Even after the shakeout in the hedge-fund industry that started in 2008 and continued into 2009 -- a turbulent period during which thousands of funds closed and hundreds more were left hobbled -- hedge funds continue to be a destination of choice in 2010 for Wall Street traders, dealmakers and even finance-focused lawyers seeking an alternative forum for their talents. Far less constrained than mutual funds, hedge funds have reaped huge gains this past decade by borrowing vast amounts of money to amplify their bets, making millions for themselves and their clients frequently while taking on greater risks than those assumed by funds catering to less-wealthy investors. The hedge-fund industry is most heavily concentrated in the U.S. but also has a large presence in London, and offshore administrative, tax and legal work support offices in places like Bermuda and the Cayman Islands.

Hedge funds challenge simple definition, and in many ways mirror some of the most successful of Wall Street's proprietary-trading operations, where bank-hired traders and portfolio managers invest banks' own capital where they see market opportunities. Hedge-fund investors must meet minimum wealth requirements, limiting access to well-to-do individuals and deep-pocketed institutions such as endowments, foundations and pension funds. They trade everything from stocks, bonds and currencies to gold, agricultural commodities and more-exotic derivative securities. Some try to make money by issuing loans to businesses that banks won’t touch; their researchers dig into companies going through mergers and sort through the havoc of bankruptcy courts to pick winners and losers. They've vacuumed up analysts and traders from Wall Street during the past decade, giving the private funds a collective edge over more-accessible investment vehicles. Hedge-fund managers typically pay higher salaries while expecting greater returns. In 2008 and 2009, talent flowed both ways between hedge funds and Wall Street, as trading desks closed and teams -- including many in Asia and Europe -- were shut down, sending investors looking for seats elsewhere.

Hedge-fund performance overall bounced back strongly in 2009 following widespread losses in 2008. Last year, the average fund gained about 20% on investment returns after diving 19% in 2008, when the value of holdings plummeted amid market upheaval and bank catastrophes, according to data from Hedge Fund Research Inc. Many managers spent much of last year digging out of those losses. During their recovery period, funds in general were selective in hiring. Then last year, the “help wanted” message strengthened, and fund managers, recruiters and other industry insiders expect the more resilient funds to continue drawing talent from weaker rivals in 2010.

WHERE THE ACTION IS

Hiring experts anticipate a busy 2010, with the job churn picking up as the year progresses, especially if money flows back into hedge funds as expected.

"There's a lot of people leaving some of the previously more-stable funds that had investor withdrawals and have put a lot of money aside to meet redemptions," says Gustavo Dolfino, a senior managing director at recruiting firm Accretive Solutions.

Claude Schwab, partner at recruiting firm Heidrick & Struggles and head of its U.S. hedge-fund practice, notes that the shakeout that started during the credit crisis isn't over. "In Q1, we're still going to see funds shut down," he says, particularly in the more-vulnerable fund population below $1.5 billion or $1 billion in assets.

Funds that specialize in fixed-income securities such as bonds and preferred stock have continued to add analysts, traders and portfolio managers as they roam the globe finding investing opportunities. Existing U.S. and European managers are opening Asia offices -- especially in Hong Kong and to a lesser degree Australia -- and China fund launches have picked up. As was the case in 2009, firms specializing in distressed credit -- especially credit-default swaps, bank loans and commercial mortgage-backed securities -- are building their ranks. Specialists in securitized loans are getting calls from hedge funds looking to add to these holdings.

Hedge funds are key players in structured loans to troubled companies, and the investors are active in bankruptcy proceedings when the companies falter. Funds specializing in macro-driven themes (interest rates, currencies and economic-trend investments), plus stock-picking and high-frequency trading funds have been adding investment professionals, in addition to the credit-focused funds.

Not surprisingly, the spate of investment frauds, most notably the multi-billion-dollar Ponzi scheme by Bernard Madoff revealed in December 2008, prompted hedge funds to staff up in areas of risk management and compliance, and those areas remain active for hiring going into 2010. Smaller and medium-sized funds have had to add dedicated staffing in those areas in order to attract investors.

Moreover, many survivors of the crisis cut back-office and administrative staffs during the lean times. Hedge funds managing $1 billion of more in assets cut operations and administrative staffing to about 17 full-time employees, on average, last year from 22 full-timers in 2008, according to research firm Greenwich Associates.

As money flows back in, search specialists expect a revamping in those areas.

Marketing and investor-relations areas also are seeing a continued influx, several search experts say. London-based offices of U.S. and European funds are hiring marketers, says Heidrick & Struggles.

CAREER PATHS

There is no hard-and-fast career path leading to hedge funds. Many traders and portfolio managers typically have come from Wall Street firms. But many also emerged from university graduate schools with economics, math or physics PhDs or worked in law firms. Graduate business schools have supplied thousands of entry-level analysts and researchers in recent years, who have expected to earn a baseline salary of $150,000 to $200,000 right out of school, plus bonuses based on fund profits and assets under management.

Paychecks shrank as funds sustained widespread losses, and they haven’t bounced back to pre-crisis levels at still-hobbled funds. Many hedge-fund executives dug into their own pockets to pay bonuses or otherwise risked losing talent. As hiring has picked back up, base salaries have stayed pretty steady, payment experts say. Most portfolio managers who landed new jobs last year got base salaries similar to 2008 levels, of $150,000-$300,000 with expected payouts commonly at 15% of the P&L -- or investment-portfolio profits -- says Heidrick & Struggles. Guaranteed bonuses are typically reserved for a minority of sought-after portfolio managers.

Some cash-strapped fund managers have been paying "ghost shares," basically IOUs for a payout down the road if the fund returns to profitability, a sign of creative compensation tactics, says John Pierson, who runs New York hedge-fund recruiting firm 10X Partners.

As average pay stalled during the crisis, some hedge-fund investment pros left the industry for other opportunities. There was a pick-up in hiring of hedge-fund talent by the U.S. Securities & Exchange Commission, Heidrick & Struggles notes. Sovereign-wealth funds in China and elsewhere also picked off talent, as did endowments and foundations.

GETTING THE JOB

Breaking into hedge funds became harder during the credit crisis, but the job market shows signs of loosening. In recent years, business schools churned out graduates looking for a piece of the rich hedge-fund pie. Wall Street traders hopped to funds in search of a more-entrepreneurial workplace and a chance at bigger paychecks. Such ambitions remain.

Now for some practical points. Hiring experts say would-be candidates can do some prepping to get an edge over the competition, such as by obtaining a Chartered Financial Analyst or Chartered Alternative Investment Analyst designation, each of which takes some time, studying and exam-taking. Both programs dive deeply into the how-to's of balance sheets and debt transactions and are seen as a good overview for understanding the markets and financial system.

One way through the door when jobs are scarce can be an internship. These days, some entry-level applicants are offering to work for free. Similarly, a lot of traders are considered more or less on probation until they prove they can make money, or at least not lose more than their peers in comparable trades.

Whatever job you're aiming for, do your homework. Know what's involved in compliance and risk-management jobs; know the difference between hedge-fund strategies, because "hedge fund" is only a loose definition for a private investment partnership -- it doesn’t describe what securities a firm trades, whether it does rapid-fire trading or does longer-term, private-equity-style deals.

Be ready to answer impromptu questions, such as brain teasers, designed to gauge how well you think on your feet, react to stress and weave your way out of a puzzler. Some big hedge funds such as D.E. Shaw & Co. LP, home to an army of quants and scientists, are known to throw puzzle after puzzle at applicants through multiple interviews, culling the pile of candidates with each round. Investment-job candidates might be asked for ideas on how they would tackle a certain market opportunity or react to a certain level of losses in a portfolio.

Even if you're looking to do nothing but trade stocks or commodities, it pays to understand how a hedge fund works as a business: What the legal and regulatory framework looks like; how investors and managers are taxed; how risks are managed; how much the firm has grown or not; whether it's currently bringing in new clients; and whether it has gotten media coverage. The more you know about what makes a firm tick, the more likely you are to show you know how to get information and use it.