Become a Hedge Fund Manager

By: Kaplan Schweser

December 22, 2020

Hedge funds are low-risk, high-return funds characterized by a high level of investment diversity. They are managed by hedge managers, whose job is to develop investment and risk management strategies for their portfolios in order to gain the highest possible return on investments while maintaining a low level of risk.

Hedge fund management careers can be highly rewarding and lucrative, but they are also extremely demanding and competitive. Read on to learn more about hedge funds, what it’s like to be a hedge fund manager, and how to become a hedge fund manager.

What is a Hedge Fund?
What is a Hedge Fund Manager?
How to Become a Hedge Fund Manager
What is it like to Work at a Hedge Fund?
Hedge Fund Manager Salaries

What Is a Hedge Fund?

Hedging means reducing risk. A hedge fund is an investment vehicle that utilizes a variety of investment and asset management techniques to maximize potential return while maintaining a comfortable level of risk for the client. Hedge funds are pooled funds, meaning that they consist of investments from many different individual investors for the purpose of a larger investment portfolio with more diversifying potential.

Hedge funds require a large initial investment, limiting investors to high-net-worth individuals and institutions. To ensure that investors can handle the potential risks that accompany any kind of large investment, the Securities and Exchange Commission requires investors to be accredited before investing. Some general basic requirements are that investors have a net worth of over $1 million (excluding primary residence) and an annual income of $200,000.

What Is a Hedge Fund Manager?

A hedge fund manager is essentially a consultant for hedge funds. Hedge fund managers work closely with clients to develop investment strategies and manage portfolio trading activities based on the client’s goals and desired risk-reward ratio. Fund managers ensure that assets are managed as cost-efficiently and profitably as possible, which includes making decisions to buy, sell, or hold assets. A fund manager pays close attention to cost and risk associated with capitalizing on cash flow opportunities to ensure proper liquidity of funds.

Fund management is a marriage between hard financial and accounting skills and consulting and research skills. Fund managers regularly research companies, read financial briefings, and stay up-to-date on current events and global economies. They meet with investment analysts and company managers to better understand pertinent financial information. They also likely have a team of financial analysts who use the latest software to do more in-depth analyses on firms, markets, and economic variables. This helps them make recommendations and predictions about future prices and trends.

How to Become a Hedge Fund Manager

Hedge fund manager is rarely an entry-level position. You should expect to devote several years to secure a fund manager job. These are the steps that can get you there.

Complete your education.

First, earn a bachelor’s degree. Majors such as finance, accounting, economics, or business administration provide a solid background for a career as a fund manager. However, majoring in something unrelated to finance (such as a foreign language, hard science, or humanities major) will set you apart, as long as you’re able to defend your reasons for choosing such a major and explain how the skills you learned will translate to a job in finance.

Second, consider getting an MBA or a master’s in finance. You won’t need a graduate degree for an entry-level position in finance, but it may be required as you get closer to becoming a fund manager. Make a plan to get your master’s early in your career. Although graduate schools often like to see that you’ve had several years of work experience before you apply, creating a timeline for yourself early will help you take the required admissions tests and gather your application materials on time.

Complete a financial internship.

An internship is a critical step in the process of starting a career in finance and eventually becoming a hedge fund manager. Having at least one internship on your resume can help you find employment after you leave school, potentially at the firm where you interned. Research the firms in your area that are offering finance internships, and keep applying until you get an offer.

Internships teach you about the investment industry and introduce you to the day-to-day tasks associated with being a fund manager. You will be able to learn about potential future roles, including hedge manager, ask questions, and gain real-world experience in finance while honing your decision-making and communication skills. Internships are also invaluable networking opportunities. You can develop relationships with employees and other interns who can act as references when you begin looking for jobs.

Get an entry-level position in finance.

Start by identifying a company or firm you want to work for and look for entry-level financial analyst positions. These positions are popular and competitive, so you need to set yourself apart. Be sure your resume reflects the qualities you’ll bring to the table and demonstrates some of the skills that make you an exceptional potential employee. Emphasize what you learned as an intern, and keep in mind that most people applying for the position will have an academic background similar to yours, so make sure your resume includes many other experiences, too.

If you’re invited to interview, prepare in advance. Determine the three or four things that differentiate you from other candidates and what you want the interviewer to know about you by the time the interview is over. In the interview, keep these things top of mind, and you’ll be prepared to frame your answers in a way that reflects them.

Presenting yourself as the ideal employee doesn’t end when you get hired. To move into a fund manager position, you need to consider each day a part of your next interview. Simply put, companies promote successful, exceptional employees. The quickest way to move up the ranks is to stay on top of the industry and your firm, making the most of every opportunity to demonstrate your value.

Choose a niche.

By learning and observing the work in your firm, you will soon see that each fund manager handles a different kind of fund (from a long list) and has a different investment philosophy and style. A few examples are small-cap, midcap, large-cap funds, funds for emerging markets, balanced funds, sectoral funds, and pure equity funds. Choose one or two that appeal to you (or that you feel are most likely to enable you to move up), and learn all you can about them.

Having fund management knowledge that is specialized adds to your confidence. More importantly, it can give you an edge over others as you start vying for a more senior role on your way to becoming a fund manager.

Earn your CFA charter.

An effective way to accelerate your learning and demonstrate your commitment to your employer (or other potential employers) is to earn your CFA^® charter.

The CFA exam is a three-level examination offered by CFA Institute. Charterholders estimate they spent an average of 300 hours of study per level. It’s a challenging exam, but passing it can make you one of just 150,000 CFA charterholders worldwide.

Considering the CFA charter? Download this free Before You Decide to Sit for the CFA Exam eBook.

What Is It like to Work at a Hedge Fund?

The hours you work depend on where your hedge fund is located. If you’re on the east coast of the U.S., the hours will typically be from 7:00 am to 7:00 pm. If you are on the west coast of the U.S., the typical hours are from 5:30 am to 5:00 pm. Because your attention will be riveted on the markets when they’re open, the majority of your research needs to be done before and after market hours.

On Quora, an anonymous hedge fund investment professional wrote that, although there is no typical day in a hedge fund, there was a certain rhythm. “I review my to-do list for the day and make adjustments if necessary. If a stock I’ve been following moves materially, I’ll make it a priority to look at what’s going on. I’ll also check in with the portfolio manager to see if there’s anything he’d like me to work on or to get feedback on an analysis I’m working on. Beyond that, it’s a lot of reading and analysis. Public filings, transcripts, company presentations, data analysis, forecasts, etc.”

Other descriptions of working at a hedge fund are similar. One hedge fund manager at a small firm that manages assets valued at $1 billion likened the work environment to a “pressure cooker,” but she still enjoys it. Another hedge fund manager says that “it is never boring” because you have a chance to innovate every day. Overall, most professionals emphasize that if you’re willing to put in the work and the hours and are a creative go-getter, you will enjoy the work and the rewards.

Hedge Fund Manager Salary

Hedge fund manager jobs can be extremely lucrative, and the best fund managers can make over $1 billion a year. That being said, your salary is dependent on the size of your fund and the success of your investments, so most fund managers, while still earning a large salary, make considerably less than this.

Hedge fund manager salaries are based on the Two and Twenty model. “Two” means 2% of the total market value of investments managed by the hedge fund manager, and “twenty” means 20% of the profits made by the fund above a set threshold (or minimum rate of return).