Hedge Fund Readings

[Humble Pie]

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Can anyone recommend any good books

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Fooled by Randomness.

[Jcrew]

For a very high view of the industry and several top player's mode of thinking, read
Inside the House of Money

[kimchi]

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I have a general idea about what a hedge fund does, but don't really know any specifics.

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Nobody has yet given you any simple explanations as to what a hedge fund does. There are thousands of strategies but I'll outline a few common strategies.

A tradition hedge fund emphasises stock picks regardless of market direction. If you think Ford will outperform General Motors, then you can buy Ford. If the broader market drops, you'll still likely lose money despite your analysis being correct. Hence hedge funds were traditionally market neutral meaning they would buy the strongest company in a sector (eg. Ford) and go short (make money from falling prices) the weaker company (General Motors). This way, no matter which way the general market is going, they will still make a profit if their analysis is correct.

These days, the name "hedge fund" (to hedge meaning to reduce risk) is mostly historic. Hedge funds, due to their manager's compensation stucture, go for absolute returns and are typically relatively high risk as a group. They use leverage (borrowing money to magnify returns) go long/short, use financial derivatives (such as futures, CFDs, and options) and invest in a wide range of assets (stocks, bonds, commodities, property, etc).

They are similar to mutual funds in that they tend to be collective investments, but are not regulated similarly (or at all). Mutual funds have a much more rigid investment objective, whereas hedge funds are flexible enough to make money in any market or market environment.

Due to their (perceived) higher risk and sophistication, they are only usually available to higher net worth investors, have higher minimum investment amounts than mutual funds, and are relatively illiquid - meaning you'll typically need to give a notice period (usually 1 - 3 months) before you can withdraw some or all of your invested capital.

As people have pointed out - there are 1001 different hedge fund strategies. Your fund will likely be biased towards whichever strategy its managers likes/is successful at/think will be popular etc.

[pig4bill]

As much as I dislike Cramer now, he was a very successful hedge fund manager. He tends to talk nuts and bolts so one of his early books probably talks about his funds.

[John49]

Excellent post. Informative and concise.

[chardog]

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but I have absolutely no experience in the finance world

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Upon starting, there are some specific programing tasks that I will have to do

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No one asked.. are you a quant programmer? If so, I would spend more time on perfecting your technical knowledge of the tools you will use on the job (quantlib?). Regardless, I think its good to have at least a basic understanding of the application of your code.