January 14, 2020 Last updated April 23rd, 2021 1,026 Reads share

A Comparison of Careers at Private Equity vs. Hedge Funds

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You are interested in the buy-side of investing and looking for exciting and lucrative career opportunities (preferably with better working hours), what are the career paths that you can choose?

This is where careers in private equity and hedge fund are toe to toe. If work hours at private equity firms make investment banks seem tedious, then you haven’t explored hedge funds yet.

At the heart of both Private Equity and Hedge, Fund craft is an investment partnership. Both destinations are considered appropriate exit opportunities for investment banking professionals, those in sales & trading, or any other finance career.

Which is best for you – a future in private equity or hedge fund?  What are the trade-offs in terms of the work environment, career growth, and salary?

This is not a diatribe between private equity careers and a job in hedge funds. Given below is a clear overview of both careers to help you make an educated career choice.

Private Equity vs. Hedge Funds – What’s What?

Both industries are classified as alternative investments. Professionals at both appeal to high-net-worth individuals. Both raise funds from outside investors and then invest them in companies and assets. Everything else is different!

Here are the three big differences between private equity and hedge funds.

1. Type of Investment

The most significant difference between the two industries is Private Equity acquire entire companies through their investor’s capital. In contrast, Hedge Funds acquire small stakes in assets and invest in virtually anything and everything or a combination of stocks, bonds, commodity futures, currencies, among others, to earn profits for their investors. The latter majorly invest in liquid assets.

2. Holding Period

Hedge funds are “pooled funds” which are invested in short-selling options with an aim to reap high returns in a short period of time.

Hedge fund managers are highly focused on short-term profits. The sole goal is to get the highest returns on investments in the lowest amount of time. The holding period in hedge funds can typically be as short as three months to 3 years.

Private Equity firms, on the other hand, are close brothers of venture capital firms. They invest directly in stressed companies by purchasing them and keep a close watch on their performance and management. The eventual goal is to sell the company for a profit – it may be privately or through a public offering in the stock market.

Private Equity professionals nurture the failing and underperforming companies to set them up for faster growth. All this while ensuring to reap high returns for their investors (pension funds, insurance companies, and others). The lock-in period in private equity typically ranges from 3 to 5 years.

3. Risk Factor

Though both private equity and hedge funds practice risk management – by combining high and low-risk investments – due to hedge funds’ focus on maximizing short-term profits, it leads to acceptance of high risks in them.

Work Roles and Responsibilities: Private Equity vs. Hedge Fund

Private equity jobs center on making deals and relationship building, a component not as prominently present in hedge funds. Essential private equity job responsibilities in private equity include:

  • Sourcing deals (via public auctions or personal relationships)
  • Meeting investment bankers and other lenders to receive debt financing (for senior PE managers)
  • Conducting company due diligence
  • Forecasting valuation, making financial projections, developing upside/downside scenarios and calculating rate of return
  • Drafting presentations
  • Close and coordinate deals
  • Interview company management (to be acquired)
  • Eventually preparing a company for sale (typically after 3-5 years holding)


Hedge fund professionals buy and sell securities with a couple of clicks to trade. They perform a highly research-focused job. Their main responsibilities include:

  • Spending vast amount of time in building industry expertise
  • Conducting company research
  • Forecasting financials of companies and making financial models
  • Making investment decisions based on research (to reap highest returns in short-term)


Research and financial modeling forms a core part of Private equity professionals, quarterbacking deals, and building and maintaining a strong network takes up the majority of their time. Hedge Fund professionals, on the other hand, are indulged in researching the industry.

Recruitment: Private Equity vs. Hedge Fund

The recruitment cycle in private equity is much streamlined and defined in private equity than in hedge funds.

Private equity careers mostly attract former investment bankers as they are considered as a highly sought-after exit opportunity. Hedge funds on the other hand, along with investment Bankers, attract diverse talent from equity research, sales and trading, and other financial domains.

Among skills, for landing a private equity job, you should know:

  • Accounting and valuation (essential)
  • Financial modeling (essential)
  • Deal experience (desired)
  • Know-how of sourcing, executing and managing deals (desired)
  • Relationship with investment banks (desired)
  • Ability to recruit good management for portfolio companies (desired)


To get in hedge fund firms, you would be required to demonstrate:

  • Knowledge of Accounting and valuation (essential)
  • Passion and understanding of markets (essential)
  • Industry knowledge to generate, validate and execute investment ideas (essential)
  • Building mathematical models (for quant hedge funds)


Career Trajectory and Compensation

In both private equities as well as hedge funds, one can reach the partner level. However, the path to partnership is more structured in private equity than hedge funds.

The career trajectory in private equity typically goes from Analyst to Senior Associate to Vice President to Partner.

In hedge funds, it goes from Research Analyst to Senior Analyst to Portfolio Manager to Chief Investment Officer to Partner.

The rate of career progression from junior private equity professionals to partners requires the cultivation of a strong network – with companies as well as bankers. As you move up, you will be expected to use your network to finance as well as source deals.

Relationship building is not as important in hedge funds. The be-all-end-all in hedge funds is being able to generate good annual returns on the portfolios. The deeper and analytical is your understanding of the industries, the more likely you will get closer to the top.


Let’s Talk Money

Both industries – private equity and hedge funds – take two types of fees from clients. One is management fees and then performance fees. Typically, it remains around 2 and 20 models, i.e., a 2% management fee and a 20% performance fee.

Since both strive for similar talents, the pay is fairly close in the beginning. Initial salary in both industries is like that of a 3rd-year Analyst at investment banks.

After a few years, however, the difference in compensation becomes to widen.

The pay base in both increases at a steady pace, the difference in bonuses, however, varies drastically in both industries. In hedge funds, if you excel at your job, you can rake millions in bonuses in a single year depending on your Assets Under Management (AUM) growth.


Bottom Line: What to Choose?

If you are a nerd who is super into valuing companies, keeping a note of the company trends, building industry expertise, researching, and making investment decisions, you can opt for hedge funds and join the industry as a research analyst.

If you love building value for companies, excel at deal management, and are into long-term relationship building, you can make a wager at the private equity industry and join as an Analyst or Associate.

The most common pathway usually includes joining as a private equity professional incapacity of associate, after a few years of a stint at an investment bank. Then, you can go for an MBA program and a professional private equity certification course (as the designation of Chartered Private Equity Professional provided by the United States Private Equity Council) to land senior-level roles. From there, after learning the ropes of the finance industry, professionals usually enter hedge funds as an analyst or senior analyst.

Go where your strengths lie!

career options – DepositPhotos

Niti Sharma

Niti Sharma

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