With a reputation for offering some of the best salaries in the financial sector, a hedge fund career is one that’s coveted by many professionals. With opportunities for progression, that’s often a little more unstructured than some financial careers, it’s safe to say that talented individuals can build a rewarding career in hedge fund management.
Despite the recent downturn which led to hedge funds fee reductions, the industry still shows a lot of growth potential with global value of assets managed by hedge funds reached $4.53 trillion in 2021. However, there are several factors to take into account if you hope to make an educated decision about whether to pursue a hedge fund career path.
Let’s take a deep dive into what does a hedge fund manager do, expected salaries, career progression, industry outlook and more!
- What does a hedge fund manager do?
- Why work at a hedge fund?
- Hedge fund hierarchy and progressing within the role
- Hedge fund salary
- How to start a career at a hedge fund
- What professional qualifications are needed to work at a hedge fund?
- Hedge fund management career outlook
- Hedge fund exit options and opportunities
- Is a hedge fund career path right for you?
What does a hedge fund manager do?
Broadly speaking, a hedge fund manager is involved with overseeing pooled investment funds that are normally composed of relatively liquid assets (collectively as “hedge funds”). The primary intention is to ensure that the fund and its underlying assets continue to perform well; an obvious concern for any associated investors.
The duties of a hedge fund manager will therefore vary in accordance with the type of financial package being monitored, as well as his or her level of experience. There are still several primary responsibilities which are tackled on a regular basis. These include:
- Searching for new investment opportunities and presenting these to clients.
- Analyzing the performance of existing funds.
- Performing market research and monitoring current trends.
- Proactively communicating with new and existing investors.
- Overseeing subordinates including quantitative analysts, accountants and compliance officers.
However, we should also mention that some of these duties (such as recommending a new fund to clients) may not be available until a significant amount of knowledge has been gained. This is why the term “manager” is rather broad and will often be defined differently by each firm.
Why work at a hedge fund?
From a pragmatic viewpoint, many finance professionals become involved with this sector due to high commissions and generous salaries. Hedge funds are widely regarded as offering significant earning potential. Junior level employees are able to achieve salaries upwards of $500k in some places, and the best fund managers can see their net worth ultimately reach nine or even ten figures.
Another potential perk involves the relatively flexible working hours when compared to other well paid positions such as investment bankers. While hedge fund management does usually require fairly long hours, it does make a more amenable work-life balance possible.
Working at a hedge fund also offers a degree of flexibility and creativity in regards to investment decisions, particularly in higher level roles, that’s not always available in other careers. The duties themselves are quite challenging and numerous strategies can be employed. This is ideal for those who wish to keep improving their skill sets. Such a fast-paced nature is not always present within other financial sectors.
Hedge fund hierarchy and progressing within the role
As with any financial career, before deciding that working at a hedge fund is the path you want to follow, it’s prudent to understand how you can expect to rise through the proverbial ranks over time.
Interestingly enough, many of the titles found below are somewhat similar to other related industries such as investment banking and portfolio management, although some of the associated duties are quite different.
Junior analyst
As you might have already expected, junior hedge fund analysts tend to perform the majority of “grunt” work that the firm requires. This often includes screening new investment opportunities, presenting these options to senior analysts, monitoring the status of an active fund, and generating new leads.
Most applicants who wish to become junior analysts will require an undergraduate degree as well as a minimum of one year prior experience within a financially relevant position.
Analyst
As the title suggests, a hedge fund analyst is ranked slightly higher than a junior analyst. Analysts will assist their portfolio managers and they are tasked with several responsibilities. These include researching and proposing new investment opportunities, evaluating the performance of existing funds and creating financial models before presenting a new potential fund.
Analysts are also referred to as “number crunchers” due to the fact that they generally deal with large amounts of data (such as that associated with quantitative and qualitative analyses). A strong background in maths and accounting is therefore preferable.
Most junior analysts will not graduate to this position until they have been working for between 2-3 years. Similarly, analysts will require an additional 2-3 years before progressing to a senior position. It is possible to join a hedge fund at analyst level if you have a few years experience as an investment banking analyst, or have worked in a role such as a trader or research analyst at a top bank.
Senior analyst
Senior analysts will often be responsible for generating new investment opportunities and for determining which asset classes are the most attractive. This arises from the fact that they have already gained an impressive amount of expertise thanks to their former roles. Some of the core competencies of a senior hedge fund analyst include:
- Monitoring and enhancing the performance of active funds.
- Presenting new ideas to high-end clients.
- Leading and/or participating in team meetings.
- Analysing the ROI of specific funds to better appreciate their performance as well as to determine when an exit strategy is warranted.
Senior analysts are often vaunted for their ability to think outside of the box, so success will require a fair amount of insight and creativity.
Portfolio manager
This is generally the highest level which can be achieved. In this industry, the titles of hedge fund managers and portfolio managers are often used as interchangeable terms, as the associated responsibilities tend to be similar. Some of the primary duties of a portfolio manager include:
- Communicating with clients to appreciate their investment goals.
- Identifying specific assets which are in accordance with these goals.
- Creating a hedge fund which offers the appropriate return-on-investment.
- Constantly monitoring market conditions.
- Risk Management.
- Fundraising.
- Delegating certain responsibilities to their subordinates (such as data entry tasks or onboarding new personnel).
Having said this, these managers will also devote a significant amount of their time towards developing and nurturing client relationships. Most portfolio managers possess between 3-5 years of experience as a senior analyst. However, this largely varies between different funds.
Hedge fund salary
As with all jobs in the world of finance, your salary will primarily depend upon experience as well as your current position.
Salaries at hedge funds generally tend to be higher in the US, and particularly at larger firms in major centres such as New York, while salaries in other locations such as the UK and the rest of Europe are often lower.
New York
| Position | Time in Role | Base Salary | Bonus | Total Compensation |
|---|---|---|---|---|
| Junior Analyst | 1-2 Years | $70k – $150k | $30k – $150k | $100k – $300k |
| Analyst | 3-5 Years | $100k – $200k | $200k – $300k | $300k – $500k |
| Senior Analyst | 3-5 Years | $200k – $300k | $300k – $700k | $500k – 41m |
| Portfolio Manager | 5 Years + | $300k – $1m | $700k – $2m | $1m – $3m |
| Senior Portfolio Manager | n/a | $500k – $5m | $500k – $5m | $1m – $10m+ |
While these figures are indeed impressive, one important point to mention is that a large proportion of total compensation for hedge fund managers is based on commissions and similar bonus programmes.
Therefore the actual total salary is dependent on performance of the fund, individual, and the deals that are made. This is why the numbers outlined above is a broad range and should be viewed with a degree of flexibility.
How to start a career at a hedge fund
Due to the fact that hedge fund professionals tend to work with exceedingly large amounts of money, most firms will only accept entry-level candidates who already possess a bachelor’s degree. Fields such as business management, accounting and finance are often preferred. It may also be wise to obtain additional certifications such as a CFA or a CAIA.
It may also be possible to secure the position of a junior analyst or an analyst if you have prior experience within a related financial sector. Wealth management, investment banking, risk management, and private equity will provide some of the very same skills that a hedge fund manager will require.
As this is also a highly competitive industry, a growing number of professionals have chosen to obtain a master’s degree before entering into the full-time workforce. A degree in marketing or business management may be particularly useful. These skills will enable you to develop lucrative client relationships.
What professional qualifications are needed to work at a hedge fund?
With great roles come great responsibilities, and this is particularly true in terms of the hedge fund sector. The majority of professionals will seek to augment their skills sets with the help of one (or more) additional accreditations.
Let’s take a quick look at some common options as well as how they relate to hedge fund management.
CFA
Becoming a Chartered Financial Analyst (CFA) is often useful within the commercial banking and investment sectors, as it provides charterholders with skills such as quantitative research and asset management.
CFA Program is one of the most recognized financial certifications in the world, so it can be extremely attractive when applying for a position at a highly competitive firm.
CAIA
CAIA (Chartered Alternative Investment Analyst) is another certification to consider. It can be argued that this is also highly valued due to the changing face of hedge fund management.
A growing number of investors are now seeking alternative assets (such as those not directly associated with bonds or equities). Therefore a CAIA certification will provide a broader knowledge base; often useful for analysts and senior analysts.
ESG Qualifications
Environmental, Social and Governance (ESG) certifications such as the CFA ESG Certificate have gained a considerable amount of popularity in recent times. Not only will this type of qualification ensure that you remain compliant with all relevant regulations, but it demonstrates an ethical sense of transparency.
Hedge fund investors are increasingly keen to become involved with those who possess such traits. As many institutional clients have already become affiliated with the Principles of Responsible Investment (PRI), this certification can provide you with a competitive edge.
FRM
Risk management is a critical portion of hedge fund oversight, so it stands to reason that FRM (Financial Risk Management) accreditation will prove useful.
More than 325,000 professionals have already obtained this qualification, and as the markets become even more diverse, this number is likely to rise.
Hedge fund management career outlook
Where might this sector be headed? Here are some interesting observations:
- North America represents the fastest growing sector for hedge funds.
- Management fees are shrinking due to increased pressure from institutional clients.
- Crypto hedge funds now represent an interesting alternative due to the fact that they might not be as vulnerable to open-market volatility.
- A growing number of firms are relying upon artificial intelligence and machine learning to better predict future levels of performance.
- New candidates are now more likely to possess substantial skills in the digital domain (such as a familiarity with cloud-based software and automatic trading platforms).
While this sector has come under a fair amount of pressure due to fewer new funds when compared to the past, it is still expected to grow substantially between 2022 and 2027.
Hedge fund exit options and opportunities
Hedge funds are an extremely attractive and therefore competitive financial career choice, so the majority of those who secure a position are not likely to migrate to another field. However, there may still be times when a bit of change is in order for those who want to change financial careers. What types of exit opportunities exist?
Thanks to the in-depth knowledge that is required to work with hedge funds, professionals can migrate to a host of other fields. Some examples include (but are certainly not limited to):
- Investment banking
- Equity research
- Wealth management
- Mutual funds
- Pensions and endowment schemes
Is a hedge fund career path right for you?
In order to answer this question, it is important to highlight some of the main benefits that you can expect such as:
- Substantial salaries and generous commissions.
- Highly engaging work.
- More flexible hours when compared to some other financial positions.
- Advancement that is directly linked to your motivation.
- The chance to work with insightful and educated professionals.
Of course, there are also a handful of downsides to appreciate:
- This can be a stressful profession.
- Commissions will vary and these can impact your annual salary significantly.
- Due to results-driven compensation, your wages may depend upon the performance of the fund.
This is why it is of course sensible to carefully weigh the pros and cons of such a position. If you believe that you possess the right set of skills, there is no doubt that you could enjoy a lucrative and rewarding career in hedge funds.
We hope the guide above shed some light on a hedge fund career. Do you think this career path suits you? Let us know in the comments below!
Meanwhile, here are related articles which you may find interesting:
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