Hedge Fund Manager

What is a 'Hedge Fund Manager'

A hedge fund manager is the individual who oversees and makes decisions about the investments in a hedge fund. Managing a hedge fund can be an attractive career option because of its potential to be extremely lucrative. To be successful, a hedge fund manager must consider how to have a competitive advantage, a clearly defined investment strategy, adequate capitalization, a marketing and sales plan, and a risk management strategy.

BREAKING DOWN 'Hedge Fund Manager'

Head fund management firms are often owned by the managers in charge of the portfolio, meaning that they are entitled to a large amount of the profits that the hedge fund makes. When entering into a hedge fund, investors fund the management fees that cover the operating expenses, as well as performance fees that are usually distributed to the owners as profit. What sets hedge fund managers apart from other types of fund management is the fact that the personal worth and funds of hedge fund managers are usually tied directly to the fund itself.

Individuals wishing to invest in hedge funds must meet income and net worth requirements. Hedge funds can be considered high risk because they pursue aggressive investment strategies and are less regulated than many other types of investments. The hedge fund manager is responsible for the investment decisions and the operations of the fund.

Top hedge fund managers hold some of the most well-paid positions in any industry, far outpacing CEOs of major companies. Some of the highest-grossing managers make close to $4 billion a year. Hedge fund managers have the potential to be some of the highest paid executives in the financial industry, if they stay competitive and always come out as winners. On the other end of the spectrum, some hedge fund managers do not make nearly as much as the top paid managers, because if they fail at all in their financial endeavors, they will not be paid.

Strategies

Hedge fund managers can take multiple strategies to maximize returns for their firms and clients. One popular strategy is using something called global macro investing. The idea is to invest in tandem with a large share or sizable position in markets that are dealing with predicting global macroeconomic trends. This type of strategy used by hedge fund managers gives them the necessary flexibility they need, but the strategy is heavily dependent on excellent timing.

Another popular strategy that has made multiple hedge fund managers billionaires is an event-driven strategy. This means that the managers are looking for large opportunities to capitalize in a corporate environment. Some examples of this include mergers and acquisitions, bankruptcies, and shareholder buyback initiatives. Managers working on this strategy are capitalizing on any market inconsistencies, similar to using a value investing approach. Hedge fund managers usually go this route because of the vast resources they have behind them.