Hedge Funds: A Secretive World of Movers and Shakers

August 25, 2015

At its most basic level, a hedge fund is a private partnership. However, the way the first hedge fund conducted business was nothing less than a financial revolution. Alfred Winslow Jones established the first hedge fund in 1949. He called it A.W. Jones & Co. As a testament to its durability, it is still active today.

Hedge funds take their name from gardening hedges, which protect a home from unwanted attention. Protection and secrecy remain core elements of many hedge fund philosophies. The key insight for Alfred Jones was that instead of just buying stocks, one could “hedge” market exposure by short selling less favorable stocks. This meant that any gains would be a result of skill rather than random market movements. The only way to make money was to predict which stocks would perform better than others.

Following Jones’ success, many other managers accepted the hedge fund challenge. Now, hedge funds have proliferated into a multi-trillion dollar industry with a multitude of strategies. Nonetheless, the secretive nature of hedge funds persists, and this means finding a job in the industry is like walking through a daunting maze of gardening hedges. How will you ever find the doorway?

In some industries, sending unsolicited resumes can work. In the world of hedge funds, having an inside connection is often the only way to pierce the veil of secrecy. Like an exclusive country club, “invitation-only” can be standard procedure. This means knowing the right people, meeting market movers, and networking are the ways to get inside.

For a long time, hedge funds were so exclusive that it was actually illegal for them to advertise their business. The 2012 JOBS Act lifted this SEC rule, and a few hedge funds experimented with advertising. However, old habits die hard, and many funds preferred to remain in the dark. Also, other regulatory agencies maintained their advertising prohibitions.

Even if an investor stumbles across the fund through a personal connection or website, they can’t invest unless they are an “accredited investor,” which means they have $1 million in assets (primary residence not included) or $200,000 income during each of the last 2 years. As you can imagine, it’s not easy to not explicitly advertise your business and find investors who meet the strict accredited investor criteria. This is why hedge funds use third-party marketers to connect them with the right investors.

The hedge fund industry can be a puzzle for job seekers and clients alike. Learning about the way the industry works is the first step to success. Create your networking plan today.

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