Investment Banking

How much do hedge fund traders earn?

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Hedge fund trading may be the highest paying job in the world, so to learn more, we spoke with a former manager at one of the world’s leading hedge funds. They gave us the following information, which allowed us to make a rough estimate of the typical earnings of hedge fund traders.

We also ran this document past several other people in the industry and asked them to point out mistakes.

We found that junior traders typically earn $300k – $3m per year, and it’s possible to reach these roles in 4 – 8 years. Senior portfolio managers can easily earn over $10m per year, though average earnings are probably lower. Read on for the details.

How do hedge funds make money and how is it shared among the employees?

Hedge funds trade in financial markets on behalf of clients in exchange for annual fees, and a cut of the profits. They’re similar to mutual funds but face fewer restrictions on what they can invest in, and can only be used by accredited investors.

The revenue of a hedge fund comes from the fees on the assets it manages. The typical fund charges a fee of 2% of assets under management per year, plus a performance fee. The performance fee is typically 20% of any returns it makes for the clients over and above the 2% base fee. So, if a fund makes 10% returns in a year,

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How to get “elite” jobs: Dartmouth is not good enough

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I just came across a study of what top-tier investment banks, law firms, and management consulting firms look for when recruiting. The author of the study interviewed over 100 recruiters at these firms to find out what criteria they used.1

The Chronicle of Higher Education summed up the results:

If you want to get a job at the very best law firm, investment bank, or consultancy:2

1. Go to Harvard, Yale, Princeton, or (maybe) Stanford. If you’re a business student, attending the Wharton School at the University of Pennsylvania will work, too, but don’t show up with a diploma from Dartmouth or MIT. No one cares about those places.
2. Don’t work your rear off for a 4.0. Better to graduate with 3.7 and a bunch of really awesome extracurriculars. And by “really awesome” I mean literally climbing Everest or winning an Olympic medal. Playing intramurals doesn’t cut it.

Here’s a chart showing the key signals that recruiters used to screen candidates.

How to get elite jobs
Graphic re-created from original figure in Rivera (2011)

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Show me the harm

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Does Earning to Give do more harm than good?

It is often claimed that philanthropists do more harm earning money than good making donations. We saw this idea raised many times during the recent press coverage of Earning to Give. Our response is that although the objection may be true for typical examples of philanthropy, when donors are giving effectively it’s difficult for the expected harm to outweigh the good done by the donations.

In this post, I make some very rough estimates of how harmful finance would have to be in order for it to outweigh the good done by the donations of someone Earning to Give to effective charities.

Bankerharm

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