| Becoming a hedge fund manager certainly has its | | | | annum, you will need at least £5mn into your |
| perks... if you are successful. The King of the | | | | fund for the annual fee to cover your overhead. |
| Hedgies is currently John Paulson who raked in | | | | In anyone's language, that is a large chunk of |
| £1bn for a years work shorting the sub prime | | | | change. To get this you will need to prove to |
| markets and others certainly are not poor. | | | | potential investors that you know what you are |
| Can you do it? | | | | doing. |
| The answer to that question is a yes and no. Just | | | | Sarah Butcher, editor of agrees. "You can't just |
| like it is possible for everyone to be a sports star. | | | | be someone off the street and set up a hedge |
| If you have the right physical capacity, the mental | | | | fund," she says. "Investors want to put their |
| toughness and the commitment you can get to | | | | money with someone who has a track record." |
| the top of your game, and of course, there is an | | | | When speaking with investors you need to be |
| element of luck in everything. | | | | able to show them your performance and the |
| The first thing to know about hedge funds is | | | | strategies you use. Gaining this experience is the |
| what they are. There are many resources on the | | | | key. |
| web that will go into chapter and verse but the | | | | Going the traditional route you will either train with |
| simple explanation is that, typically, a hedge fund is | | | | an investment bank or directly with a hedge fund |
| a set up as a company, lets call it XYZ Ltd, which | | | | company. Investment banks are looking for |
| is set up in a tax efficient jurisdiction such as the | | | | someone with a good degree, maybe in maths or |
| Caymans or BVI, for example. | | | | physics, they want someone who is tough |
| The company generally has two classes of shares | | | | minded, a quick learner and someone who has the |
| (it can have more) one are mangement shares | | | | capacity to make trading decisions based around |
| (so you own the company) and the other shares | | | | sometimes complex structures. |
| are investors shares (which carry no voting | | | | Finding your way directly into hedge funds can be |
| rights). | | | | hard, they are notoriously secretive. By far the |
| This company will have various service providers | | | | more tradional route is through working as a |
| such as: | | | | trader with an investment bank. |
| Prime brokerage: Prime brokers provide a range | | | | So if you have missed the boat as far as |
| of customised services to hedge funds. Current | | | | becoming a new boy at an investment house are |
| services include handling trade execution, clearing | | | | your dreams of becoming a hegde fund trader |
| and settlement, providing financing and technology | | | | over? |
| services, risk management and operational | | | | Not quite. The thing about managing money is |
| support facilities, securities lending, and making | | | | that people are looking for performance. If you |
| introductions to sources of capital. | | | | can show a track record of performance then |
| Fund Administration: Some hedge hedge funds | | | | people will want to invest money with you. You |
| conduct administration internally while others | | | | clearly have to have the capacity for enjoying the |
| choose to outsource certain functions such as | | | | stock market, so you probably have been buying |
| their accounting, investor services, risk analysis or | | | | and selling stocks but you will need to learn more |
| performance measurement functions to third | | | | about other market instrument such as futures |
| party administrators. Some outsourcers offer | | | | etc. |
| independent pricing of a fund's portfolio of | | | | You can do this by opening an account at a |
| securities. | | | | reputable trading house and downloading their |
| Custody: Hedge fund assets are generally held | | | | trading system. They will provide you trade ideas |
| with a custodian, including cash in the fund as well | | | | and the explanations behind them and they will |
| as the actual securities. Custodians may also | | | | help you develop your portfolio operating on |
| control flow of capital to meet margin calls. | | | | trades similar to what the hedge funds do. If you |
| Of course there will also be a manager of the | | | | immerse yourself in this type of trading, making |
| fund. Assuming you are the one looking to set the | | | | profits on your own portfolio, then you are |
| fund up, that would be you. | | | | creating a track record. If you are successful |
| This all sounds a little complicated but there are | | | | enough then you may get to the point where you |
| plenty of administrative services that could put | | | | believe you have the capacity to start a fund. |
| this set-up together for you for around $70,000. | | | | We are not saying it is easy, it most certainly is |
| The set up, however, is not the problem. Getting | | | | not, but not being a 20 year old with a first from |
| money into the fund is. | | | | Oxford does not necessarily limit your potential |
| Lets say you have a fund set up, you have even | | | | career as a fund manager. It is a long hard slog to |
| managed to get yourself a fund management | | | | get anyone to believe that you are credible but |
| company properly licensed, you are ready to go | | | | the rewards are there if you get to that stage. |
| as a newly fledged hedge fund manager. Problem | | | | The billionaire boys have spent years perfecting |
| now is that you have to get money into the fund | | | | their art in most cases and now have the ear of |
| and this is where your problems start. | | | | huge amounts of money, but don't give up |
| The continuing fees from your administrators | | | | becuase you can't work in an investment bank.. |
| above are payable on an annual basis so your | | | | remember 'money follows performance'. |
| overhead is there. Covering these overheads will | | | | If you would like to see if you have what it takes |
| be the fees you get from your fund. Fees are | | | | there are several platforms you can download for |
| the now notorious '2 & 20' meaning that there is | | | | free and test out your skills. This online trading |
| a 2% annual fee and 20% of the profits. | | | | system is something you may want to consider if |
| Lets say your overheads are £100,000 per | | | | you are trading. |