What Does a Hedge Fund Manager Do

The success of a hedge fund depends on the competence of its manager. Out of all financially-focused careers, managing a hedge fund is one of the most potentially profitable of all. The attractiveness of the role is matched by the level of responsibility that it demands. Below are some of the most notable tasks that those who manage hedge funds must take on.

Confirm Competitive Advantage

The hedge fund manager’s success will depend on how consistently they can secure a competitive advantage. Put simply, a competitive advantage is any arrangement of conditions that allows either a country or company to produce something for the most cost-effective price of production compared to its competitors.

Ideally, producing things with a competitive advantage should be mutually beneficial for both the country/company that produces it and the customers themselves. To ensure that their fund has a competitive advantage, managers will have to take note of several important factors.

Some factors that managers must examine to confirm a competitive advantage include the product itself, the nature of the brand, cost structure, and intellectual property; no matter how unique these factors may be, securing the competitive advantage is always a top priority.

Detailed Contingency Plans, Marketing, and Risk Management

Confirming the competitive advantage is only one aspect of the plan. The manager’s entire plan of investment must be as clearly outlined as possible. Because the monetary figures that they work with are so high, managers will not be able to get by on halfhearted speculation without concrete details.

In addition to an extremely detailed investment plan, the hedge fund manager also needs to be involved in the marketing and sales strategy as well. An effective risk management plan needs to be put in place. Much like a financial engineer, managers of hedge funds will want to work out the most likely probability for success and the lowest probability of failure.

It is impossible to come out with a perfect prediction every single time, but with the right combination of skill and intuition, top managers can usually produce good results more often than not.

Supply Full Investment Capital

Typically, firms that manage hedge funds are under the ownership of the primary portfolio holder. While the portfolio holder stands to gain the most from the success of hedge funds, other owners can profit from the performance funded by investors. Unlike other funds, all of the personal revenue circulating in hedge funds are directly linked to those that manage them.

Because there is so much that stands to be gained and lost in hedge funds, those who want to invest in them will not be able to do so without meeting certain minimum standards for net worth and income. The investments that hedge funds make are not only some of the most aggressive in the market, but also have some of the smallest safety nets. Managers of hedge funds can usually absorb the extreme risk of their investments with their own substantial wealth outside of it, allowing them to endure losses that would financially ruin anyone of lesser means.

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Source: Investopedia