The hedge fund industry has always drawn attention due to its high intensity, hedonistic appearance, and top-tier paying potential. Many Hollywood movies in their main roles dissect some aspect of a hedge fund manager's job, raising its overall appeal. That is why so many young people are attracted to this line of work and are looking at how to become a hedge fund manager.
Being a part of hedge fund management is far from the glitz and glamour that it may seem from media portrayals, and to succeed a person needs to tick all the right boxes. It all starts with proper education, preferably earning a master's degree. Having an actual interest in the business is a must, and with it comes building a personal network. The final step is to gain relevant experience in the finance industry. It could be an intern job, or an entry-level position, like a junior analyst.
From there the individual should think about earning useful certificates, and develop a skill set that will help them move up the ladder. Anyone aspiring to be a hedge fund manager should be working on work discipline, adapting to long hours and stress, and constantly learning. It is a difficult trade to earn, but can be highly rewarding. For more in-depth information stay with us.
Key Takeaways
- Strong educational background preferably from the economy or business niche is preferred for working as a hedge fund manager.
- Managing a hedge fund portfolio is a career path that demands both high academic achievements and a strong character and skill set.
- Many hedge fund managers start from the bottom, including the positions of junior analyst, or an unpaid internship.
- Working in hedge fund businesses can be highly lucrative and challenging. To maintain success a professional must stay committed to his work.
Defining A Hedge Fund
A hedge fund is an alternative investing vehicle that offers ultimate opportunities to diversify the investment portfolio. They pool investment capital from accredited investors, both individual and institutional. It often utilizes risky strategies and relies on leverage aiming to outperform the indexes.
Hedge funds have several strategies at hand, from classic long/short equity, global macro, and activist investing, to derivatives, options, and investing in debt. Some funds stick to one strategy, while others may combine several.
To minimize potential losses hedge fund managers employ risk-mitigating strategies, like position hedging, stop/loss orders, and position sizing.
What Does A Hedge Fund Manager Do
The Hedge Fund manager has several crucial and complementary activities that he needs to conduct on a regular basis. Only the combination of these activities can eventually lead to a successful investment operation.
It all starts with designing investment and trading strategies. Depending on the fund and manager's approach, there is a wide selection to choose from. Using any strategy demands a specific set of skills, experience, and general knowledge to make the best out of the situation. As an example, a hedge fund manager focused on global macro lacks skills in other departments, which would result in lower results.
As a complementary part of the strategy development, also there is the risk management element. Every strategy comes with a unique set of risks, and careful thinking is required. How much leverage will be used, is there a need for stop/loss orders, and how will the portfolio position sizing be planned, these are just some of the questions that need to be tackled.
Besides planning a strategy and risk management, selecting and monitoring investments is another impactful part of a hedge fund manager's operations. Making investment decisions comes from the strategy that is preferred within the fund.
By choosing different assets often from different parts of the world, hedge fund managers are also conducting portfolio construction. A well-balanced portfolio divided amongst several industrial sectors can provide additional risk-mitigating capabilities.
While a diversified portfolio helps in mitigating risk, hedge fund managers also often prefer to have concentrated portfolios. This helps them stay in the familiar setting, and to be able to keep an eye on all investments.
A constant task that hedge fund managers conduct is economic and market research. Managers who are in line with the current landscape of the market, and are aware of the newest trends, can make informed and well-timed decisions.
Finally, once the capital is invested, the pondering doesn't stop there. Managers are constantly watching over their investments. Not only the stock price but the whole landscape that surrounds the investment. That includes potential new targets, competition, and trends that could develop. The goal is to notice useful information before they can make a dent in the investment, or in another case to miss out on the opportunity.
Managers are also constantly watching over the performance of their portfolio, and how it can be adjusted for better performance.
Managers are also in charge of raising capital for the fund. This part of the manager's job could be placed in the beginning, since without capital there are no investments. However, all these tasks have a high priority in the overall fund operations.
Here comes in focus manager's people skills and professional network that it can call upon. Managers with a wide array of friends in high places can get in touch with a whole level of high-net-worth individuals or institutions that are looking for a route to invest. If the manager also knows how to work with these people, he has a much better chance of attracting more capital. What is important to note, hedge fund managers indeed earn higher salaries with the larger assets under management in the fund.
Away from the spotlight of investing, every manager needs to be focused on industry compliance, and following regulatory compliance. Also, there is a question of transparency and reporting which is vaguely defined and still demands input from the manager.
The question of team leading is left to upper-tier managers, but most portfolio managers have a team to work with. So, another dimension of skills is needed for this segment, which includes leadership and again - strong people skills.
Educational Background Needed For A Hedge Fund Manager
Building a hedge fund career starts from the earliest education. Hedge funds usually recruit top of the class from best universities with a focus on business and economics. However, a student with a preference for math, or physics also has a lot to offer, especially in the quantitative hedge fund models.
While a candidate may think that a bachelor's degree in finance or accounting is enough, going the extra mile with an MBA, or similar master's program will always come in handy.
Besides traditional education, future hedge fund managers can also get a lot from specific professional certifications. Those include Chartered financial analyst (CFA), Financial risk manager (FRM), or obtaining Series 7 or 63 licenses. Other usable education programs include specialized expertise in computer science.
Learning From Experience
Once a candidate ticks the educational and necessary skills boxes, then they can start thinking about applying for a job. But, it must be prepared to start small. This means applying for an internship which in some cases is not even paid.
Other options include finding a hedge fund that is just formed and small. These teams are often looking for people who are right out of college, so they can mold them how they see fit. Also, they will more likely allow a professional to thrive by presenting their unique ideas. While these jobs do not come with a big compensation package, they can result in a significant career boost.
Besides starting in hedge funds, a future hedge fund manager can start his career in a similar field. Some of the best choices include banks, insurance companies, or other types of funds, like ETFs or Mutual funds.
Once working a candidate should not expect to get into a managerial role from the start. It is a long grind before that. In most cases, the first position is a junior analyst. In that position, he will learn the tools of trade, and get an opportunity to work in teams with seasoned managers. If someone feels discouraged - don't be. Almost all big names in the hedge fund industry started the same way.
Remember, the hedge fund landscape is backed by a system that supports absolute meritocracy. That means that only truly the best, and most talented have a chance to move forward. A lot of money is in play, and rarely who would choose someone based on some criteria that don't help him to get the job done.
How To Progress In A Managerial Role
Progressing to the position of a hedge fund manager is not the end, but on the contrary, just the beginning. Anyone looking to make this a long-term career in this highly competitive niche will need to put a lot of sweat and tears into his job.
For starters, a lot of young bright minds, often top in their universities, are looking to move into the investing industry. Staying atop of them is the first thing every young hedge fund manager must think about. He can do it only by working on his skills and creating a strong track record.
Everyone makes mistakes, and there is no way to avoid them when investing in a business. However, a person needs to keep it steady when everything is starting to look like it is falling apart. Having a clear mind and avoiding panic attacks is essential for a long and healthy life in the finance business.
Acting like a sponge is a good approach to learning. Entering a good firm and having a good working environment is a bonus that can boost the career in so many ways. But, one must be ready for personal sacrifice, and disturbed life-work conditions in this process.
Knowing theoretically what defines an investment strategy is just an entry ticket. Trying it on numerous real-life investing examples is another thing. Monitoring made investments and making adjustments in due course is a lifelong path to improvement. Surviving through major crisis and volatility periods are the building blocks of every successful investor.
If we would try to sum this up we would do it this way - be ready for sacrifice, learn from the best, be ready for failure, but also keep an open mind.