Hedge Fund Manager Salary - What to Expect

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You may have heard of hedge funds on the news, or you may know one of the top hedge fund managers who routinely bring in billions from managing the most valuable hedge funds in the world. 

These hedge fund managers get incredible returns for their investors and therefore are compensated as such. However, not every hedge fund manager makes $1 billion per year. In fact, the vast majority of hedge fund managers make good money, but they’re nowhere close to flying on private jets and living like a billionaire as you may think most hedge fund managers do.

Are you curious about what the average hedge fund manager salary is? The answer may surprise you. 

Continue reading to find out everything you need to know about hedge fund manager salaries and what it takes to become a hedge fund manager.

What is a hedge fund?

Hedge funds are limited partnerships between private investors who use alternative investing methods and high-risk strategies to generate outsized returns higher than the market average. 

Hedge funds often invest in a specific industry or sector. For example, some hedge funds target the energy sector while others target the housing market. Regardless of the sector, hedge funds use non-traditional investment methods and leverage to get returns for their investors.

Some of a hedge fund’s investments include trading derivatives and leveraging assets, of which is all decided by the hedge fund manager. This means that hedge fund managers have a big responsibility for generating returns for their investors and are highly compensated when they do.

Hedge funds are often misunderstood due to their highly complex nature. However, this article breaks down hedge funds and the average hedge fund manager salary.

What is a hedge fund manager?

Hedge fund managers are, of course, people who manage hedge funds. Hedge fund managers are often business veterans and have decades of experience in the financial services industry, making them qualified to run a highly complex and speculative hedge fund.

Requirements to be a hedge fund manager

Being a hedge fund manager means you have a deep understanding of the financial services industry and have advanced skills in investment management and economics. It’s not uncommon for top hedge fund managers in the world to attend Ivy League business schools and receive MBAs from schools like Stanford and Harvard.

However, those that don’t have Ivy League credentials shouldn’t be discouraged if they want to become a hedge fund manager one day. You’ll need at least an undergraduate degree in finance or economics and more than likely an MBA or other advanced degree from a reputable business school if you want to be a hedge fund manager.

Most hedge fund managers don’t start their careers in this role. They work their way up, like everyone else, and then use their experience and connections in the industry to pool funds from accredited investors into a hedge fund they decide to manage. 

It’s important to understand that to be a hedge fund manager, you’ll need to make connections with accredited investors who qualify to contribute to hedge fund investments. Since not everyone can invest in hedge funds, successful hedge fund managers have industry connections and know how to fundraise and to retain their investors in the hedge fund.

Types of hedge funds

Before you learn about how to become a hedge fund manager and the average hedge fund manager salary, you should know the different types of hedge funds that are commonly used by investors.

• Equity hedge funds

• Global macro hedge funds

• Activist hedge funds

• Relative value hedge funds

Each hedge fund uses different investing strategies and focuses on a specific vertical. For example, activist hedge funds focus on strategies to boost stock prices and cut costs while equity hedge funds invest in high-performing stocks and protect investors from changing markets.

Benefits of hedge funds

It’s no surprise that there are plenty of advantages to investing in hedge funds, otherwise no one would consider them as an investment vehicle. Below are some of the benefits of hedge funds that you should consider before looking into investing in a hedge fund or trying to become a hedge fund manager.

• Potential for outsized returns. Hedge funds have the potential to generate outsized returns for investors who pool their money into the fund. Since hedge funds use alternative investing methods and leverage, hedge fund investors stand to take advantage of the outsized returns. 

• Hedge funds can generate returns even in down economies. Equity and bond markets tend to rise and fall over time, but hedge fund managers have historically been able to generate returns for investors in economic downturns and other times when most traditional investments lose value.

• Working with top investment managers. Hedge fund managers are industry veterans and have a deep understanding of the financial services industry. Investing in a hedge fund means your money will be managed by a top investment manager who knows how to get investors a return on their money through a hedge fund.

• Diversification. Hedge funds are high-risk investments that provide diversification for investors who have other holdings like real estate, stocks, bonds, and other investments like gold or silver.

Drawbacks of hedge funds

While hedge funds have plenty of benefits that may make them seem attractive to the average investor, there are some downsides that you should take into account before setting out on the path of becoming a hedge fund manager.

• Highly selective investors. One of the biggest drawbacks to investing in hedge funds is that most people aren’t qualified to participate. You must be an accredited investor who makes over $200,000 per year or has a net worth of over $1 million. Unfortunately, this means most average investors won’t be able to invest in a hedge fund.

• High fees for investments. Hedge funds tend to have higher fees than most other investments. However, those that contribute to a hedge fund are usually happy to pay these fees for the potential of big returns.

• Speculative investments. Hedge fund managers use alternative investing strategies that may add risk to your investments. Most hedge funds use short selling and high leverage to get the returns investors are looking for, increasing the amount of risk in the process.

• Hedge fund investments are illiquid. Hedge fund investments are highly illiquid and it’s often very difficult to pull your investment on short notice. Most hedge funds depend on investors leaving their money in the fund long-term and make it hard to withdraw investments for this reason.

• Hedge funds are highly complex. Hedge funds use advanced investment strategies which are often too complex for the average investor to understand. That’s why hedge funds are run by some of the smartest investment managers in the world.

Hedge fund manager salary

Contrary to what you may believe, most hedge fund managers don’t bring in billions or even millions of dollars for managing their funds. Only the top hedge fund managers in the world bring in the big bucks that hedge funds are known for.

In fact, the top 15 hedge fund managers in the world all earned over $1 billion in 2020, and the top 25 hedge fund managers made over $32 billion combined. 

But the reality for most hedge fund managers is much less glamorous. According to Glassdoor, the average salary for a hedge fund manager is $181,000 with the top 10% making over $320,000 and the top 1% earning well above these figures.

What influences a hedge fund manager’s salary?

Just like in any industry, more experience as a hedge fund manager means you can demand higher pay. This is especially true for hedge fund managers as those with 10-20 years of investing experience should expect to make around $320,000. Hedge fund managers with 25-30 years of experience should make north of $720,000 per year.

However, those just getting started in the finance industry should try to get their foot in the door with an internship at a hedge fund to learn the ropes before trying to be a hedge fund manager without any experience. 

Final thoughts

Hedge funds are highly speculative investments and come with a fair amount of risk. Even accredited investors who have the ability to invest in hedge funds often shy away due to the risk and complexity of hedge funds.

Those who want to become a hedge fund manager must have a bachelor’s degree in a finance-related field and should consider getting an MBA from a top business school. Without these credentials, it will be very hard to become a hedge fund manager today.

Those who pursue their dreams as hedge fund managers can make a lot of money. The top hedge fund managers in the world bring in over $1 billion in annual income, however, this is far from the norm. Average hedge fund managers should expect to make around $180,000, which will increase as you gain more experience and expertise as a hedge fund manager.

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