds are driven by dedicated teams, who are intended to work towards a common goal. A candidate should be a great team player, be willing to put team’s interest before self, be committed to the desired goal, and be willing to contribute.
  • Risk-taking ability: Understanding risk quantitatively is not sufficient. A hedge fund analyst should also have the emotional ability to tolerate risk. Very few people (including trading professionals) have the courage to invest in trading strategies which have a 50% loss potential for a 100% return. Even if one is not in the trading division of a hedge fund, one needs to be in sync with the product team to build consensus on such high-risk trades. Showing proven success when facing risk makes an attractive hedge fund job candidate.
  • Education: Beyond the MBA, Ph.D., and statistics degree holders, hedge funds pick candidates from a variety of industries and experience levels. A graduate in agriculture or meteorological studies may be a good fit if the hedge fund company is dealing in agro-commodities.

The Bottom Line

High salaries, huge bonuses, and great perks attract a lot of job applicants to hedge funds, but only a few qualify. A candidate attempting to score a hedge fund job should research the industry, network to gain contacts and mentors, pursue the right education, and seek related internships. Beyond that, hedge fund job candidates should ensure that they have the necessary knowledge-based skills and personal skills required to be hired and thrive at a hedge fund.