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Graduate careers in investment management: from hedge funds to venture capital

GradAustralia

From hedge funds to venture capital, investment management is an industry for graduates who can make astute decisions & back their own judgements. Read more now.

Investment management is about connecting people who have funds and would like someone to manage or invest those funds for them, with organisations or projects that need financing.

Funds management, hedge funds, private equity and venture capital are all just variations on this theme.

A career in investment management means being able to make astute decisions and backing your own judgement. Sometimes it means going out on a limb against the rest of the market, or other times, it means having faith in the management of a new organisation.

Aside from funds management, most investment management jobs recruit experienced hires. If working in a hedge fund, private equity or venture capital organisation sounds like the right thing for you, take steps to gain the experience you need in your early years as a graduate. Here are the five areas we’ll cover in this feature:

  • Funds management: Manage investments in more traditional financial instruments such as cash, equity and bonds.
  • Hedge funds: Similar to funds management but open primarily to high-net-worth individuals and with greater investment flexibility including using strategies such as hedging.
  • Private equity: Buys and manages companies with the aim of recovering the investment by selling the organisation or taking it public later.
  • Venture capital: Invests in high-growth potential companies, primarily startups, in the hopes that high risk will net high reward in the future.
  • Wealth management: Helps companies or individuals understand what to do with the money they earn.

Funds management

What is funds management?

The funds' management industry exists simply because people who have money believe there are others who know more about investing than they do. By giving these managers their money to invest, they believe they will earn a greater return on their investment than they could by themselves.

Fund managers usually trade traditional investments such as cash, shares and bonds. For example, managers research and buy shares they believe are undervalued in the market in the belief they will eventually ‘correct’ and rise in value. This selection of shares is known as active funds management. Active fund managers are considered successful so long as they match or outperform a benchmark such as the ASX100. Even if a fund manager makes a loss in a quarter, they are still considered successful if they ‘beat’ the ASX100 – that is, their loss is less than the markets.

Being able to regularly outperform the market though can be tough. This is because as a funds manager, you must consistently bet (and win) against the consensus of the market – and other funds managers – to be rewarded.

Some managed funds are indexed to the market and known as exchanged-traded funds (ETFs). ETFs are more passive and are based on the belief that it is near impossible to get a better return than the market over time. As less ‘active management’ is required, these funds cost less to invest in.

Superannuation funds represent some of the largest clients of funds managers. As superannuation is compulsory in Australia, superannuation provides a ready pool of funds for investment.

What is the graduate experience like in funds management?

Most large banks run funds management and superannuation programs, for example, Commonwealth Bank’s Colonial First State. Other key players such as AMP, Perpetual and, comparison and rating organisation Canstar also offer graduate programs.

As a graduate, you will learn how to manage a portfolio – including researching stocks, making investment decisions, monitoring the markets and communicating findings. Depending on the size of the organisation, each of these tasks may have a specialist team. As a graduate, you may rotate through these teams before deciding on one.

As a researcher or buy-side analyst, your task is to determine which securities to buy for the portfolio. Often you will focus on a specific industry, region or type of product and be expected to run financial models to determine how they might perform in the portfolio. Being able to communicate these findings to your manager and team will be a critical part of the role. You may also be expected to write reports or develop presentations to communicate investment results.

There is a fair amount of independence on the job although you will be part of a team. Within the team, you may be allocated a specific task or stock to follow and you may be required to generate a regular performance report for your portfolio manager.

What are your career prospects in funds management?

As a funds manager, you will be rewarded for your abilities. A reputation for managing a fund well – and consistently outperforming set benchmarks – will make you a highly sought-after portfolio manager. You may choose to advance to senior levels, or alternatively even start your own managed fund.

As funds management organisations are often affiliated with a commercial bank, there is scope to move into other areas if you decide to move beyond funds management. As a funds manager, you will develop a deep understanding of and expertise in financial markets and execute trading strategies, which are valuable transferable skills. Further training is often available, for example, support to become a Chartered Financial Analyst (CFA).

Choose this if you have:

  • Excellent quantitative, numerical and critical thinking skills.
  • Strong communication and interpersonal skills.
  • An intellectual curiosity about financial markets and organisations.

Hedge funds

What are hedge funds?

While almost anyone can invest in a managed fund, hedge funds are much more exclusive. Hedge funds are privately offered and created for wealthy individuals, who may, for example, have more than a million dollars to invest.

And unlike a managed fund, which seeks to match or outperform a benchmark, the objective of a hedge fund is to achieve an absolute return, that is, a positive investment return in every quarter.

This difference in investment purpose affects the way in which hedge funds are operated. Hedge fund managers are the so-called ‘cowboys’ of investment management with greater flexibility and risk taken in their investment strategies.

They may, for example, use leverage, ‘short’ a stock if they anticipate falling prices or ‘hedge’ or counterbalance any risks in their portfolio. Hedge fund managers collect both a management fee as well as a percentage of profits generated.

What is the graduate experience like in hedge funds?

The hedge fund industry in Australia is relatively small and it can be difficult to land an entry-level job.

Leading players include Regal Funds Management, Tribeca, Bennelong, Watermark and Ellerston. These hedge funds look for candidates who already have a successful track record and understand the basics of investing and trading.

A typical path into a hedge fund is through investment banking or after an MBA.

If you enter a hedge fund, you will usually start as a research or portfolio manager associate. The tasks are similar to those of a managed fund in that you help your manager and team to pick and track investments. You may also be expected to help communicate the performance of the fund to existing investors and prospective ones.

Hedge funds are typically small in size compared to, for example, an investment bank. Unlike a managed fund which may have specialist teams dedicated for example, to research, investor relations or operations, you may wear many ‘hats’ at a hedge fund. Furthermore, you will work closely with more senior members of the team as well as have frequent contact with clients and organisations – an excellent opportunity to develop your relationship and communication skills.

The structure and workplace of a hedge fund are fairly informal, you will find that the team is fairly collaborative as the firm’s success depends on the performance of the fund – so you’re all in it together!

Working for a hedge fund can be a stressful and intense experience – millions of dollars may be at stake because of your recommendations. You can expect to put in long hours with work often spilling into the weekends. If your fund is successful, however, you will be rewarded financially.

What are your career prospects in hedge funds?

Similar to other results-focused specialisations like private equity or venture capital, advancement at a hedge fund is based on your abilities. If you enjoy working at a hedge fund, you may want to progress to more senior levels or perhaps start your own fund.

At the junior levels, you may be encouraged to become a Chartered Financial Analyst (CFA). Support for this (such as study leave) will vary according to the firm.

Working at a hedge fund is highly regarded by the rest of the finance industry. Hedge funds are known to recruit top talent, particularly given the low supply of jobs, and as such, any experience here will be helpful to your career overall. Indeed, you will find there are many career paths if you decide to move on to another specialisation. For example, you might choose to move to an investment bank as a trader or securities analyst, or move to private equity or venture capital.

Choose this if you have:

  • Excellent quantitative and analytical skills.
  • An appetite for calculated risk-taking.
  • A love of learning and problem-solving.

Private equity

What is private equity?

It is common in the property market for investors to look for that ‘diamond in the rough’ – the renovator’s dream that you can fix up and then sell again for a tidy profit.

In many respects, this is what happens in the world of private equity. Private equity firms use money from investors plus debt to buy mature organisations that may be deteriorating or not making the profits they should be.

This is based on the belief that the private equity firm can unlock the organisation’s potential and increase its overall value for example, by reducing costs, improving operations or investing in new technology.

Private equity firms do not intend to manage these organisations forever but instead, seek to sell it or make it public on the stock exchange. Investors who commit to private equity funds typically do not see a return for many years.

The private equity industry in Australia is relatively small with key players including Archer Capital, Champ Equity, Quadrant and Wolseley. The size of these funds varies – Australian firms typically managing funds in the hundreds of millions while those in the US are much larger managing billions of dollars in assets.

What is the graduate experience like in private equity?

It is rare for an undergraduate to enter private equity straight from university. Private equity firms prefer to hire the talent they need rather than develop it themselves. A typical route into private equity is through a few years’ experiences in management consulting or investment banking. MBA graduates from top-tier universities may also be considered for roles.

In Australia, finding roles in private equity may be difficult simply given the size of the industry as well as the small size of the firms themselves, which often have less than a dozen employees. If you do join a private equity firm, however, its small size may be an advantage. There are often fewer managerial layers compared to, for example, investment banking. You will likely have plenty of opportunities to work with senior directors.

Most private equity firms have roles that mirror the fund’s lifecycle – raising funds, buying and managing companies and then selling them.

Senior directors are typically responsible for creating the initial fund as this relies on strong relationships and networks. Once a fund is created, investor relations specialists help to manage existing investor relationships while marketing to prospective ones.

At the more junior level, you will likely be involved in researching potential organisations to invest in. You may need to investigate a target’s operations and financial health as well as make recommendations for strategies to improve its performance.

Once the deal is negotiated, you may work directly with the target’s management to meet agreed objectives. This is an excellent opportunity to improve your communication skills as communicating and selling a vision for the organisation is critical.

What are your career prospects in private equity?

Private equity firms are meritocracies at heart. Often there are no set number of directors at an organisation and in most cases, if you do good work, you will be rewarded in both pay and increased responsibility.

Experience in private equity is highly regarded by the rest of the finance industry. Skills learnt are easily transferable to many other specialisations and you will likely find no shortage of roles.

For example, if you have experience in fundraising and investor relations, you may want to work ‘on the other side’ such as a superannuation fund, which is seeking to evaluate how to invest their money.

Given private equity firms recruit more experienced hires, further education is not a common experience, however, this will vary according to the individual firm.

Choose this if you have:

  • Excellent analytical skills and the ability to interpret large amounts of information.
  • Strong communication and interpersonal skills.
  • A love of dynamic, project-based work.

Venture capital

What is venture capital?

Venture capital is the domain of unicorns, Shark Tank and startups wanting to be the next Facebook.

And for every startup that makes it big (or fails), there is a venture capitalist right behind them.

Venture capital is similar to private equity in that it creates a pool of funds from different investors with the purpose of investing in companies.

However, unlike private equity, venture capital focuses on startups with high-growth potential. Venture capital can be a risky game as startups have a more unpredictable chance of success but with every risk comes the possibility of even greater reward.

Venture capital firms typically provide startups with funding – from early ‘seed’ funding through to Series, A, B and C. In exchange, venture capitalists hope to translate their equity stake into profit if the startup goes public or is acquired.

It is common for venture capital firms to limit their startup investment up to 50 per cent of the organisation, which means the startup’s management remains in control. This is unlike private equity, which usually buys the organisation in its entirety and has a greater mandate for change.

The venture capital industry in Australia is relatively small but has seen a resurgence in recent years, particularly following the dot-com bust in the early 2000s.

Australian venture capital firms include AirTree Ventures, Tank Stream Ventures, Blackbird Ventures, Uniseed, Square Peg, Sapien Ventures and Blue Sky Fund. Some of Australia’s larger banks also have their own venture capital funds such as NAB Ventures and Westpac’s Reinventure.

What is the graduate experience like in venture capital?

Like private equity, most firms hire on the basis of experience and required skills and do not run graduate programs. As venture capital firms and the industry itself is small, entry into this specialisation is competitive.

Venture capital firms like to recruit successful entrepreneurs or those with a track record working in funded startups as they are more able to spot ‘winners’ and play a mentoring role to startup founders.

Other routes into venture capital may be through management consulting, private equity or investment banking. If a venture capital firm is more specialist in nature, for example, focusing on biotech, health services or information technology, they may seek experienced professionals who can bring expertise from that industry.

At the more junior level at a venture capital firm, you will be expected to do the grunt work to find and assess potential investments. It can sometimes be disheartening as you are constantly seeking to find the flaws in a startup to determine if it is worth investing into.

At the same time, you will get to meet aspiring entrepreneurs who are passionate about their business and seeing it come to life. Finding the ‘hidden gem’ and seeing a startup succeed is a rewarding experience.

What are your career prospects in venture capital?

A career in venture capital can be a very exciting one. You are paid to spot the ‘next big thing’ – and if one of your companies does extremely well, you will likely be rewarded accordingly.

Like hedge funds and private equity, your progression as a venture capitalist relies on your individual performance. A track record of sound investments is the best way for you to rise to the partner level of a venture capital firm.

Venture capital is highly regarded by the rest of the finance industry. Given venture capital firms are considered tough recruiters and expect candidates to have demonstrated experience in a particular area, venture capitalists who decide to transition to another specialisation are usually welcomed with open arms. What you decide to do will depend primarily on your inclination, skillset and experience.

Choose this if you have:

  • A love of building and managing relationships and networks.
  • The ability to see the bigger picture and sound judgment.
  • Attention to detail and strong analytical skills.

Wealth management

What is wealth management?

People make money in different ways – whether it’s managing a business or working in the corporate world, one thing they all have in common is a need to understand what to do with the money they earn. They might ask questions like: ‘How do I plan for the future?’ or ‘What’s the best way to invest my money?’ Wealth management is about understanding these needs and is typically divided into private banking and financial planning.

Private banking caters to wealthy individuals. The definition of ‘wealthy’ varies but may mean, for example, having more than a million dollars in assets. Private banking divisions are typically found within larger banks or investment organisations. Private bankers may be called upon to help their clients with anything from tax planning or estate planning to philanthropic goals, or coordination or trusts.

Financial planning is much the same as private wealth except that it caters to a broader range of clients such as individuals who are struggling with managing their finances or those just starting their careers.

Overall, the wealth management industry is relatively fragmented. Players range from large banks to smaller ‘mum and dad’ businesses to independent consultants. Robo-advice, where financial advice is generated by advanced computer algorithms, is also increasingly common. Typically, robo-advisors offer specialised advice in areas such as superannuation.

What is the graduate experience in wealth management?

Whether you are in private wealth or financial planning, your responsibilities at the graduate level will be similar. You will develop an understanding of how financial planning works – you will learn about the specific rules and regulations that govern the industry as well as how to develop basic financial strategies. Your role initially may be more administrative or research-focused, for example, preparing routine statements, liaising with clients to confirm appointments or researching financial products. These early stages are a time to hone your analytical and communication skills. Over time, you will be asked to recommend financial products based on your research or develop ideas on strategies for specific clients.

As you gain more experience and knowledge, you will begin managing your own clients. Working with a client’s financial goals is often quite personal – perhaps they want to get married, have kids or get divorced. At each step, you may be asked for advice. At times, this may be frustrating – your client may be more conservative in their investment approach or seek to simply go in a different direction to the one you have proposed. You will need to be flexible and learn to work with different personalities.

What are your career prospects in wealth management?

Your advancement will typically reflect your performance. It also depends on how your organisation measures success. This could be anything from the growth of a client’s assets, to generating new business or overall client satisfaction. Once you have a successful track record of managing your own clients, you may eventually progress to begin overseeing other wealth management advisors within your organisation or developing financial products to market to clients.

If you want to branch out beyond wealth management, you may consider working for an asset management firm, hedge fund or perhaps even starting your own advisory business.

As a financial planner, you are expected to meet minimum requirements including completing the Certified Financial Planner (CFP) course. After qualifying, CFPs must continue professional development each year to maintain their certification. This may include attending workshops or conferences and completing courses.

Given Australia’s aging population and the transfer of wealth to younger generations, it is expected demand will continue to be strong for wealth management services. However, with the ongoing banking commission, more changes may be on the horizon.

Choose this if you have:

  • A love of helping individuals meet their goals and aspirations.
  • Strong interpersonal and relationship-building skills.
  • Innovative, creative and analytical thinking skills.

For more insight into graduate careers in investment ad banking, visit our advice page here.