Hedge funds are private investment tools that pool capital from several investors. They use an aggressive investing approach to generate high financial gains. Hedge funds are managed portfolios like mutual funds. But they typically take higher leveraged positions in derivative securities to make more dollar signs. They’re only offered to sophisticated investors with plenty of net worth. In an effort to minimize threats and maximize returns, hedge funds hire managers who are given the task of overseeing client portfolios and tracking growth in the stock market. Hedge fund managers are involved in “hedging.” This refers to trading different stocks and bonds based on market performance to offset the fund’s risks. The following is a detailed job profile to explore what financial professionals can expect from starting a career in hedge funds.
Salary
According to the Bureau of Labor Statistics, the 518,030 hedge fund and other financial managers employed in the United States bring home an average annual salary of $130,230. This can be equated to earning $62.61 per hour. Hedge fund managers who work directly for a securities and commodity brokerage firm typically make the most at around $181,280 each year.
Beginning Salary
When just starting out in the investing world, hedge fund managers can expect to land in the bottom tenth percentile by making a yearly salary of about $62,480. With time, salary potential for experienced hedge fund managers working with affluent clients is virtually limitless. In fact, the world’s richest hedge fund manager, George Soros, has a net worth of $24 billion!
Key Responsibilities
Hedge fund managers are top dogs of the financial world. They’ve earned the main responsibility of making tactical changes to investment strategies for guarding against losses to the fund’s value. Hedge fund managers spend a considerable amount of time analyzing different investment classes and finding new stock market opportunities to identify the best available assets for the portfolio. Other primary duties include:
- forecasting returns
- buying or selling investments
- regularly meeting with shareholders
- tracking market performance
- creating spreadsheets for portfolio analysis
Unlike mutual fund managers, hedge fund managers usually focus their investments on a specific market area or industry.
Necessary Skills
To succeed in the cutthroat investing world, hedge fund managers must possess strong analytical skills for carefully weighing the pros and cons of different investments. Hedge fund managers must make split-second trading decisions in the quickly changing stock market. Good decision-making and critical thinking abilities are essential. Being detail-oriented with organizational skills is another must. Hedge fund managers maintain meticulous reporting records on portfolio health. Hedge fund managers should have solid communication skills to clearly articulate how the fund is performing to its shareholders. Having math skills is also important for hedge fund managers to conduct statistical analysis and make forecasts.
Degree and Education Requirements
Hedge fund managers need to have great financial judgment to work independently with large sums of money. So it’s no surprise that the training requirements are intensive. At the bare minimum, hedge fund managers must have at least a bachelor’s degree from an accredited business school. Most hedge fund managers go on to attend graduate school today though. It’s often best to earn a Master of Science in Finance (MSF) or Master of Business Administration (MBA) with a specialization in:
- finance
- accounting
- economics
- or statistics
For the best career preparation, aspiring hedge fund managers should take electives specifically related to:
- risk management
- options pricing
- bond valuation
- investments
- portfolio management
Pros and Cons of the Position
Of course, the most obvious advantage to working as a hedge fund manager is the very high salary potential with no upper limit. Hedge fund managers are often among the wealthiest people in the country. They enjoy a lavish lifestyle networking with elite clients. Many hedge fund managers will charge a management fee for two percent of the assets managed, which can be millions of dollars in itself. Hedge fund managers also receive the intrinsic reward of using their financial expertise to generate maximum profit gains for their shareholders.
On the flip side, being a hedge fund manager is stressful due to the constant pressure to make good investing decisions. With so much capital, hedge fund managers need to work very long hours to make sure their clients won’t lose any money. Success is also rarely consistent because there will be bad economic times when the market drops or crashes entirely.
Getting Started
Becoming a hedge fund manager isn’t for the faint of heart because far more fail than succeed. If you’ve determined that the rewards outweigh the challenges, you’ll need to immediately get started on the pathway towards success in hedge funds. While earning your degree, jump on every opportunity to gain experience in the stock market either through internships or part-time work. Join any local hedge fund associations to learn more about the major industry players and fine-tune your knowledge on key terminology. Hedge fund management jobs often aren’t advertised, so don’t be afraid to start cold-calling companies listed on the online Chamber of Commerce directory. Check to see if any hedge fund managers graduated from your school and connect with them if possible. Going the extra mile to earn the Chartered Financial Analyst (CFA) or Chartered Hedge Fund Associate (CHA) credential can also impress employers.
Future Outlook
As the economy continues to recover, there’s expected to be a larger demand for financial professionals to focus on coordinating investments. The United States is a major epicenter for financial services. Companies around the world will rely on fund managers here to properly invest the accumulating cash on their balance sheets. According to the Bureau of Labor Statistics, employment of hedge fund managers and other financial managers is predicted to grow as fast as average at nine percent, thus creating 47,100 new jobs. Hedge fund managers with a master’s degree and certification in finance will have the best career outlook. Some of the world’s largest hedge funds regularly offer new openings. These include:
- Braeburn Capital
- Bridgewater Associates
- SAC Capital Advisors LP
Overall, hedge fund managers are licensed through the Financial Industry Regulatory Authority (FINRA) to use aggressive investment strategies for operating funds pooled from clients meeting certain net worth requirements. If you become a hedge fund manager, you’ll work in a fast-paced environment to help clients capitalize on market gains while earning your lucrative commissions.
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