Ben Waters, trader, is a graduate of The London School of Economics and Political Science, having earned a BSc degree in accounting and finance. Benjamin Waters, trader, has experience of trading options, equity trading, delta one trading, value investing and managing hedge funds. This article will take a closer look at hedge fund management, providing an overview of the key skills required for a successful career as a hedge fund manager.
A hedge fund manager may be an individual or a financial firm. Hedge fund managers are responsible for making investment decisions and overseeing the operation of hedge funds. Becoming a hedge fund manager can be a lucrative career choice, presenting high compensation potential.
Successful hedge fund managers consistently create and maintain a competitive advantage by formulating a clearly defined investment strategy, a marketing and sales plan, adequate capitalisation and a risk management strategy. What sets them apart from other fund managers is the fact that the funds and personal worth of hedge fund managers are often tied directly to the hedge fund itself.
Hedge fund management firms are often owned by the hedge fund managers in charge of the hedge fund portfolio, entitling them to a large share of the profits the hedge fund generates. Hedge fund investors fund management fees covering operational expenses, as well as performance fees that are distributed to the hedge fund owners as profit.
Hedge fund managers have a wide range of different duties, including:
- Selecting investment options for the fund
- Instructing traders and analysts to research investment opportunities and execute trades
- Selecting high-risk investment options that align with the fund’s benchmark for high profitability
- Meeting existing and potential investors and raising capital for hedge fund investments
- Monitoring fund investments and markets closely and rebalancing the portfolio in accordance with its risk-reward mandate
- Handling other matters concerning fund operations.
Successful hedge fund managers hold some of the most highly paid positions in any industries, far outpacing even the CEOs of major companies. Some of the highest-grossing hedge fund managers make almost $4 billion annually according to Investopedia. This extraordinary earning potential means that hedge fund managers must consistently maintain a competitive edge, creating winning investment strategies and making advantageous trading choices. That said, the majority of hedge fund managers make far less than their top-paid contemporaries since their funds generate lower profits.
Most hedge fund managers embark on their career with a minimum of a college degree in finance or another relevant area of study as well as work experience in the investment field. Serving as an intern at a financial firm is a popular route into the industry. An advanced degree, such as a Master of Finance degree, can also be advantageous for those just starting out. Earning credentials are valuable, and they will also require a business license to operate.
According to a report by EurekaHedge, institutional investment in hedge funds is poised to grow rapidly in coming years, with a fivefold growth rate predicted over the next five years, amounting to $300 billion in institutional investment. Today’s institutional investors are looking for more than hedge funds that offer significantly enhanced returns, seeking out options that will literally serve as a hedge, delivering relatively modest returns but also low volatility and low correlation with broad markets.
EurekaHedge’s report predicts that institutional investors will continue to channel around half of their hedge fund investment via the fund of hedge fund industry, leveraging its expertise to provide quality control and diversification. The report also suggests that, in order to meet the needs of institutional investors, hedge funds will need to ‘professionalise’ their management, demonstrating not only investment acumen, but also high integrity, operational excellence, responsive customer service and robust risk management.
