Introduction

A hedge fund is a pooled investment vehicle, open to institutions and wealthy individuals, that can use tools most mutual funds cannot: short selling, leverage, derivatives and concentrated positions. The original idea was to 'hedge' market risk so that returns came from skill rather than market direction. Today the term covers a wide range of strategies, some barely hedged at all.

Funds are run by a manager who earns a management fee and a performance fee. The manager's capital usually sits alongside investors', which aligns incentives.

Unlike banking, there is no client deliverable — the output is a profit and loss figure that updates every day. Feedback is immediate and public within the firm. That makes the culture meritocratic and unforgiving: good process with a bad outcome is tolerated for a while, bad process is not.

Returns come from beta (market exposure) and alpha (skill-driven excess return). Investors pay high fees for alpha, so funds are judged on returns after stripping out what the market delivered.

Portfolio managers make final decisions and own risk. Analysts research ideas and cover a set of names. Traders execute and manage market impact. Risk, operations and investor relations support the investment team. Small funds blur these roles; large multi-manager platforms separate them sharply.

A demonstrated interest in markets, original ideas you can defend, and the temperament to be wrong publicly and adjust. Funds will ask what you own, what you have shorted and what you got wrong. Prepare for all three.