Hedge funds use pooled money and tactics to earn returns for the investors, whereas private equity funds invest directly in companies by purchasing or buying a controlling interest in publicly traded companies.
Let us investigate the basic difference, and understand the job profile of these two funds here.
Differences between Private Equity Fund and Hedge Fund
The major differences have been portrayed here.
Investment period
Private equity funds focus to invest in companies having the potential to earn substantial profits over a long-term time frame. The average investment frame being five to seven years. They do not acquire or run a company but acquire a controlling equity interest from their invested company. Further, they take initiatives to improve the company’s performance through change management, business expansion, streamlining operations, or other methods as necessary.
However, hedge funds focus to invest in companies with short-term goals. It could be a few seconds to a couple of years. They focus to gain profits within a short period and move onto the next investment. The managers prefer liquid assets so that they can jump from one investment to another quickly.
Transferability
Private equity funds are close-ended investment funds with restrictions on transferability for the said period, whereas the hedge funds are open-ended investment funds with no restrictions on transferability.
In hedge fund investments, the capital can be liquidated at any time, whereas in private equity funds, the investors must commit their capital for a period of three, five, seven, or ten years.
Taxes
Private equity funds and hedge funds generate a report on income, losses, dividends, and submit to the IRS Schedule k-1. As the private equity investments are of long-term nature, they are not subject to short-term capital gains tax rates.
Moving forward, let us see how a career in a private equity fund and hedge fund looks like
Private Equity vs Hedge Funds: Job Nature
Both the jobs, i.e., hedge funds and private equity jobs and demand extensive knowledge in financial modeling, valuation methods, and a detailed eye for financial analysis.
Job profile of private equity
The main roles and responsibilities in a private equity firm are briefed below.
- Sourcing deals
- Conducting initial organization due diligence
- Forecasting financial projections
- Calculating return rates
- Drafting presentations and follow-up items
- Reviewing and commenting on legal documents
- Closing the deal and coordinating funds flow
- Helping in company strategies, operation, and quarterly financial reports
- Preparing the company for sale as it achieves financial goals
Job profile of hedge funds
The hedge fund analyst job profile changes as years pass by. They are briefed as follows.
- Conducting fundamental research
- Attending industry conferences and management meetings
- Creating surveys, building financial models, conducting field-level research
- Analyzing investments and work independently
- Developing the network of buy-side analysts and management teams
- Generating investment ideas and improving sector performance
- Generating profit and loss statements
- Understanding the consensus views and finding differing views
Before wrapping up
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