A career in investment management of any kind requires an education and an aptitude for finance and mathematics. To become a hedge fund manager, one of the most sophisticated types of asset management, you must complete a college education and achieve certain levels of registration and certification. Also, running a hedge fund is akin to managing a business, so developing interpersonal skills and having business acumen are some of the more abstract qualities that will make a firm successful.
To become a hedge fund manager, you are going to need to begin by establishing deep industry contacts. Investors not only place money with a hedge fund firm or strategy, but they direct capital to a fund because of the investment talent that is running that portfolio. An established trading history should be accomplished before asking investors for any financial commitment so that some degree of trust is established at the onset.
Depending on the status of financial regulation in a region, you may need to register an investment firm with a regional governing body, such as the U.S. Securities and Exchange Commission, in order to become a hedge fund manager. Also, you will need to earn an investment adviser certification and obtain certain securities trading licenses. Whether you trade equity, debt, or commodities will dictate the type of licensing that is needed.
Many hedge funds trade derivatives, which are complex financial securities that derive their value from other financial instruments. Also, shorting is a common investment technique that is used in hedge fund trading. To become a hedge fund manager, you need to demonstrate an ability to take on risk when applying an investment strategy. Investors pay hedge funds high fees in return for earning above-average profits, and often, the only way to realize these types of earnings is to take chances.
To become a hedge fund manager, you are going to have to invest in third-party service providers. Attorneys are needed to support regulatory filings that are made. A prime broker is a firm that could lend money to a hedge fund so that the manager can bet more money on a given trade in an attempt to generate sizable returns. Also, a custodial firm is needed to clear and settle the trading transactions that a fund manager makes. Larger hedge fund firms might have an internal risk compliance and legal team, but for many small and mid-sized hedge funds, there is not enough office space or manpower to create in-house divisions, so these services are outsourced as a result.