At small funds, the manager performs the research to find the best securities to buy, sell, or hedge. He or she also manage the firm’s operations and administrative staff. At a large fund, the portfolio manager is assisted by research analysts, accountants, auditors, risk managers, traders, and the chief operating officer, chief financial officer, and other managers, among other staff. Some of these duties may be outsourced to hedge fund administration firms owned by investment banks, public accounting firms, and independent administrators.
Most portfolio managers invest a substantial proportion of their own money in the fund. This allows them to align their personal interests with those of their shareholders. It also helps with fundraising and promoting investor confidence by sending a signal to investors that they have a personal stake in the successful outcome of the fund.
If a manager plans to launch a new fund, he or she must first determine the trading and investment strategy for the portfolio, then develop a marketing and capital-raising business plan. They work closely with lawyers and administrators to set up the hedge fund, and then must recruit, select, hire, and retain employees to oversee different aspects of the fund—from accounting and compliance, to risk management and financial analysis. During this time, they meet with prospective investors to try to convince them to invest in the fund.
At an existing fund, the major duties of hedge fund managers include:
- Assessing companies to determine the true value of their stock prices—and purchasing shares if they believe that the stock is undervalued. Managers do this by reading industry reports and publications, utilizing financial modeling software, talking with analysts, meeting with executives of the company, assessing the overall strength of the industry and the company’s role in it, among other methods.
- Investing in a wide variety of financial instruments in addition to stocks, including bonds and other interest rate–sensitive securities, commodities (e.g., natural gas, gold, copper, corn, wheat, cattle, etc.), and currencies. Hedge funds also invest in real estate (especially commercial properties) and companies that are experiencing financial difficulties (i.e., possible bankruptcies).
- Managing the hedge fund portfolio and monitoring risk, and readjusting its components to guard against loss of market value and to increase its profits
- Analyzing various investment classes and monitoring domestic and global stock markets to identify promising assets for the portfolio
- Meeting regularly with analysts and other employees to review stocks and other financial instruments and adjusting financial models that form the basis of the day-to-day management of the fund
- Meeting regularly with shareholders to provide updates on current funds
- Overseeing in-house staff (accountants, lawyers, investor relations specialists, etc.) and/or working with staff at hedge fund administration firms