How To Become A Hedge Fund Manager?

Making money by trading and investing with all sorts of different strategies, is the territory of the hedge fund manager. Seen as an increasingly glamorous and powerful position, it gives greater freedom than working in a bank. Films like Wall Street have glamorised this, but are not completely wide of the mark either. Most importantly did you realise that you can also become a hedge fund manager? 

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Making money by trading and investing with all sorts of different strategies, is the territory of the hedge fund manager. Seen as an increasingly glamorous and powerful position, it gives greater freedom than working in a bank. Films like Wall Street have glamorised this, but are not completely wide of the mark either. Most importantly did you realise that you can also become a hedge fund manager? 

  • What is a hedge fund manager

  • The tools which will help you become a manager

  • Examples of successful hedge fund trades

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What is a hedge fund?

Historically a hedge fund seeks to eradicate risk by holding investments, which will profit whether asset prices are going up or down. As a result a hedge fund will hold both long (positioning for the share price to go up) and short (positioning for the share price to go down) positions.

More recently a hedge fun has become a term which describes any form of investment activity, which is considered different from the norm. As a result hedge funds are no longer necessarily 'hedged' in their investment strategy. They will increasingly make large directional bets, which actually increases their risk.

The evolution of a hedge fund is related to regulation. The increasingly strict regulation brought in after the 2008 financial crash has made many activities difficult or impossible for investment banks. As a result, many of these have been spun off into 'hedge funds'.

Hedge funds are not the experts you think they are

Many hedge fund managers are generalists. They will have started their career in one area of business/banking and then gradually evolved into becoming a hedge fund manager. As a result they often speak to experts in a field which interests them, to understand if there is an opportunity. Many hedge fund managers will have a Rolodex of "expert contacts".

Fundamentally a hedge fund manager is always seeking to learn so as to identify new opportunities. If you don't like evolving, stick to being an employee in a bank. You will do the same thing every day with little risk or need to challenge yourself.

What do you need to become a hedge fund manager?

An excellent knowledge of business and numbers. Ideally start by getting to know one area inside out, preferably something uncomplicated. Investing in equities would be a good place to start. In particular focusing on understanding financial statements through performing fundamental analysis.

Knowledge is a powerful advantage. 

Once you have mastered one area, expand into another. In time you will develop an understanding as to how one asset class or business affects another. This will give you the knowledge to identify an opportunity to profit from.

What tools can I use?

Firstly start by reading investment related publications such as the Financial Times. In parallel read about the major historical economic events. The former will give you an understanding of what's important day to day, the latter will ensure you do not let the past repeat itself or fail to take advantage of it.

A potential hedge fund manager can learn from Budweiser's takeoverIn Dethroning the King: The Hostile Takeover of Anheuser-Busch, an American Icon by Julie Macintosh, the reader learns how AB Inbev was being run in a highly acquisitive manner. As a result readers would not of been surprised by AB-Inbev's takeover approach of SAB Miller some time later. An informed hedge fund manager would have seen such a move coming and will have positioned themselves accordingly to profit.

The long and short of it

Hedge fund managers will go long or short depending on what their research shows them. In analysing a company which is in a sector which thematic investing suggests is growing, you may uncover a mess. At this point, you start working out whether you can short this company.

Although investing in traditional buy and hold type investments is not beyond a hedge fund, they generally look for a catalyst which will drive the value of the company higher. This may be a company in a sector ripe for consolidation, or a company which has been poorly managed and the hedge fund has a management team to appoint which will deliver value.

Building a trade

Typically when a hedge fund enters into an investment, they will build into it. It is not as simple as buying in and waiting for the trade to go your way. Muddy Waters the famed short-seller, is a good example. They will use twitter to create interest by revealing that a new (short-selling attack) report is coming soon. Often they will indicate which market or sector it is in, creating even more tension.

When Muddy Waters released their report, the effect on the target shares is often dramatic. In the case of Burford Capital who were subject of such an attack, the shares fell close to 65% in a short-time. Although Burford are still a going concern, Muddy Waters succeeded in creating enough doubt that investors panicked and sold their shares.

This says a lot about today's investor who buys without knowing what it is they own, and panic as soon as someone says something negative. Indeed in the build up to the Burford short attack, Muddy Waters tweeted it was about to release a report on a UK firm. NMC health shares promptly sold off.... They eventually went bankrupt. Someone somewhere clearly knew something.

A Recent successful hedge fund trade

Bill Ackman, the hedge fund manager made $2.6bn from shorting the market crash in March 2020. He then re-invested the profits from this short trade into doubling down as markets recovered.

Bill's analysis indicated that once the virus had spread outside China, it was inevitable that it would spread into the Western world. Health systems would not be able to cope and a lock down was inevitable. The economic ramifications would be terrible leading to a market sell off.

Become your own hedge fund manager

Going long is easy with any of the major online trading platforms, where fees are increasingly coming down. It may be worth checking how widely you will be able to invest, as some platforms will not allow you to  trade certain securities due to their own software limitations.

Going short is more complicated. Approaching a reputable broker will require jumping through endless hoops and they will not likely take you seriously at first. It may be easier to start with spread bets. Let's be clear, spread bets are a high risk tool. One spread bets provider states: 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider.

I would suggest starting small and leaving CFDs altogether until you have a couple of years experience. Spread bets are also a source of information: the higher the margin, the increased risk of the investment. Useful information for a hedge fund manager.


Being a hedge fund manager gives you the freedom to do what you want. This means being able to trade or invest as and when you want. The opportunities are limitless, but the knowledge required will not arrive overnight. You will also need to develop a quick thinking and analytical brain. In turn you may even be able to become a hedge fund manager for others, via copy trading!

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