Top roles in Hedge Fund Management

In the fast-paced world of hedge funds, it’s normal to start out as an analyst – but where do you go from there and what other options are available? Read on to learn about the different roles that make up a hedge fund management company.

Which career path is right for you?

Hedge funds are relatively small companies and they have a less official hierarchy than an investment bank. It’s important to remember that in hedge funds there can be a lot of overlap between roles. 

As in most financial firms, the roles can be split into front office (finance) roles and back office (operations) roles.

Front office roles

If you earn revenue, you’re front office. This includes researching how to make money, trading or directly managing assets.

Portfolio manager

Depending on the size of the hedge fund company, the portfolio manager might be the person at the top or one of several. Their job is to create the overall strategy for their assets under management (the money invested in the fund).

Portfolio managers create different complex trading strategies, using the rise and fall of share values to make the maximum profit.

Key qualities of a portfolio manager:

  • Vision – while a successful portfolio manager can’t actually see the future, you must be able to predict the rise and fall of companies and industries
  • Problem-solving skills – managing a portfolio requires creative thinking to discover investment strategies others have missed
  • Experience – portfolio managers usually have significant experience in investment banking or a related field and a strong awareness of trading strategies

Analysts

Analyst can be a step on the route to portfolio manager or it can be a job in itself. Analysts look at company stocks and other assets, delving deep into the market. They create financial models assessing companies’ potential and calculating the effects of trading their stocks according to different strategies. 

As you gain experience as an analyst you’ll start to make recommendations to the portfolio managers. If you prove yourself you may become a portfolio manager after around five years.

Key qualities of a hedge fund analyst:

  • Analytical abilities – you have to think clearly and look at potential investments from every angle, taking into account all factors that might affect the company’s value
  • Accountability and responsibility – you’ll take responsibility for a certain sector and be held accountable for the decisions you make
  • Interpersonal skills – you’ll interact with clients, contacts at the companies you research and the senior members of your company
  • Initiative – you’ll work independently and generate ideas of your own to present to colleagues

Traders

Traders are the people who actually buy and sell assets according to the portfolio manager’s strategy. This isn’t a simple job. Trading on the stock market involves putting in the right orders to make the most money – market orders, time orders, limit orders, stop-loss orders and so on. Traders are judged on the speed, efficiency and profitability of their trades.

Key qualities of a hedge fund trader:

  • Confidence and decisiveness – there’s no second-guessing yourself as a trader. You have to be confident in every decision and move on to the next trade
  • Quick thinking – you’ll weigh up the risks and results of your trades at speed before putting in the orders for the day
  • Works well under pressure – it’s a stressful job so you have to be able to set aside your emotions and get to work

Sales/business development

The job of a hedge fund salesperson is to go out and find potential investors. We’re not talking about telesales here – traditionally hedge fund investment comes via high-powered networking. Sales is the domain of slick, powerful executives.

A salesperson should be able to get potential investors 95% convinced to invest. Then it’s the turn of the portfolio manager to come in and make a presentation.

While less traditional hedge fund sales techniques like online advertising are on the rise, hedge funds generally outsource this to advertising agencies.

Key qualities of a hedge fund salesperson:

  • A long list of contacts – this is the most important thing a hedge fund salesperson should have
  • A good reputation – your contacts must respect you and your financial knowledge
  • Interpersonal skills – the ability to make friends and be convincing
  • Communication skills – the ability to explain complex financial questions in simple terms

Back office roles

Back office, or operations, are the support roles in the company. They don’t directly generate revenue but are vital to keeping things running.

There are plenty of other operations roles, from IT to collateral management, but we’ll look at accountant and risk analyst/manager.

Accountant

One of a hedge fund accountant’s key roles is to track the value of the fund. They also analyse fund performance and check that all figures are accurate

Key qualities of a hedge fund accountant:

  • Perfectionism – like all accountants, you need every detail of your figures to be correct
  • Analytical thinking – you will need to be well aware of the fund performance and chose which items to bring to your colleagues’ attention
  • Independence – as you’ll be working in a small company, you can expect a lot to fall on your shoulders

Risk analyst/manager

Risk management involves analysing the risk of trades. While risk analysts track individual stocks and trades, more senior risk managers create strategies to insure against risks. A portfolio manager is usually responsible for managing the risk of their own portfolio but as a hedge fund grows it becomes impossible for one individual to keep track. Particularly, senior risk managers focus on how the risks of the company’s different portfolios affect one another.

Key qualities of a hedge fund risk manager:

  • Analytical thinking – risk analysts need to calculate and analyse investment risks using complex models
  • Ability to see the larger picture - to progress from analyst to manager role, you need to be able to consider all risks in the company as a whole
  • Communication – a large part of a risk manager’s job is to explain the risk situation to portfolio managers
  • Interpersonal skills – risk managers need to be diplomatic when convincing portfolio managers to alter their investment strategy

Salaries

It’s difficult to give solid salary figures for anyone in a hedge fund. In all roles, base salaries vary wildly according to experience and success.

For any front office role, the base salary could vary from around £35,000 to well over 100,000. Traders are less likely to hit the £100,000 mark than other roles.

There’s also the question of bonuses. The regulations on these are constantly changing. At one point, the base salary for portfolio managers was almost irrelevant compared to the bonus. Since then, bonuses have shrunk significantly.

In operations, salaries are likely to be lower and bonuses are less relevant.

Career progression

Hedge funds generally don’t hire directly out of universities. Analysts are usually headhunted from among the young talent at investment banks. Portfolio managers may be promoted from the hedge fund’s analysts, hired from another hedge fund or headhunted from more experienced investment professionals.

There’s not much link between the career paths of a trader and a portfolio manager, though traders can occasionally move into the management side.

And finally…

There’s one key thing to remember about hedge fund career progression. Operations roles are not a route to front office roles. A back office hedge fund role is an excellent job in itself but it isn’t a step on the way to becoming a portfolio manager.