Table of Contents
Table of Contents

Licenses for Hedge Fund Managers

A hedge fund manager does not necessarily need a specific license to operate the hedge fund as opposed to any other type of investment fund. Depending on the type of investments the fund makes, a portfolio manager 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 may necessitate the fund manager obtaining a Series 65 license, administered by FINRA.

Key Takeaways

  • Hedge funds are loosely regulated investment vehicles since they mostly cater to accredited or high-net-worth investors.
  • Still, hedge fund managers that oversee investor money will need to pass at least the FINRA Series 7 and state regulatory exams.
  • Fund managers may need to acquire additional FINRA licensing depending on the size of the fund and type of assets invested in.
  • Additionally, professional and educational credentials, such as a CFA charter or graduate degree in a relevant field, will come in handy.

(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 the Series 7 license unless they engage in trading on behalf of customers.

However, since a hedge fund manager is in the position of acting as an investment advisor, they 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 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 $100 million worth of investment assets, they are 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.

Credentialing for Hedge Fund Managers

In addition to regulatory licenses, hedge fund managers will often benefit from professional designations and credentials that can build trust among investors that the portfolio manager is skilled and knowledgeable.

The Chartered Financial Analyst (CFA) designation is regarded as the key certification for investment professionals, especially in the areas of research and portfolio management. Because of the time, discipline, and dedication it takes to pass the exams and become a member, charterholders often stand out. Earning the designation becomes even more critical as the workforce becomes more competitive.

For funds that trade actively based on technical indicators or momentum strategies, a Chartered Market Technician (CMT) designation is appropriate. Among industry practitioners, the CMT designation is widely considered the gold standard in technical analysis globally.

Financial Risk Manager (FRM) is another professional designation that deals with financial risk management. It is issued by the Global Association of Risk Professionals (GARP) and is globally recognized as the premier certification for financial risk professionals dealing in the markets. FRMs possess specialized knowledge in assessing risk and typically work for major banks, regulatory agencies, and asset management firms.

In addition to professional designations, having a graduate degree, such as a master's or Ph.D., in a related field like finance, economics, or statistics can greatly help one's capacity as a hedge fund manager.


Understanding a Hedge Fund Manager's Worth

Article Sources
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  1. Financial Industry Regulatory Authority. "Series 7 -- General Securities Representative Exam."

  2. Financial Industry Regulatory Authority. "Series 65 -- Uniform Investment Adviser Law Exam."

  3. U.S. Securities and Exchange Commission. "Laws and Rules."

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