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Private Equity and Hedge Funds

Updated on September 25, 2017

This Hub will help you navigate the little-known worlds of private equity and hedge funds. They are not that well-known for the simple reason that they are exclusive and this is where people with big money work. If you are in finance and looking at what opportunities are out there, this hub is for you. Even if you’re not an aspiring finance applicant, it is great to know more about the investment process and fund management.


Let me be frank here. The BIG BUCKS are made at hedge funds and in the private equity industry. You don’t necessarily have to be John Paulson either to make $10 million. Why you as the reader should continue reading this Hub is because information about hedge funds and private equity is not that easy to find.

These are industries that tend to be secretive. It’s like when you’re watching a documentary of a wealthy person and they describe them as the secretive billionaire. You find a lot of secretive billionaires in hedge funds and private equity.

The thing that is attractive and the reason why I did so much research to write up this Hub is because it would give me insights into not only the fun stuff like the money they make but more importantly the strategies behind their investments and the innovative ideas that the successful hedge fund billionaires and private equity firms come up with every so often.

If you’re in finance and looking to move up, hedge funds are the way to go. Becoming a partner at a hedge fund should be goal as the pay is really so lop-sided. The financial modeling and other investment strategies and lingo that you picked up will be very useful the more you progress in your career in hedge funds or even private equity for that matter.

I watched Wall Street: Money Never Sleeps and that made me watch the earlier Wall Street. These are two movies that you have to watch especially the first Wall Street because you don’t want to miss the interactions between Gordon Gekko and Bud Fox. The education and knowledge is vital for a career in hedge funds and private equity.

So, Private equity (PE).
The promised land?

Why do I say this? I don’t put up anything here without a very good reason. And the reason is that people in private equity make the most money in finance with much fewer hours too and less grunt work. Whats more, people in private equity dominate bankers any day and, additionally, have large stakes in whole companies.

For a moment, I had you there. As usual, nothing is so golden and everything really depends whether it be in PE or hedge funds (HF). A lot of people ask me for advice on breaking into PE and what better way to address it than by writing about it here!

Source

The big name private equity firms out there Blackstone, TPG Capital and KKR. But it is very rare and almost never that entry level analysts make millions. You can expect to make somewhere in the region of $500K as an associate at some of the big firms in a good economy. At the smaller private equity firms, salaries including bonuses, etc tend to be around $250K which is still a big deal. Head over to the Wall Street Oasis – a great site – for the representation of these figures.

So it really is people like David Bonderman and James Coulter of TPG that are raking in the millions. These are basically the top people at the firm. As usual, the Ivy League graduate is as expected. I would suggest you to Google them and read their Wikipedia profiles. Nothing wrong with a little research.

The idea of being able to control companies may have some truth to it. But there is a lot that is not specifically true. In private equity, it is more about whether the deal was a good one or not and how the capital structure of a company that a firm has acquired can be construed. As far as I know, there is no modification of a company’s products and services or any interaction with the customers.

Be ready to dive in and read some articles on your own to develop that knowledge of the industry that will be so helpful.

For those of you who are looking to break into PE, I urge you to master valuation and financial modelling to give you that edge when you face the tough investment banking interviews.

At the entry-level in PE, expect to do grunt work like creating investment memos for your firm so that they can analyze investment decisions. These investments are of course companies that your firm is looking to buy into.

Getting into private equity is all about having a talent to invest in high-value companies. This talent can be learned and with experience it gets better. I want to recommend an author who has written a book on investing and private equity. Richard C. Wilson has spent over 400 hours on this book and interviewed many family office executives.

Buy copies of the The Family Office Book

Source

With hedge funds, you definitely have the opportunity to make millions. But it all comes with a lot of risk and be warned that several hedge funds fail every year.

The first thing when it comes to hedge funds that you should wrap your head around is investing in distressed assets. These distressed assets are those that are close to bankruptcy or have a lot of debt and changing their capital structure can be profitable for your hedge fund. Also, company stocks that are trading at a discount are great for hedge funds to buy into.

The basic idea is to try and capitalize when the firm files for bankruptcy and take over all of its assets. Life as an analyst at a hedge fund is pretty tough as it is common to see someone waking up at 6AM to go to work and then getting back at home around 8PM. But the good news is that weekends are usually free even with all the unpredictability and long hours that comes with working at a hedge fund.

The other bit of good news for all you young people interested in building a hedge fund career is that experience is irrelevant when compared to the quantity and quality of the deals you generate. The partners and top management will make the tens of millions, but this all depends on the size of the fund. But even as an analyst a $100K salary is normal with bonuses paid too.

I wish you the best of luck in your private equity and hedge fund job search and I hope reading this refocuses your efforts appropriately.

Comments

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    • profile image

      Julia 

      8 years ago

      I don't what that poster kosmo was talking about. This is a great resource on PE and HF.

    • vinayak1000 profile imageAUTHOR

      vinayak1000 

      8 years ago from Minneapolis

      Hey Kosmo,

      Private Equity is basically investing in companies, buying ones that you think will be profitable think Mitt Romney at Bain Capital.

      Hedge Funds are really the real deal in finance with most founders being billionaires. D.E. Shaw is one of my favorite hedge funds that was started by a computer science professors.

      It focuses a lot on algorithmic trading and using high tech machines to screen profitable stock trades.

    • Kosmo profile image

      Kelley Marks 

      9 years ago from Sacramento, California

      I'm still trying to figure out exactly what private equity and hedge funds are. I think you're writing is good, but I need this question answered. Later!

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