Hedge Fund Internships: The Best Way to Become Your Quantified Self?

Traditionally, almost no one thought about “hedge fund internships.”

Students who wanted to break into investment banking, private equity, and even hedge funds usually interned at boutique banks, small PE firms, or Big 4 firms.

The large hedge funds didn’t do much recruiting at the undergraduate level, and it was difficult to contact smaller/startup funds.

But just as private equity funds have been moving to recruit interns and Analysts out of undergrad, so too have hedge funds been targeting younger candidates.

Also, the quant trading and quant research roles at hedge funds have opened up new opportunities.

As a result, hedge fund internships might now be less of a steppingstone into other roles and more of a direct path into hedge fund careers:

What is a “Hedge Fund Internship”? And What Do You Do as an Intern?

By hedge Fund Internships, we mean:

• Internships for undergraduates and Master’s students who are still in school;
• Internships for recent graduates who network aggressively; and
• Pre-MBA internships for students who are making a career change via business school and need to gain experience ASAP.

Internships in categories #2 and #3 tend to be highly unstructured and random.

Internships in category #1, for undergrads and Master’s students, might have formal processes and recruiting cycles – at least at the biggest hedge funds (outside of that, they’ll still be unstructured and random).

The experience depends not only on the size of the fund (e.g., under $1 billion AUM vs. $1 to $10 billion vs. $10 billion+) but also on its strategy.

Your tasks will be completely different at a quant fund than they will be at a fundamental/discretionary one, such as a long/short equity, distressed credit, or merger arbitrage fund.

Some firms, like Point72, use a mix of quant and discretionary hedge fund strategies, so you may get exposure to both depending on the group.

If you’re at a discretionary fund, your internship tasks will be similar to those of full-time hedge fund analysts: idea generation, financial modeling, due diligence, and a healthy amount of grunt work.

You probably won’t spend as much time monitoring current positions since you’ll be less familiar with them.

At a quant fund, the tasks will consist of coding, developing statistical models, and back-testing your ideas to see how they would have performed in previous markets (see: more on quant research).

The experience tends to be more consistent at the big funds, while it can be completely random at smaller funds, especially at newer single managers who do not typically hire interns.

Why Complete an Internship?

If you’re an undergrad interning at one of the big funds right before your final year, then your main goal is to win a full-time return offer.

It’s less of a “sure thing” than it is if you perform well in an investment banking internship, but some funds have been moving to this model.

At the very least, you want to get a strong recommendation out of the internship.

Otherwise, if you’re earlier in university, you’re likely using the internship as a steppingstone role into bigger and better internships later on.

If you complete a pre-MBA internship, you use the role as a way to become more competitive for on-campus recruiting once your MBA program begins.

At the big funds, your salary over 8-10 weeks is often pro-rated based on full-year pay of around $100K (+/- 20%).

Internships at smaller hedge funds may be unpaid, but sometimes the PM will offer you a few thousand dollars per month to cover living expenses, especially in expensive cities.

These roles offer some of the same advantages as private equity internships: the experience still looks relevant even if you intern at a tiny fund, and there tends to be less competition.

Few students will take the time and effort to send 100+ networking emails, follow up, get referrals, and find firms that don’t openly advertise internships.

Which Hedge Funds Offer Internships?

If you’re going to apply to funds by networking via email, the phone, and LinkedIn, you should focus on smaller ones with less than $10 billion in AUM.

You cannot necessarily predict which funds will be interested, so spread a wide net, and don’t hesitate even if it’s a brand-new fund with $50 or $100 million in AUM.

Your immediate goal is to gain experience, not to earn a huge a bonus.

In terms of the large funds, places like Citadel, D.E. Shaw, Millennium Partners, Two Sigma, Point72, AQR, Marshall Wace, Bridgewater, and Jane Street Capital (and more) all offer internships.

Some of those are quant-focused, others are discretionary, and others do a mix of both.

Point72 (formerly SAC Capital) has arguably ramped up internship recruiting the most with its “Academy,” which is a 10-week internship that leads into a year-long training program.

How Do You Find Create Internship Openings?

The biggest networking challenge is that hedge funds tend to be secretive, so it can be quite difficult to find emails, phone numbers, and even email formats.

There’s no simple solution, so you’ll have to use some combination of the following to find these firms:

• Friends, Family, and Connections: Ask around and see if anyone knows someone at a hedge fund, or if they have a friend of a friend at one. Warm intros always beat cold contact.
• Google Maps: I’ve tried searching for “hedge funds” in random European cities and the Midwest of the U.S. and found decent results with websites and phone numbers.
• Capital IQ or Other Paid Databases: Use anything that you can gain access to.
• Our Networking Toolkit: There are several thousand hedge funds listed here, but the level of contact information varies.
• LinkedIn: You can find many of these firms on LinkedIn, even if they don’t have real websites or much public information.

Most likely, you’ll need to send ~100 outreach emails to start seeing results.

I recommend emails rather than the phone because most students are horrible at phone conversations, and it’s much easier to present yourself well via email.

In your outreach email, be as concise as possible and attach a sample work product, such as a stock pitch or a trading strategy you developed. For example:

SUBJECT: [Hedge Fund Name] – Internship for [University Name] Student

“Dear Mr. / Ms. [Name],

I am writing to you to see if [Hedge Fund Name] might be interested in taking on an intern. I am available to start immediately.

I am set to graduate in [Month Year] from [University Name] with a [XX] GPA. I have developed [Describe Relevant Skills] skills during my [XX] months of [Industry Name] experience as an intern at [Firm Name]. I’ve also attached here my resume, as well as a stock pitch I recently created for [Company Name].

I know you are extremely busy, but if you have a few minutes to speak so I could learn more about opportunities at [Hedge Fund Name], it would be greatly appreciated.

Thanks, and I look forward to connecting with you soon.

Thanks,

[Your Name]”

In terms of timing, if you’re at the pre-MBA level, you should apply for the next summer before the end of the current calendar year – the same time MBAs are applying for summer internships.

For example, if it’s an internship for the summer of 20X1, apply by the end of 20X0. This means you have to start the process shortly after you’ve been admitted.

At the undergraduate level, timing matters less because few firms have structured programs.

However, if you focus on smaller funds, it’s not a great idea to complete the internship in your final summer because you’ll be unlikely to receive a return offer.

Do it sometime before that, ideally in your first or second year, so you can also leverage it for possible IB recruiting as well.

Hedge Fund Internship Interviews

Most hedge funds don’t care about deal or client experiences, so they will ask you about:

• Fit: It’s even more important because firms and teams are small.
• Stock Pitches: Or pitches for other assets, such as bonds or commodities, or whatever the firm invests in (if it’s a discretionary fund).
• Sector Discussions: Expect many “Which sectors do you like / not like? What do you think about overall market trends?” types of questions.
• Case Studies / Modeling Tests: They’re less likely, but they could come up – especially at larger discretionary funds.

One tip here is to go broad rather than deep with your preparation because you have no idea what they’ll ask you to do.

Rather than writing a detailed, 100-page stock pitch, try to research one company in a different industry every 1-2 weeks and write one short, 1-2-page pitch for it.

You can attempt to learn about the fund’s strategies and current positions and the PM’s market views, but it’s often difficult because most funds are secretive.

So, it’s best to learn a bit about everything and gain exposure to different industries.

On the quant side, you can expect:

• Coding Problems: Look at sites like HackerRank and others that give you sample problems.
• Math Problems: Anything could come up, from theoretical problems with no official answer to common brainteasers.
• Statistics: You could be asked about regressions, random variables, probability, confidence intervals, or almost anything else.

Fit is less important here because they’re assessing your pure technical skills.

Preparing for the Internship

Assuming you make it through the interviews and win an offer, what should you do before you start?

On the discretionary side, learn the market as much as possible, try to get information about the firm’s track record and strategies (they may tell you more once you’ve won the offer), and brush up on your Excel, PowerPoint, and VBA skills.

You can add a lot of value as an intern by automating processes using simple scripts and data crunching and make everyone’s life easier.

On the quant side, practice with building your own side projects related to the financial markets and back-testing the results.

Networking long in advance is probably not a great use of time because offices and teams tend to be small, and you’re not necessarily aiming for a return offer.

How to Get the Most Out of a Hedge Fund Internship

As with all internships, your #1 goal is to make the lives of all the senior professionals easier.

There are many, many ways to do that if you’re at a discretionary fund, ranging from process improvements to data gathering to finding whatever the PM needs ASAP.

It’s a bit harder on the quant side because you’ll have to learn the existing code first, and reading code is far more difficult than writing it.

So, try to contribute in small ways by finding small tweaks for the existing code and models and asking good questions about them.

Hedge Fund Internships: Pros and Cons

There’s no question that you need a sequence of internships before you can win a full-time role in the finance industry.

So, the real question here is, “Should you find and complete a hedge fund internship rather than one at a bank, PE firm, VC firm, or some other finance firm?”

I’d summarize it as follows:

Benefits / Advantages:

• It’s very relevant experience for public-markets roles such as asset management and larger hedge funds (though not quite as good for IB/PE/CD and other deal-based roles).
• If you apply to smaller funds, these internships may be easier to win than traditional IB ones because few students are comfortable with the networking required.
• The quant path means that you don’t necessarily need investing, deal, or client experience to contribute; if you’re good at math/statistics/programming, that may be enough.
• You could gain solid referrals and recommendations from the internship.

Drawbacks / Disadvantages:

• Compensation at smaller funds tends to be low or nonexistent.
• While there is less competition for spots at the smaller funds, you also have to be very comfortable with cold emailing and more aggressive networking to have a good shot.
• You may or may not gain “real” experience because individual hedge funds vary far more than individual banks or PE firms; everything depends on the PM’s whims.
• Internships at small funds rarely, if ever, lead to full-time offers; larger funds with structured programs may offer this path, but the competition there is also fairly tough.
• If you’re not sure what you want to do long-term, it’s better to focus on IB/PE internships since they will be useful for a wider variety of roles; hedge funds are perceived as being more specialized.

Hedge fund internships are sure to become more popular as more students realize they can skip IB altogether, and as more engineering, math, and science students go the quant route.

And if you understand how they make you “sharper, but narrower,” you’ll be in a good position to use them to break into the industry.

Further Reading

If you liked this article, take a look at The Full Guide to Quant Funds: Careers, Salaries, Recruiting, Exits, and More.