There are many positions within a hedge fund that contribute to its overall success or the lack there-of. But while every player may be integral, hedge funds are a lot like a football team. The failure or success ultimately will be placed on the coach…or in this case, the Portfolio Manager.
The Portfolio Manager, or hedge fund manager as they are also called, is the face and brains behind the fund. The PM has to be multi-functional as they not only call the shots, but also act as the salesman, convincing investors to trust in their strategy and hand over large amounts of capital.
Since hedge funds employ a wide array of strategies from long/short to asset based lending to global macro, firms want to find a portfolio manager who has experience in that specific sector. That is why this is probably the most competitive of positions within a hedge fund. Highly skilled portfolio managers are sought out by firms across the globe.
Some of the main duties of a Portfolio Manager include:
- Providing market research and implementing new investment product and strategies
- Create research and review platforms for new, existing and potential investment products
- Exceed client expectations with returns on investments
- Work closely with analysts and traders to ensure trading strategy is carried out correctly
- Construct and review performance reports to show to investors
- Work directly with marketer to relay investment strategy and risk measures for website and other forms of marketing for your hedge fund
- Performing due diligence visits and assessing investment management firms and quantitatively analyzing investment pools
- Having extensive knowledge of industry policies and regulations set in place by the SEC
- Focusing on capital introductions and networking to sign up new investors to your fund
While most positions within a hedge fund are generously salaried, it’s the Portfolio Managers who can potentially reap the big bucks. As explained by one manager to New York Magazine:
“Fifty million, sadly, leaves one flying commercial. Hedge fund money can put you into exhilarating conversations about the virtues of Gulfstreams versus Falcons.”
Here are some facts about the highest paid hedge fund managers as published by Alpha Magazine:
- Five of the managers on this year’s list each made more in 2007 than the $1.2 billion that JPMorgan Chase & Co. agreed to pay for the almost failed 85-year-old Bear Stearns Cos.
- When we published our inaugural list, in 2002, Soros led the way with $700 million, a showing that this year would have put him at No. 9. Back then it took $30 million to crack the top 25; this year, $360 million.
- The grand total earned by the top 25 in our 2003 ranking, almost $2.8 billion, was less than what any of the top three managers made this year and less than one fifth of what the top ten made altogether ($16.1 billion).
- Though we doubled the size of our list from 25 to 50 this year, longtime New York–based star managers Mark Kingdon of Kingdon Capital Management and Raj Rajaratnam of Galleon Group both miss the cut, despite each making about $200 million. This year’s minimum: $210 million.
Typically, a hedge fund manager’s salary depends directly on performance. Managers usually charge a standard 2/20 fee, which means 2% management fee and 20% performance fee. This may vary, with some managers charging 1% or 0% management fee while some charge upwards of 30-40% management fee. Since their “salaries” are considered capital gains, they are only required to pay the standard tax rate of 15%.