Roles & Responsibilities of A Hedge Fund Manager

Mutual funds

An individual who manages a hedge fund’s operations is the hedge fund manager. They make a trade and investment-related decisions on the investor’s behalf. Their responsibilities include overseeing fund performance and safeguarding investors’ interests and assets.  But that’s not all. Read on to get an overview of a hedge fund manager’s roles and responsibilities.

What is A Hedge Fund?

A hedge fund refers to a private investment funds pool that uses complex and varied proprietary strategies to trade and invest in multiple products. These complex products include unlisted and listed derivatives.  

In other words, a hedge fund is an investment pool, which takes both long and short positions, sells and buys equity, trades derivative products, commodities, convertible securities, currencies, bonds and initiates arbitrage to earn returns at decreased risk. By applying innovative investment approaches, these funds try to mitigate risks arising from market volatility. 

What Do Hedge Fund Managers Do?

Hedge fund managers must have a sales and marketing plan, risk management strategy, clear investment goals and strong market knowledge. They manage and oversee the overall functioning of a hedge fund. Following are some of the major tasks of hedge fund managers:

• Reconcile Investments

These managers reconcile the values of investments periodically (usually every month). Hedge funds aren’t managed like mutual funds. Hence, it is not mandatory to announce the fund’s NAV (Net Asset Value) at regular intervals. 

• Team Management

A hedge fund manager oversees teams of advisors, accountants, traders and investment analysts. He/she administers all the tasks that the teams perform. 

• Advisory Role 

They provide investment advisory facilities to the clients through continuous monitoring of their portfolios. Besides, they offer information related to the latest financial products. 

• Take Investment Decisions

Take vital investment decisions is a hedge fund manager. They work towards hedging the risk factor without disturbing the returns. For this, they incorporate multiple investing and trading strategies. 

• Understanding Customer Requirements

A hedge fund manager effectively communicates with their clients to better understand their risk appetites and needs. He/she does so to align the fund’s goals with the client’s goals. 

• Analysis and Research 

They perform constant and comprehensive market research. They examine the market trends and use various software tools to scrutinise multiple investment metrics. 

Also Read: Hedge Fund vs Mutual Fund: Where Should You Invest In 2022? 

4 Major Responsibilities for Hedge Fund Managers 

Such a manager is responsible for strategizing and chalking out profitable investment plans. Other than this, he/she has the following duties:

1. Safeguarding a Client’s Assets   

A hedge fund manager utilises a client’s funds for investment in several asset classes through the implementation of multiple strategies. He/she needs to consider customers’ interests while using their funds. Further, he/she must ensure that the assets of investors are well protected.    

2. Maintaining Stable Performance

The basic duty of these managers is to manage risks and deliver favourable returns efficiently. They work towards raising an investor’s yields and ensure that a fund’s value grows. 

3. To Enforce Compliance 

The Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 of SEBI regulates hedge funds. The managers must ensure that their investment decisions are in accordance with such regulations. 

4. Reporting Goals 

According to SEBI’s guidelines, a hedge fund manager has to report a fund’s strategies and objectives. These managers are usually associated with hedge fund firms, private equity firms and investment banking firms. 

Compensation for Hedge Fund Managers 

These managers usually offer aggressive investment strategies and get rewards when they fetch enough returns for the investors. They receive payments by way of share in gains and fees. They earn above-average compensation compared to the industry. These managers generally adhere to a 2-20 compensation strategy.  They get a 20% (maximum) share in gains and levy 2% as management charges.

Investors in Hedge Funds 

Hedge fund investors usually comprise banks, insurance companies, pension funds and endowments, families and HNIs (high net worth individuals). This fund functions either as offshore investment corporation or a private investment partnership. 

It doesn’t need registration with the regulator of the securities market and isn’t subject to timely disclosure of Net Asset Values.  

Also Read: What Is An Initial Public Offering (IPO)? How To Invest In An IPO?

Final Word

A hedge fund manager performs continuous and extensive market research in order to locate multiple investment opportunities. They possess strong communication and interpersonal skills. Besides, they have a detailed knowledge of relevant financial instruments. So, before investing in hedge funds, you must choose a highly experienced hedge fund manager. Happy investing!   

FAQs on Roles of A Hedge Fund Manager

1. What qualifications do hedge fund managers require?

A hedge fund manager mostly requires master’s and bachelor’s degrees in finance. However, he/she may possess professional qualifications such as CAIA (Chartered Alternative Investment Analyst) and CFA (Chartered Financial Analyst). These managers spend a substantial amount of their time in analysis, research and meeting clients. 

2. Are hedge funds volatile?

Hedge denotes offers protection against risk. These funds invest in numerous asset classes to safeguard a client’s funds against risk. They’re highly volatile in nature. To benefit from market fluctuations, they keep both short and long positions in unlisted and listed stocks.

3. Who can opt for hedge funds?

Hedge funds are ideal for individuals with a strong knowledge of risk since they’re highly volatile. Investors with a high-risk appetite can invest in these funds. Additionally, the minimum amount of investment is more for these funds. 

4. How much fund size can hedge funds borrow?

A hedge fund is not as common as a mutual fund scheme in the Indian market. At present, it may borrow 200% (maximum) of the fund volume. However, these funds are a little bit costly.

5. Do hedge funds follow any market-neutral strategy?

Yes, hedge funds follow certain market-neutral strategies. In this case, the objective of a hedge fund manager is to mitigate market generated risk through investments in fixed income products, arbitrage funds, convertible bonds and short/long equity funds.  

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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.