Hedge funds are a type of alternative investment, which pools investments, typically with the goal of high returns. One of the best and the worst aspects of hedge funds is that they face fewer regulations than many other typical investment vehicles. This allows them to have more flexibility in regard to SEC regulations, but it also limits the type of investors that can participate in them.
Type of Roles
The two main roles at a hedge fund management firm are analysts and managers. Most people begin their hedge fund career by working as an analyst. Analysts conduct in-depth research on investments and the market as a whole, as well as completing due diligence and analysis. The next step in a hedge fund career is typically becoming a hedge fund manager. As the name implies, hedge fund managers oversee all decisions and operations regarding the hedge fund.
Compensation
The compensation for hedge fund analysts varies greatly, but the average salary is about $62,000 per year. Hedge fund analysts earn more than those in many other occupations, but the true value of the position lies in the opportunity it provides to become a hedge fund manager. A position as a hedge fund manager can be much more lucrative.
How much a hedge fund manager earns is a bit complicated and ranges drastically, since the earnings are not based on a salary. Hedge fund managers often own hedge fund management firms. When investors pay management fees and performance fees to the firm, that money then goes to the hedge fund managers.
Due to the high risk associated with hedge funds, only individuals with high income and high net worth may invest. This means that the assets invested are often quite large. Any fees based on the assets will, therefore, also tend to be high. The performance fees on hedge funds (something not allowed in many other areas of finance) tie the manager’s earnings to the success of the hedge fund.
Due to all these factors, hedge fund managers have almost limitless potential for income. The most successful hedge fund managers are some of the most well-paid individuals in any industry. The important point to highlight is “most successful”. How lucrative the role depends entirely upon how successful the hedge fund is. The double-edged sword of performance fees means that if the fund fails to perform well, the manager fails to make as much money.
How to Get a Job
Getting a job working with a hedge fund is difficult due to the highly competitive nature of the positions. Previous financial experience is typically required with evidence of how much money you made for the company. Though not required, an Ivy League education, MBA, or a P.H.D in the field of quantitative analysis is hugely beneficial. Specific designations such as CFA or CHA (Chartered Hegde Fund Association) may also prove helpful.
Investing in hedge funds comes with a high level of risk. The flip side of high risk is the potential for high reward. The same rule applies to a career working with hedge funds – high risk but with the potential of big rewards.
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