What Hedge Fund Managers Do
Getting into hedge fund management is often a dream for those who want a high-power career in finance, as some of the best hedge fund managers bring in billions of dollars each year, easily topping CEOs and other execs.
It’s common for US hedge fund managers to earn 2% of the funds simply for managing them, and then keep 20% of the profits as well, though payment in other parts of the world tend to be considerably less. Although few will reveal the tricks of their trade and methodologies, hedge fund managers invest the funds of an elite few with the aim of delivering big on their investments. Their days are spent trying to attract high net worth individuals and institutions, convincing them to contribute to a hedge fund, and then buying securities strategically to profit.
Who would enjoy a career in Hedge Fund Management?
Naturally, the ability to work well under pressure and the desire to commit oneself to lifelong learning and following current events is also essential. Salesmanship, effective communication, and strong interpersonal skills are a must as well. the field is highly unregulated in some parts of the world, which means there’s often ample opportunity for ethical indiscretions. Those who get into the field should be dedicated to ethical behavior and serving their clients.
Who mightn't like the career?
Despite the fact that many finance careers can lead to a job in hedge fund management, it’s still notoriously difficult to land a good job. Those who are interested will likely spend many years building up skills and creating a proven track record of smart high-yield investments. Without this, and recommendations from others, it’s challenging to get into the field.
Moreover, attracting investors, particularly during times of economic troubles, can be difficult as well, and hedge fund managers often have their own worth tied up in the investments too. With the investments leaning toward high-risk, hedge fund managers not only have their careers on the line, but also the livelihoods of their investors. Those who aren’t incredibly skilled at investing and cope with these stresses well are likely to leave the field quickly.
Most people get into hedge fund management from another finance career. Networking, studying or taking investment-related courses, finding internships, and joining hedge groups/ associations, can all aid in the transition. For more information, see “10 Steps to a Career In Hedge Funds.”
Openings in hedge fund management are often unpublished, so it’s helpful to know people who are already in the field and have recommendations before applying. Participating in an internship, even if it’s only part-time, will also give applicants the opportunity to prove their worth before trying to land a job.
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Moving into Hedge Fund Management from another career
Most of the people who get into hedge fund management begin in another arm of finance, such as investment banking, sales and trading, or equity research. They also tend to have investing expertise in a specific sector, which helps them make good decisions with calculated risk.
Role: There are typically two types of traders, those who execute the ideas of others, called execution traders (ETs) and those who create ideas. Traders answer to the portfolio managers and verify that trades can be made at the anticipated rate, then handle the trade, itself.
Investment Analyst (IA)
Role: Investment analysts, also sometimes called research analysts, handle the research and generate ideas. There are often junior and senior analysts. In either case, it’s the IAs that look into the ideas pitched by the traders and portfolio managers, as well as some of their own ideas.
When they think one of the investment opportunities is a solid choice, they pitch it to the portfolio manager. If the portfolio manager wants more information on something, the IA will perform additional research until diligence has been carried out.
Portfolio Manager (PM)
Role: Those who oversee the entire portfolio of investments are called portfolio managers. It can take around 10 years in finance on the hedge fund management career track to reach this level. PMs oversee the work of traders and researchers. They also make the final decision as to whether to buy or sell. The number of hours in this position vary, though it’s not unheard of for some PMs to work 60-80 hours in a single week.
People in hedge fund management don’t generally travel for work, and the hours they put in are not conducive to being a globetrotter. However, the large bonuses offered to top-performers in the field are often able to retire early or change careers to something less demanding later in life, at which point they’re able to live lives of leisure.
Uncovering accurate salaries for hedge fund managers is challenging, as most salary tools use data reported by professionals in any given position to gather averages, and those in hedge fund management are often unwilling to share personal data. Moreover, base salaries don’t often change much as individuals move up the career ladder, but bonuses increase drastically over time, meaning when salary data is disclosed, it is often done so without bonus data.
For those in the US, PayScale lists hedge fund traders as earning an average of USD$100,000 annually, with managers earning an average of USD $100,866. However, the junior levels tend to bring in a few thousand in bonuses, whereas managers reported earning a minimum of over USD$9,000 in bonuses, with some topping USD$500,000.
Salary data for the UK is broken up slightly differently, and follows a more standard financial career ladder, beginning with associates earning roughly £80,000 and VPs closing in on £100,000.
In Canada, recent data places entry-level positions at closer to CAD$87,500, while VPs bring in CAD$125,000.
Generally speaking, salaries don’t change much for those in hedge fund management, but the amount they take home in bonuses grows exponentially over time. So, while a trader or researcher may only bring in a few thousand in bonuses, a PM can bring in hundreds of thousands or even millions.
Why Hedge Fund Managers move on
Those who perform well don’t often leave hedge fund management unless it’s to retire or to work on pet projects and do things they find personally rewarding. However, some move on to other things due to the demanding hours and stress, or are let go for failing to meet performance expectations.