In one of the AIMA original publications, produced with support from EY, “The Alternatives”, AIMA conducted in-depth interviews with over a dozen figures in the hedge fund industry around the world, exploring this exact question.
Ask this question to the general public and the response will likely centre on remuneration. Popular perceptions of the hedge fund industry are coloured by television shows and books with such subtle titles as Billions and More Money Than God. Along with feeding the baroque fantasy that the hedge fund industry is some manner of the giant locker room, popular depictions of hedge fund firms also tend to imply that people only join the industry to make money.
Nothing could be further from the truth. Speaking with people who are actually in the industry, no one mentioned remuneration when giving their reasons for joining and staying in the industry. Rather, interviewees responded that they love the ability to make an impact, to work with experts, and to grapple with difficult questions.
The urge to grapple with difficult questions seems to be what attracts people to the industry in the first place. The work done by hedge fund firms is incredibly complex. On the investment side, hedge fund staff need to be fluent in finance, economics, and politics—and conversant in sociology and history. At quantitative firms, investment professionals will also be expected to know advanced mathematics and statistics and will need to be willing to put their work to the test in market conditions that can change at the drop of a hat.
To work at a hedge fund firm is to grapple with questions like how an election in Peru will affect bond yields across South America, or how shifting cultural practices will affect the price of a clothing manufacturer’s equity. It is to find correlations in security prices that no one else has found and to create investment strategies that are robust enough to survive the disappearance, or even the inversion, of those correlations. It is, in short, to answer very difficult questions.
The difficulties are not, however, limited to the investment function. The business development staff at a hedge fund firm need to have detailed financial knowledge; they need to understand the needs of an investor, and how those needs will change as the markets move. Compliance professionals need to master the arcana of financial regulation and the vagaries of the regulatory process. They also need to know how to gauge the business impacts of regulation, and to quickly determine how it will affect their firm’s strategy. The list of challenges goes on: financial staff need to master the highly specific nature of hedge fund firm accounting, human resources staff the unique needs of hedge fund talent. What knits every position in the hedge fund industry together, however, is that the person performing it will be the kind of person who loves grappling with profoundly difficult questions.
Of course, working in the hedge fund industry means doing more than simply studying such challenges. ‘Impact’ is a word used by almost every interviewee to describe what they like about the hedge fund industry. Because hedge fund firms tend to be lean and flat, every member of staff counts. Even the most junior members of staff will be expected to make decisions that have serious consequences for the firm. Decisions do not have to go through layers of bureaucracy, as they often do in investment banks or technology companies. If a member of staff has a good idea and a compelling argument they can follow through on it. Junior analysts are routinely trusted to make calls on the desirability of an investment decision, or on the implications of a new piece of regulation. As such, the hedge fund industry is an industry that attracts individuals who relish the opportunity to take on responsibility, and who have the courage of their convictions.
The third thing almost every interviewee mentioned is bound up in the first two reasons to join the industry. Joining the industry, they said, allows them to work with people who are the best at what they do. The people who are attracted to the industry also tend to be the people who take seriously the old adage that if you’re the smartest person in the room, you’re in the wrong room. Working in the hedge fund industry offers the opportunity to work alongside, and learn from, individuals who lead their respective fields. Interviewees spoke about working with experts in specific countries, top lawyers, and actual rocket scientists. Further, all those people joined the industry for the same reasons, and enjoy grappling with big ideas and trying new things as much as each other.
Why, then, do people join the hedge fund industry? The chance to study some of the most difficult questions possible. The opportunity to make an impact and assume responsibility. And the fact that you get to do all that alongside people who value the exact same things.