A hedge fund manager does not necessarily need a specific license to operate the hedge fund as opposed to any other type of investment fund. Depending on the type of investments the fund makes, a portfolio manager may find it necessary or at least helpful to obtain certain licenses.
The legal requirements of the state in which the hedge fund is registeredmay necessitate the fund managerobtaining a Series 65 license, administered by FINRA.
Key Takeaways
- Hedge funds are loosely regulated investment vehicles since they mostly cater to accredited or high-net-worth investors.
- Still, hedge fund managers that oversee investor money will need to pass at least the FINRA Series 7 and state regulatory exams.
- Fund managers may need to acquire additional FINRA licensing depending on the size of the fund and type of assets invested in.
- Additionally, professional and educational credentials, such as a CFA charter or graduate degree in a relevant field, will come in handy.
Licensing Requirements for Hedge Fund Managers
The only universal license requirement for a hedge fund manager is an ordinary business license. Because hedge fund managers are not regulated as brokers, they do not usually need the Series 7 license unless they engage in trading on behalf of customers.
However, since a hedge fund manager is in the position of acting as an investment advisor, they may be required to take the Series 65 exam and obtain a Series 65 license. It is state laws that determine the licensing requirements for local operating investment advisors, and they vary.
Some states require official registration as an investment advisor and payment of a licensing fee, but most states require the Series 65 license. Also, some states set a Series 7 license as a prerequisite for obtaining a Series 65 license.
Additionally, if a hedge fund manager is managing more than $100 million worth of investment assets, they are required to register as an investment advisor at the federal level per the Investment Advisers Act of 1940.
If the hedge fund manager is considering investing in commodityfutures, the fund manager probably needs to register as a Commodity Pool Operator or Commodity Trading Advisor with the National Futures Association (NFA), which requires obtaining the Series 3 license.
Credentialing for Hedge Fund Managers
In addition to regulatory licenses, hedge fund managers will often benefit from professional designations and credentials that can build trust among investors that the portfolio manager is skilled and knowledgeable.
TheChartered Financial Analyst (CFA) designation is regarded as the key certification for investment professionals, especially in the areas of research and portfolio management. Because of the time, discipline, and dedication it takes to pass the exams and become a member, charterholders often stand out. Earning the designation becomes even more critical as the workforce becomes more competitive.
For funds that trade actively based on technical indicators or momentum strategies, aChartered Market Technician (CMT) designation is appropriate. Among industry practitioners, the CMT designation is widely considered the gold standard in technical analysis globally.
Financial Risk Manager (FRM) is another professional designation that deals with financial risk management. It is issued by theGlobal Association of Risk Professionals (GARP) and is globally recognizedas the premier certificationfor financial risk professionals dealing in the markets. FRMs possess specialized knowledge in assessing risk and typically work for major banks, regulatory agencies, and asset management firms.
In addition to professional designations, having a graduate degree, such as a master's or Ph.D., in a related field like finance, economics, or statistics can greatly help your chances of becoming a hedge fund manager.
What Is a Hedge Fund?
A hedge fund is essentially a pool fund from private investors that is managed by professional hedge fund managers. It typically requires a very high minimum investment amount and is considered a risky investment as hedge fund managers use various strategies to earn profits and charge high fees.
What Do Hedge Fund Managers Do?
A hedge fund manager is responsible for making investment decisions and overseeingthe operations ofa hedge fund. A hedge fund manager can be an individual or a financial firm. For many people, this career is attractive because of it high earning potential.
How Do Hedge Fund Managers Set Fees?
Hedge fund managers typically have a two and twenty(or "2 and 20") typical fee arrangement, which is also common in venture capital and private equity. They charge both a management (2% of assets under management (AUM)) fee and a performance fee (20% of profits).
How Much Do Hedge Fund Managers Make?
According to Glassdoor data, the average hedge fund manager in the U.S. makes about $198,000 per year, which includes additional pay like cash bonuses and commission. However, salaries can vary widely based on the firm and the investments the hedge fund manager makes each year.
The Bottom Line
Hedge fund managers are acting investors, so they do not need to take FINRA's Series 7 exam. However, they may need to get a Series 65 license or abide by any other licensing requirement set by their state. They will also need a business license to practice.
FAQs
Hedge fund managers are acting investors, so they do not need to take FINRA's Series 7 exam. However, they may need to get a Series 65 license or abide by any other licensing requirement set by their state. They will also need a business license to practice. Financial Industry Regulatory Authority.
What qualifications do you need to be a hedge fund manager? ›
Hedge fund managers often have a master's degree or even a Ph. D. in finance, mathematics, economics, financial engineering, quantitative finance, programming, marketing, or business administration. Others have advanced degrees in a specialty such as engineering or accounting.
Do you need a CFA to run a hedge fund? ›
A hedge fund manager is a financial adviser who oversees investment accounts, leverages advanced financial software and raises expenditure capital. You can become a hedge fund manager by obtaining at least a bachelor's degree, earning CFA certification and gaining experience in the finance industry.
Do portfolio managers need a series 7? ›
Portfolio managers are typically required to obtain their Series 7 and Series 63 or 66 credentials from the Financial Industry Regulatory Authority, the self-regulatory arm of the investment industry.
What license do you need to manage a hedge fund? ›
The Bottom Line. Hedge fund managers are acting investors, so they do not need to take FINRA's Series 7 exam. However, they may need to get a Series 65 license or abide by any other licensing requirement set by their state. They will also need a business license to practice.
Who are the richest hedge fund managers? ›
Who Is the Richest Hedge Fund Manager? Ken Griffin of Citadel is both the richest hedge fund manager and the highest paid. In 2022, he earned $41. billion, and by the beginning of 2023 his net worth was estimated at $35 billion.
How do I become a certified fund manager? ›
Investment fund managers must have a bachelor's degree and at least four or more years of experience in the investment industry, including a proven track record in successful investment fund management.
Do hedge funds need to be registered? ›
Depending on the amount of assets in the hedge funds advised by a manager, some hedge fund managers may not be required to register or to file public reports with the SEC.
What should I major in to become a hedge fund manager? ›
degree in finance is ideal for a variety of hedge fund jobs, but your major will matter. Bachelor of Science degrees in mathematics, accounting, physics, computer science, and even engineering are also useful, given the recent rise in algorithmic trading.
Is CFA or CAIA better for hedge funds? ›
A chartered financial analyst (CFA) is a financial advisor who has earned the title of CFA through extra accreditation, including a rigorous three-part test, from the CFA Institute . A Chartered Alternative Investment Analyst (CAIA) specializes in alternative investments such as hedge funds and private equity.
Hedge funds are subject to the same trading reporting and record-keeping requirements as other investors in publicly traded securities. They are also subject to a number of additional restrictions and regulations, including a limit on the number and type of investors that each fund may have.
Is an MBA good for hedge funds? ›
MBAs might be prevalent in private equity, but hedge funds generally don't demand you go to business school - just 14% of hedge fund professionals possess an MBA. I think a candidate from a leading university with a 1st or high GPA together with a good masters degree or MBA will far outweigh anything else.
Do you need a CFA to be a portfolio manager? ›
Most employers require portfolio managers to hold financial analyst certifications. The most prominent certification in the field and in demand by employers is the Chartered Financial Analyst (CFA) designation awarded by the CFA Institute.
How valuable is a Series 7 license? ›
The Series 7 license allows you to sell most financial securities. Without the license, you wouldn't be able to place trades for clients, which is why most big firms require employees to get licensed as soon as they're hired.
What is a series 63 license? ›
The Series 63 is a securities exam and license entitling the holder to solicit orders for any type of security in a particular state. To obtain a Series 63 license, the applicant must pass an exam and possess knowledge of ethical practices and fiduciary obligations.
How difficult is it to become a hedge fund manager? ›
Becoming a hedge fund manager can be very lucrative but comes with long hours of top-notch critical thinking and good decision skills. A bachelor's degree is necessary for a candidate to become a hedge fund manager. Since these jobs are so competitive, additional certifications and experience may be necessary.
How do you qualify for a hedge fund? ›
You generally must be an accredited investor, which means having a minimum level of income or assets, to invest in hedge funds. Typical investors include institutional investors, such as pension funds and insurance companies, and wealthy individuals.
Do I need a series 7 to start a hedge fund? ›
It is also a prerequisite for many of the other FINRA exams (such as the series 24). Because the hedge fund in not regulated as a broker, a hedge fund manager does not need to have a series 7 license (assuming that the manager is also concurrently acting as a broker-dealer representative).
