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A hedge fund manager is a person who manages the hedge fund. They oversee the operations of the fund. Moreover, they are responsible for the performance of the fund and protecting investor’s assets. This article covers hedge fund manager’s roles and responsibilities in detail.

What is a Hedge Fund?

A hedge fund is just like a mutual fund and invests pooled funds in different asset classes. These funds pool investment from high net-worth private investors, banks and insurance firms and invest in equities, bonds, currencies, commodities, convertible securities, etc. Hedge fund managers use a combination of trading and investing strategies to create wealth for investors.

Hedge means to safeguard against risk. Hence these funds invest in a diverse range of asset classes to protect the investor’s money against risk. However, these funds are highly volatile. They hold both long and short positions in listed and unlisted stocks and derivatives to take advantage of market ups and downs. Hence their returns and risk are on the higher end.

Hedge funds suit investors with a higher understanding of risk as they are highly volatile. Also, the minimum investment is higher for these funds. To invest in a hedge fund, an investor should at least invest INR 1 crore.

Hedge funds are taxable at the industry level. Therefore, they are not taxable in the hands of investors. Hence, they are not as popular as mutual funds in the market. Currently, these funds can borrow up to 200% of the fund size. Moreover, they are quite expensive as they charge 2% as management fees and take up to 20% as a share in profits.  

Who is a Hedge Fund Manager?

A firm or a person who decides how to deploy the funds collected and oversees the operations of a hedge fund is a hedge fund manager. They make investing and trading decisions on behalf of their clients or investors. A hedge fund manager should have strong market knowledge, a competitive advantage over others, a clear investment and risk management strategy and a marketing and sales plan.

They usually make aggressive investing decisions and are rewarded when they make enough profits for their clients. Hedge fund managers are compensated in the form of fees and share in profits. Hence, they get above-average pay than the industry. Hedge fund managers usually follow the 2-20 compensation plan. They charge 2% as fund management fees and take up to 20% share in the profits.

Hedge fund managers usually invest their personal funds in the hedge fund. Investors expect them to hedge the risk and increase the return in all market conditions. Their strategies lean towards the aggressive side and often suit investors who have a higher understanding of risk.

Hedge fund managers perform extensive and continuous market research to find different investment opportunities. Hedge fund managers work for investment banking firms, private equity firms, and hedge fund firms. They spend the majority of their time in research, analysis, and meeting potential clients.

Hedge fund managers usually have a bachelors and master’s degree in finance. Moreover, they also have professional qualifications like Chartered Financial Analyst (CFA) and Chartered Alternative Investment Analyst (CAIA).

Hedge fund managers are also required to have strong interpersonal and communication skills. They are highly skilled and have a comprehensive understanding of financial instruments. They are highly knowledgeable and have a high tolerance for risk.

Role of a Hedge Fund Manager

A hedge fund manager oversees and manages the entire end-to-end operations of a hedge fund. Following are the different roles a hedge fund manager performs:

  • Research and analysis: Hedge fund managers perform extensive and constant market research. They analyse the trends in the market and also use different software programs to analyse different investment metrics.
  • Understanding client needs: Hedge fund managers talk to their clients to understand their needs, requirements, and risk tolerance levels. By doing so, they can align the client’s objectives with that of the fund’s objectives.
  • Make investing decisions: The most important role for a hedge fund manager is to make investment decisions. They use multiple strategies combining trading and investing strategies to hedge the risk without compromising on return.
  • Advisory: Hedge fund managers also offer investment advisory services to their clients by continuously monitoring their portfolios and communicating about new financial products.
  • Manage a team: Hedge fund managers manage a team of investment analysts, traders, accountants, and advisors. They oversee all the work done by the team.
  • Reconciliation of investments: Hedge fund managers reconcile investment values periodically. Since hedge funds are not regulated like mutual funds, there is no compulsion to declare the NAV of the fund on a regular basis. Hence hedge fund managers reconcile the values usually on a monthly basis.

Responsibilities of a Hedge Fund Manager

Hedge fund managers are responsible for making profitable investment decisions, and they also oversee the entire operations of the fund. Apart from these, they have the following responsibilities:

  • Reporting: Hedge fund managers are responsible for reporting the fund’s objectives and strategies as per the regulations of SEBI.
  • Compliance: Hedge funds are regulated by SEBI under Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012. Hedge fund managers are responsible for ensuring the investments are within these regulations.
  • Performance: The primary responsibility of a hedge fund manager is to ensure they deliver good performance (returns) by managing the risk. They have to ensure the value of the fund grows, increasing the returns for their clients.
  • Protecting investor’s assets: Hedge fund managers use investor’s money to invest in multiple asset classes by using different strategies. They are responsible for using the client’s money keeping in mind the client’s interests. Moreover, they should also ensure they don’t cause any harm is to investor’s assets.

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