Hedge funds are lapping up candidates with near-zero experience

Students at Yale have nothing to worry about.
Students at Yale have nothing to worry about.
Image: AP Photo/Jessica Hill
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Ten years ago, hedge funds were relatively unknown entities. Often they were made up of Wall Street vets who had tired of the corporate culture at big investment banks and saw opportunities to make more money by going out on their own. They prized the freedom and flexibility of a financial start-up over the relative stuffiness of big banks.

But the funds had difficulty attracting junior hires, and often didn’t want any; some fund managers rejected the many levels of bureaucracy at the big banks they had once worked for, says one recruiter who has placed candidates at hedge funds and alternative asset managers for the last 16 years.

But that’s changed recently. Several recruiters that specialize in hedge funds told Quartz that funds are busy filling out their lower rungs—generally, with recent bachelor’s and master’s graduates from prestigious universities with zero to three years’ experience.

“The bias is for them to look for fresh analysts,” said one recruiter, who spoke off the record. ”You kind of want a tabula rasa where you can imbue on them your own perspective and philosophy.”

The funds could have their pick of mid-level bank associates, who are unhappy about things like deferred bonuses and cutbacks. A wealth of bankers and traders are keeping their eyes open for opportunities at non-bank financial institutions. But new blood is more malleable—and cheaper.

The headcount is expanding at hedge funds more generally, even as it stays flat or sinks at big banks. There seem to be several reasons. First, hedge funds and private equity firms (which are also growing, but differently) are taking on new capital from institutional investors—like pension funds and endowments—that can no longer invest in banks due to new regulation. The Volcker Rule, which restricts the kinds of bets investment banks can make with depositor money, is already pushing those institutional investors into hedge funds, even as the money the funds have been getting from rich people (also traditional investors) stays flat:

hedge funds assets under management AUM citi
Institutional investments have overtaken private ones as a share of hedge funds’ assets under management (AUM)

It’s also clear that hedge funds are looking for a way to carry on even after their founders leave. Founding principals who will reach their 60s in the next decade manage about a third of the industry’s funds (pdf), so funds are paying more attention to building a structure that can continue once a founder retires.

And to do so, they seem to want to hire raw talent that can be molded and developed, rather than more experienced but less flexible bankers. A degree in science, math, economics, or engineering, plus the stamp of a top school? That should be enough to get you to a base salary of $80,000 or more, say recruiters.

Tell that to our depressed Yalie.