A:

A hedge fund manager does not necessarily need any specific license to operate the hedge fund. But depending on the type of investments the fund makes, he may find it necessary or at least helpful to obtain certain licenses. The legal requirements of the state in which the hedge fund is registered as a business may necessitate the fund manager obtaining a Series 65 license, administered by FINRA.

A hedge fund is an investment fund that is commonly only available to a limited group of investors who meet certain income and net worth requirements. Hedge funds invest in a wide range of assets. They may be primarily invested in stocks, bonds, futures, currencies, other funds such as exchange-traded funds (ETFs) or even hold direct investments in companies. (For more details, see "What Does a Hedge Fund Do?")

Licensing Requirements for Hedge Fund Managers

The only universal license requirement for a hedge fund manager is an ordinary business license. Because hedge fund managers are not regulated as brokers, they do not usually need to have the Series 7 license required for brokers to engage in trading on behalf of customers.

However, since a hedge fund manager is in the position of acting as an investment advisor, he may be required to take the Series 65 exam and obtain a Series 65 license. It is state laws that determine the licensing requirements for local operating investment advisors, and they vary: Some states simply require official registration as an investment advisor and payment of a licensing fee, but most states require the Series 65 license. Also, some states set a Series 7 license as a prerequisite for obtaining a Series 65 license.

Additionally, if a hedge fund manager is managing more than $30 million worth of investment assets, he is required to register as an investment advisor at the federal level per the Investment Advisers Act of 1940. If the hedge fund manager is considering investing in commodity futures, the fund manager probably needs to register as a Commodity Pool Operator or Commodity Trading Advisor with the National Futures Association (NFA), which requires obtaining the Series 3 license.

RELATED FAQS
  1. Do financial advisors have to be licensed?

    Understand why all financial advisors have to be licensed, and identify the specific licenses you must obtain to carry out ... Read Answer >>
  2. Can mutual funds invest in hedge funds?

    Learn about mutual fund portfolio management techniques and mutual funds' ability to invest in hedge funds, as well as new ... Read Answer >>
  3. Where does a hedge fund get its money?

    Learn how a hedge fund is structured and how the managing partner of the fund goes about the process of finding and soliciting ... Read Answer >>
  4. Are there publicly traded hedge funds?

    See why a privately arranged hedge fund may decide to take its fund public, and how the investing public at large can gain ... Read Answer >>
Related Articles
  1. Financial Advisor

    Breaking Down Financial Securities Licenses

    Find out which exam you need to begin your career as an investment professional.
  2. Investing

    How To Start a Hedge Fund In the United States

    A general overview of how to start a hedge fund firm in the United States, including complying with state and federal regulations.
  3. Investing

    What are hedge funds?

    Hedge funds may be similar to mutual funds in some ways, but they differ in many others. Learn their distinctions and characteristics here.
  4. Investing

    Hedge Funds Go Retail

    Find out how average investors are breaking into what was once reserved for the ultra rich.
  5. Investing

    Hedge Funds' Higher Returns Come At A Price

    Learn how hedge funds win big gains for investors - and why they sometimes lose.
  6. Managing Wealth

    HF Performance Report: Did Hedge Funds Earn Their Fee in 2015?

    Find out whether hedge funds, which have come under tremendous pressure to improve their performance, managed to earn their fee in 2015.
  7. Investing

    Hedge Funds: Higher Returns Or Just High Fees?

    Discover the advantages and pitfalls of hedge funds and the questions to ask when choosing one.
  8. Financial Advisor

    4 Reasons to Still Consider Traditional 2 & 20 Hedge Funds

    Find out why traditional 2 & 20 hedge funds are still worth considering as an investment, even though they have underperformed for the last several years.
  9. Investing

    Are Hedge Funds Chasing Performance?

    Learn why hedge funds have performed worse than the S&P 500 Index in 2016, and why they may overweight equities to play catch-up in the second half of 2016.
RELATED TERMS
  1. Hedge Fund Manager

    A hedge fund manager is an individual who oversees and makes ...
  2. Licensing Fee

    A licensing fee is an amount of money paid to an entity for the ...
  3. Absolute Return Index

    The absolute return index is used to compare the absolute returns ...
  4. Blow Up

    Blow up is a slang term used to describe the very public and ...
  5. Natural Hedge

    A natural hedge is the reduction in risk that can arise from ...
  6. Two and Twenty

    Two and twenty is a compensation structure that hedge fund managers ...
Hot Definitions
  1. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  2. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  3. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  4. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  5. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  6. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
Trading Center