Hedge Fund Job Risks: How to Make Sure They Don’t End Your Career

April 6, 2015

No one ventures into the hedge fund industry to blow up their careers, but sometimes, that’s exactly what happens. As CNBC reported, Owen Li, the founder of Canarsie Capital, apologized to his clients for losing virtually all of their money. In 9 months, the equity at Canarsie declined from $100 million to $200,000. After losing money in December, Li became desperate and made huge bullish bets on stock index options to make up his losses. Instead of recovering his losses, he ended up losing all of his investors’ money – along with his own career.

Li was a former trader at Raj Rajaratnam’s Galleon Group, which shut down because of insider trading convictions. Li himself was never charged with insider trading, so he was able to continue his career. But now, it is most likely over for him.

While Li brought his demise upon himself, what about all the other employees at Canarsie Capital? And when Li was at Galleon, it was he who was the victim of his colleagues’ behavior.

When looking for a hedge fund to join, you should consider how their performance – ethically and financially – could impact your career. Obviously, everyone wants to work for the best funds, but Bernard Madoff’s fund was also a top performer until the end. This is why it is critical for hedge fund job candidates to use their intangible personal skills in addition to traditional research and hedge fund rankings. You should interview your employer as much as they interview you. Do they have an ethics guide? Do they have ethics training courses for industry best practices? Do you know precisely what actions fall under insider trading laws? Does the fund have any explicit investment constraints stated in its prospectus? Is your compliance officer available to answer any questions you might have? With some personal effort, you can do everything you can to avoid working for the next Canarsie or the next Galleon. The most valuable asset in the hedge fund industry is your reputation.

Small Funds vs. Large Funds

The hedge fund industry is dominated by a handful of enormous funds and a vast array of smaller shops. In the beginning, it may be extremely difficult to break into a large fund like Bridgewater, with its unique culture and high demands. If you decide a smaller fund is the best option for you, be aware of sustainability issues that arise. Will they have to cut salaries or staff if the market becomes unfavorable? Do a few clients account for a large portion of their assets under management? These are all issues to consider when joining a smaller fund.

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