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Curious about what it takes to become a hedge fund manager?
This article will answer many of your questions and point you in the right direction.
You can also watch me go in depth, by clicking here!
Educational and Professional Background
The mainstream financial world would like you to think that you need specific credentials in order to be considered a quote-unquote "financial expert." Usually, this would be a Bachelor’s degree in either finance or economics. Now, if you were to add on a Master of Business Administration (MBA) or a Chartered Financial Analyst (CFA) then it would be even more impressive, right?
If you have collected any of these higher education mile-stones, congratulations, you should be proud of your achievements! Now for the bad news, these degrees, however impressive, cannot help you launch and run a successful fund. This requires an entirely new area of knowledge and skills to become a hedge fund manager.
On the other hand, if you do not have any college degrees don’t be discouraged. In the last few years there has been a societal shift from seeing traditional degrees as an indication of knowledge and skills. Today savvy investors are not choosing an investment opportunity based on how many degrees someone has hanging on their wall.
Rather, they are focused on the out-in-the-trenches, real world experience. They want to see what you or your team have accomplished for other investors.
Forbes reports that; a 2024 study from the Burning Glass Institute and the Strada Institute for the Future of Work revealed that 52% of college graduates are working in jobs that don't require higher education, and 75% of them remain in this situation for a full decade after college.
Since real-world experience trumps college degrees, are you taking steps to gain that work experience or maybe you are already working for an investment firm?
Here are some skills to work towards:
Industry Knowledge: A working understanding of the financial markets, applicable legal compliance, and the trends in the industry.
Analytical and Quantitative Skills: Includes translating big data, financial statements, and market conditions.
Risk Management: Knowledge and strategies in identifying and minimizing risks that are involved in investments.
Communication Skills
The skill of explaining and translating financial issues to clients and other members of the community.
Decision-Making
The skill of making sound investment decisions in a crisis.
Working within the financial world will also open up opportunities to network with industry professionals, which can lead to new relationships in your field. Take advantage of every opportunity to build your reputation. It’s also important to be fully engaged with professional social networks like X and LinkedIn. Note: Be careful to conform to any relevant codes of conduct or stipulations imposed by your employer's work policies.
Why can you trust this information?
We are Fund Launch© and over 900 hedge fund managers have benefited from our proprietary system to improve their skills and shorten their go-to-market efforts. Combined these fund managers have more than $2.7 billion (AUM).
Here is a podcast episode you will found interesting: What It Takes To Be a Fund Manager...| Real Business Owners Podcast
Starting Your Own Fund
There are four primary steps involved in creating and launching your fund.
- The Investment Thesis
The investment thesis is the logical reasoning that explains why an investor should invest in your hedge fund. It is a critical decision-making tool for investors as it helps them to see if their goals, objectives, and risk tolerance, aligns with your hedge fund.
- Structuring the Deal
Deal structuring is a critical component of hedge fund transactions. It involves a detailed process to ensure that the transaction meets the objectives of all parties, mitigates risks, and complies with regulatory and tax requirements.
- Raising Capital
Raising capital is an important process in the development of an investment fund. Some of the common ways of raising capital include: Approaching institutional investors, high-net-worth individuals, family offices and using crowdfunding platforms.
It is therefore important to know the requirements, risk appetite and preference of each investor type in order to secure the funds. It’s important that your presentation speaks to the concerns and goals of each type of investor.
Each investor (type) presentation should include:
- Customization and Audience Focus
- Clear Value Proposition and Fund Introduction
- Investment Thesis and Strategy
- Market Analysis and Opportunity
- Performance Projections
- Risk Management Efforts
- Team Expertise and Track Record
- Traction and Historical Performance
- Visual Aids and Clear Communication
- Investor Terms and Exit Strategy
- Legal Documentation
In order to set up and manage an investment fund there are a number of legal documents which have to be created and then submitted to the appropriate regulatory agencies for approval. Astute investors make it a matter of protocol to submit legal documents for a review by their attorney.
Here is a sample list of the legal documents. NOTE: Some or all may be required depending on your type of investment model.
Formation Documents
- Articles of Organization or Certificate of Formation for LLCs
- Limited Partnership Agreement (LPA) or Operating Agreement for partnerships
Fund Offering Documents
- Private Placement Memorandum (PPM)
- Subscription Agreement
Internal Documents
- Limited Partnership Agreement (LPA) or Operating Agreement
- Investment Management Agreement
Regulatory Filings
- SEC Form D
- State Blue-Sky Filings
- Investment Adviser Registration
- Commodities Futures Trading Commission (CFTC) Registration
Yes, all of this can be a bit overwhelming which is why hundreds of people have chosen to consult with Fund Launch© to save thousands of dollars developing all of the necessary investment fund documents that must be in place before you ever accept one dollar of investor money.
Check us out at: https://www.fundlaunch.com/
Managing and Growing Your Fund
Key performance indicators are an investor's best friend. It is like having x-ray vision that looks inside the fund to acquire an accurate view of a fund's past performance, its risk vs.return characteristics, and the effectiveness of the fund management.
Common KPIs fund management could provide.
Return on Investment (ROI)
ROI is one of the easiest to compute and yet one of the most frequently misapplied metrics for assessing the profitability of an investment fund. ROI is defined as the gain or loss divided by the initial investment and stated as a percentage.
Alpha
Alpha reflects the difference in a fund's returns with its benchmark index after subtracting risk. Positive alpha shows the fund has produced better returns than the benchmark index. In contrast, a negative alpha indicates that the fund has produced worse returns.
Beta
Beta shows how much a particular fund is likely to increase or decrease in value in relation to the market as a whole. If the beta is above one, the fund is more volatile than the market, while if it is less than one, the fund is less volatile than the market.
Sharpe Ratio
The Sharpe ratio measures the return on investment of a fund after deducting the risk-free rate of return for every unit of risk taken. A high Sharpe ratio is preferable because it implies that the fund has delivered higher returns for the same level of risk undertaken.
Expense Ratio
The expense ratio is the annual fund management fee as a percentage of the total assets under management. It comprises management fees, administrative expenses, and other operating costs. A low ratio indicates that the fund is lean to run; therefore, the net returns to investors may be higher.
Of course, as a function of business administration it's your responsibility as the fund manager to not only make this information available but better yet set up a system to communicate this directly to each investor. This is best accomplished using an online auto-responder and automatically emailing personalized updates.
Successful investors are comfortable with assessing an opportunity and deciding to participate. What they do not appreciate is being kept in the dark. They can handle knowing what is going on, good, bad, or indifferent, and maintaining open lines of communication with the group and individually makes for patient investors.
An area of fund news often overlooked by managers is the internal efforts made to stay on the cutting edge of the financial industry, helpful advances in technology, and team members' accomplishments. Your goal is to encourage a relationship with your investors, not just to regard them as a source of funds. People do business with people they know, like, and trust.
Learning From Experts
As you can imagine taking the steps to become a fund manager and launching your own fund is an ambitious goal. Taking the time now to build a solid foundation for your future success is the wise decision.
Here is how Fund Launch© can help you build that solid foundation and move you to market much quicker.
Black Card - an exclusive fund incubator program: The all in one fund solution, Black Card will walk you through everything you need and give you the resources to launch your own fund, including provided legal documentation, access to expert advisors, a massive network of emerging and experienced fund managers, and more.
Get started with Fund Launch at https://www.fundlaunch.com/training.
DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.
