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Hedge Fund or Investment Bank Internship?

Q: I was offered internships at a hedge fund and a small investment bank, and I don’t know which to choose. The hedge fund internship is paid and full time – I need the money - while the investment banking one is unpaid and has flexible work hours. But I was told the portfolio manager with whom I’d be working at the hedge fund yells a lot and that I’d be doing administrative work 50% of the time. The investment bank would provide more work related to my field of interest. Which sounds better to you?

In a word, hedge funds are hot and hard to break into, so if you’ve got an in, take it, says Rod Williams, a job market consultant with New York-based Lee Hecht Harrison. “It's a very limited and exclusive playing field so it's awfully hard to choose against an opportunity to get inside - even if it's half administrative work. The other half isn't, and there are great networking opportunities as well,” Williams says. “Adding compensation to the mix makes it a done deal from my perspective.”

While it’s hard to break into the hedge fund industry, there are more opportunities to gain access to the investment banks. And since money is a concern, the investment banking internship seems a less attractive option.

As for the temperament of the portfolio manager at the hedge fund, it’s always better to give people the benefit of the doubt at the outset.

“It’s always advisable to form your own opinion of people in matters like these to allow for perceptual differences'" says Williams. "And in this case, you won't have regrets later about ‘the one that got away’.“

Deborah Rivera, founder of New York-based Succession Group, says given the choice between a small hedge fund that’s willing to pay and a no-name investment bank that’s not likely to carry much weight on the resume, she, too, would choose the hedge fund.

"If you were choosing between a small hedge fund and Morgan Stanley or Goldman Sachs, I would clearly tell you to choose the unpaid internship at the investment bank, " says Rivera. "A big name that’s internationally recognized carries a lot of weight.”

The hedge fund is likely to provide the more realistic field experience. Moreover, firms that don’t pay their trainees don’t expect much from them. “It’s likely you’ll be doing administrative work no matter where you intern since you do not have experience and you have to learn to walk before you run,” says Rivera. “Neither the bank nor the hedge fund are hiring you to be the CEO.”

Rivera warns that those looking for bosses who don’t yell and hours that are flexible are not being realistic.

“If you think you want to be a “financial expert” yet you are looking for a kinder, gentler environment, I think you are better suited for another career,” she says. “If you want an accurate picture of the financial world and want to work with someone who is really in it, I would strongly suggest taking the hedge fund role.”

Those who do take unpaid internships should make sure their experience is thoroughly educational. In fact legally, it has to be. Kenneth Taber, an employment law attorney with Pillsbury Winthrop Shaw Pittman LLP, says if employers aren’t going to pay trainees at least the minimum wage, the job must satisfy certain criteria.

“Unpaid internships cannot be used by companies as a means of securing free labor to perform ‘grunt work.’ On the contrary, they must provide an educational experience in a professional setting,” says Taber.

The criteria, as spelled out by the U.S. Department of Labor, are as follows:

1. The training should be similar to that which would be given in an educational program.

2. The training is for the benefit of the trainees.

3. The trainees do not displace regular employees; Rather, they work under close supervision.

4. The employer derives no immediate advantage from trainee activities. In fact, his operations may sometimes be impeded.

5. The trainees are not necessarily entitled to a job at the completion of the training period.

6. All parties understand the trainees are not entitled to wages for the time spent in training.