What Is a Hedge Fund Manager?
Written by
Karen Doyle
Edited by
Elizabeth Constantineau
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
A hedge fund manager is someone who, as the title would suggest, manages a hedge fund. A hedge fund is a fund that pools money from a group of investors to purchase certain investments. Since a hedge fund is subject to less regulation than many other investments, and is only available to sophisticated investors, it is riskier than many investments. Managers are subject to that risk as well. Here’s what you need to know.
Understanding Hedge Funds
What Are Hedge Funds?
A hedge fund takes investments from so-called accredited investors, who are required to have a certain minimum income, net worth or investment education. Using these funds, a hedge fund manager purchases investments based on the fund’s strategy.
A hedge fund strategy may be designed to outperform the market by focusing on specific types of investments, or it may be designed to protect, or “hedge,” against a market downturn.
Hedge funds can invest in stocks and bonds, just like mutual funds do, but they can also invest in alternative investments like foreign currency, real estate and even fine art. They are restricted to raising money only by non-public means, which means they cannot offer the investment to the general public.
How Hedge Funds Differ From Other Investment Funds
Hedge funds differ from other investments like mutual funds and ETFs in accessibility, regulation and strategy.
- Mutual funds and ETFs: Easy for anyone to invest in. They follow strict rules and generally spread money across many investments to reduce risk.
- Hedge funds: Only open to experienced or wealthy traders. They take bigger risks, using strategies like betting on price drops to try to make higher returns.
The Role of a Hedge Fund Manager
A hedge fund manager oversees the investments in the hedge fund’s portfolio, and must buy and sell investments in order to achieve the goals of the fund.
Key Responsibilities
Some hedge fund manager‘s duties include:
- Making investment decisions for the portfolio
- Performing trend analysis and market research
- Analyzing investment options
- Understanding the investors’ needs
- Offering investment advisory services to investors
- Communicating new investment products to investors
- Managing a pool of analysts, traders and accountants
- Reconciling investment values on a regular basis
Strategic Decision-Making
Hedge fund managers rely on extensive market research, financial modeling and historical data to make investment decisions. They continuously monitor economic trends, corporate earnings and geopolitical events to adjust strategies in real time.
The goal is to generate high returns but to also minimize losses by anticipating market shifts.
Skills Required for Hedge Fund Managers
To succeed, hedge fund managers need a few key skills:
- Strong analytical skills: Ability to evaluate financial data, assess risk and analyze pricing models.
- Deep market knowledge: Understanding of global markets, trading strategies and different types of investments.
- Leadership and communication: Manage a team of analysts and effectively communicate strategies to clients and investors.
How To Become a Hedge Fund Manager
There are a few ways to become a hedge fund manager. Here’s a breakdown.
Educational Pathways
To become a hedge fund manager, you need at least a bachelor’s degree and some companies will even require a master’s degree. You’ll want to pick a discipline like finance, accounting, economics or business administration.
Internships with financial firms are helpful if you want to be a hedge fund manager.
Professional Experience
Most hedge fund managers will start their career in finance, often with a brokerage firm or investment bank. Some will become financial advisors, offering advice to individual investors.
Certifications and Licenses
There is no requirement to be certified to be a hedge fund manager, but some managers have other certifications. Many will hold the following certifications:
- Registered Investment Advisor
- Chartered Financial Analyst
- Certificate in Hedge Fund Regulation
- Certified Treasury Professional
Hedge Fund Management Strategies
Hedge fund managers use a variety of strategies to reach their goals — here are a few.
Common Strategies
Long-short: Buying stocks that are expected to increase in value while short-selling those that are expected to decline. The aim is to profit from market swings.
Global macro: Investment decisions are based on large-scale economic trends. These could be interest rate changes and geopolitical events.
Event-driven: Watching for corporate events like mergers, bankruptcies or restructuring to generate returns.
Importance of Diversification
Hedge funds reduce risk by investing in a mix of asset classes, industries and global markets. Spreading investments across different areas helps minimize losses from market downturns while still allowing for strong returns.
Compensation and Lifestyle
Hedge fund managers get paid in two ways.
- They earn a management fee, for managing the investments in the hedge fund portfolio.
- They also earn a performance fee, which is a percentage of the profit the hedge fund earns. The better the fund performs, the more money the manager makes.
A typical hedge fund compensation is what’s known as a 2/20 fee structure. Under this scenario, the hedge fund manager earns 2% of the assets in the portfolio as a management fee, plus 20% of the fund’s profits as a performance fee.
For example, if a hedge fund manages $100 million and generates 10% returns, the manager earns:
- $2 million from the management fee — 2% of the $100 million.
- $2 million from the performance fee — 20% of the $10 million profit.
Hedge fund management is a high-stakes career with long hours, high stress and intense competition. While top managers earn millions or even billions per year, the job requires constant monitoring and decision-making under pressure.
Conclusion
Just as hedge funds are not the best investment for every investor, being a hedge fund manager may not be the best career choice for everyone. But for those who have an affinity for picking successful investments, and who can weather the inevitable ups and downs of the market, it can be an exciting and lucrative career.
FAQ
Here are the answers to some of the most frequently asked questions about hedge fund managers.- What is a hedge fund manager?
- A hedge fund manager is a financial professional who oversees the investment strategy and performance of a hedge fund.
- What does a hedge fund manager do on a daily basis?
- A hedge fund manager spends the day analyzing financial markets, making investment decisions, monitoring portfolios and communicating with investors.
- How do hedge fund managers make money?
- They earn a management fee for managing the investments in the hedge fund portfolio. They also earn a performance fee, which is a percentage of the profit the hedge fund earns.
- What are the qualifications to become a hedge fund manager?
- Most hedge fund managers have a degree in finance, economics or math. They also have professional experience in trading or investment banking. Certifications like the CFA can also be helpful.
- How does hedge fund management differ from other financial roles?
- Hedge fund managers have fewer regulatory restrictions and broader investment options, like short-selling and derivatives trading.
- What are the most successful hedge fund management strategies?
- Strategies like long-short equity, global macro and event-driven investing have historically yielded strong returns.
How Much Do They Make Guides
- How Much Do Actors Make?
- How Much Do Flight Attendants Make?
- How Much Do Grubhub Drivers Make?
- How Much Do Instagram Influencers Make?
- How Much Do Jockeys Make?
- How Much Do Lyft Drivers Make?
- How Much Do Shipt Drivers Make?
- How Much Do TikTokers Make?
- How Much Do Uber Eats Drivers Make?
- How Much Economists Say Stay-at-Home Moms Should Get Paid
- How Much Money Do Podcasters Make?
- How Much Money Do YouTubers Make?
Elizabeth Constantineau contributed to the reporting for this article.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- Corporate Finance Institute. "Hedge Fund Strategies."
- U.S. News Money. 2021. "How To Invest in Hedge Funds."
- Corporate Finance Institute. "Hedge Fund Manager - Overview, Functions, Compensation."
- Indeed.com. "Learn About Being a Hedge Fund Manager."
- Street Of Walls. "How Do Hedge Funds Make Money?"
- Indeed.com. "16 Wall Street Jobs (With Salaries and Duties)."
- Institutional Investor. 2024. "The 23rd Annual Ranking of the Highest-Earning Hedge Fund Managers."
- Corporate Finance Institute. "Hedge Fund Strategies."
