I have seen many hedge fund managers and, like the investment strategies they pursue, each one is different.  This article will attempt to discuss hedge fund managers in general, if you have any specific questions, please feel free to contact us.

Who are hedge fund managers?

In general hedge fund managers are people who have a strong conviction about their certain investment program and who are willing to put their money where their mouth is so to speak.  At any given time there are any number of different ways to make money and because of this we have a chance to see all types of hedge fund managers, even those who go against conventional wisdom.

What types of backgrounds do hedge fund managers have?

I have seen all types of hedge fund managers.  Many were traders at other investment advisory firms or were brokers at a broker or investment bank.  Many managers were previously employed outside of the financial industry and traded for themselves on the side – managers like this have often found a program that works and want to allow their friends, family and other investors participate in the investment program and potential gains.  Some hedge fund managers were involved in real estate and choose to run a real estate hedge fund or some sort of hybrid hedge fund.  Some managers have relatively less experience in managing money and will act as a kind of sponsor of the hedge fund – participating in the business aspects of the hedge fund like raising assets.

Most all hedge fund managers will have at least a college degree.  Many hedge fund managers, and analysts, will also have a Masters in Business Administration (MBA).  Some hedge fund managers will be former professionals such as doctors or lawyers.  It is also common to see a manager with a third party designation like a Chartered Financial Analyst (CFA) which is bestowed by the CFA Institute.

Are there any exam or qualification requirements to be a hedge fund manager?

There are no specific requirements to be a hedge fund manager, but depending on the domicile of the manager he may need to be registered as an investment advisor with the state securities commission or the SEC.  If a manager was required to be registered as an investment advisor, he would likely need to have the Series 65 exam license or the Series 7 and Series 66.  Depending on the nature of the hedge fund and the extent of the hedge fund’s activities, the manager may need to have the Series 7 and the fund, or a related company, would need to be registered as a broker-dealer.

Is there anything hedge fund managers cannot do?

Generally a hedge fund manager can mold his investment program as he sees fit.  However there are two specific items to note.  First, the manager should be careful when trading that he stays within the description of the trading program.  Especially in these very volatile times, investors are very aware of style drift and managers should be very cognizant of this.

Second, the hedge fund manager cannot violate any laws while trading.  The federal securities laws apply to hedge fund managers who are not registered as investment advisers in certain instances.  In addition to out and out fraud, the manager should not engage in any activities which he is not sure is legal.  If there are any questions, the hedge fund manager should consult a hedge fund attorney.

What are the common qualities of hedge fund managers?

The number one commonality between hedge fund managers is a desire to see their program and ideas come to fruition.  Another trait which is common to hedge fund managers is a very strong work ethic.

What about pedigree?

You will often hear advisors and consultants talk about pedigree, especially hedge fund marketers.  To these groups the term “pedigree” essentially means the strength of the manager’s bio.  A manager who went to Harvard undergrad, Harvard MBA and then worked for Goldman Sachs will have a strong pedigree.  It is generally going to be easier for a manager with a strong pedigree to get his foot in the door with regard to institutions and high net worth investors.

However, having a strong pedigree does not guarantee a hedge fund manager will be able to sell his hedge fund to investors.  Indeed, I have seen firsthand instances where a manager with a strong pedigree did very poorly in front of institutional investors.  Likewise, I have seen where a manager with a less strong pedigree shot the lights out during an institutional investor presentation.  All this is to say that while pedigree is important in the eyes of some, it will not necessarily help a hedge fund manager to raise assets and of course, once a manager has assets, the manager must perform.

Start up hedge fund managers

If you are a start up hedge fund manager, you will first need to discuss the hedge fund formation process with a hedge fund attorney.  Some other articles which provide background on many of the subjects covered in this article include:

• Overview of Hedge Fund Investment Advisors
• How to Register as an Investment Advsisor
• Hedge Fund Attorney
• Hedge Fund Offering Documents