What is a “Hedge Fund Analyst”?

A hedge fund analyst typically conducts market research in order to generate investment proposals that are presented to the fund’s portfolio managers. The role is one of the most sought-after positions at a hedge fund.

At investment banks and asset managers, job titles are indicative of the level of experience and seniority (analyst, associate, vice president, etc). However, an analyst at a hedge fund could easily be someone with little to no experience, or a professional with more than ten years in the investment industry. More junior analysts are usually expected to have at least a bachelor’s degree in a finance-related discipline, whereas more senior professionals normally hold a master’s degree and/or a highly regarded professional qualification.

Due to their nature and larger opportunity set, hedge funds tend to invest in more niche areas of the market. Therefore, along with strong knowledge of the traditional asset classes such as equities and bonds, knowledge of alternative investments could give potential candidates a competitive edge. The job of a hedge fund analyst is dynamic and requires both analytical, communication, and presentation skills.

Although hedge funds have relatively flat hierarchy structures compared to investment banks, they offer very exciting opportunities that attract finance professionals who have a passion for markets and investments.

Key Learning Points

  • Hedge fund analysts are responsible for researching the markets and generating investment ideas that are then presented to the portfolio managers
  • Unlike in investment banks, the job title ‘analyst’ at a hedge fund does not give an indication of seniority or experience – hedge funds have a relatively flat structure
  • Hedge fund analysts are required to have a good understanding of a wide variety of different investments

What Hedge Fund Analysts Do?

The primary objective of hedge fund analysts is to promote investment ideas to portfolio managers. Identifying attractive opportunities involves a lot of work, both quantitative and qualitative, along with preparing reports and presenting findings. Hedge fund analysts would normally specialize in one area, for example, equities, and would develop investment views on different companies. Usually, the whole process starts with screening the investment universe, applying financial modeling and statistical analysis in order to filter down the number of potential opportunities. Typically, analysts would also meet with the management of the companies on their radar in order to understand the business model, the main revenue streams, and how strong the earnings are. A hedge fund analyst would also examine how the company is managed and determine its strengths and weaknesses.

Once the analyst builds a conviction on the stock (that could also be a negative one since hedge funds can also short stocks), then he/she writes a proposal that details the investment thesis. The report is usually presented to the portfolio managers in an investment committee. Following the presentation, an investment decision is taken regarding the stock i.e. to include/exclude the stock or take a long/short position on the stock.  It is worth noting that this process varies from fund to fund.

Analysts are also responsible for monitoring existing holdings. An analyst must keep an eye on their watch list of potential names for inclusion, remain up to date with market events, and understand the implications for their coverage list.

The job of a hedge fund analyst is very dynamic, demanding, and exciting. It is typically a good fit for professionals with strong numerical and business acumen that have a natural interest in financial markets.

Below is a multiple-choice question to test your knowledge, download the accompanying Excel exercise sheet for a full explanation of the correct answer.

Hedge Fund Multiple Choice