Can you make millions at a hedge fund?
Yes, you can no doubt make a lot of money in this industry. There have been years when my friends and I have made $1MM+ bonuses but also years when we have made nothing. Working at a hedge fund is one of the careers paths to get a top 1% net worth, but certainly not an easy one.
The money is a big draw as well: if you're at the right fund and you perform well, you can earn into the mid-six-figures, up to $1 million+, even as a junior-level employee. The top individual Portfolio Managers can earn hundreds of millions or billions each year.
Hedge fund analyst: $150K-$200K, with bonuses typically bringing the salary above $500K in a good year. Senior analyst: $1 million approximately, with most of this being the bonus. Risk manager: $500K, with some of this being bonus, but most of it being base salary.
They pay managers handsomely.
So if the fund manages $1 billion and it generates a 25% return ($250 million), the manager is paid 2% of $1 billion ($20 million), plus 20% of the returns exceeding a 5% hurdle, or $40 million. This is how successful managers of big hedge funds become billionaires.
Hedge funds seem to rake in billions of dollars a year for their professional investment acumen and portfolio management across a range of strategies. Hedge funds make money as part of a fee structure paid by fund investors based on assets under management (AUM).
Junior level employees are able to achieve salaries upwards of $500k in some places, and the best fund managers can see their net worth ultimately reach nine or even ten figures. Another potential perk involves the relatively flexible working hours when compared to other well paid positions such as investment bankers.
If you're a day trader, it will be extremely difficult to win hedge fund jobs because trading a small amount of your own money is very, very different from taking positions worth millions or tens of millions.
All told, the 15 managers on Bloomberg's list earned a combined $15 billion. Hedge fund managers have had even bigger paydays — Ackman included. In 2020, he took ninth place after raking in $1.3 billion, and the top 15 managers made a collective $23.2 billion.
In 2023, the five highest-paid hedge fund managers were Ken Griffin of Citadel, Izzy Englander of Millennium Management, Steve Cohen of Point72 Asset Management, David Tepper of Appaloosa Management, and James Simon of Renaissance Technologies.
The day for hedge fund managers is very long and full of stressful hours. The end of the market day doesn't necessarily mean that they are done for the day. Many hedge fund managers run positions in overnight markets so they will need to monitor those trades, often late into the night.
Why do rich people invest in hedge funds?
Hedge funds originated as a vehicle to help diversify investment portfolios, manage risk and produce reliable returns over time. While hedge funds' investor base has evolved though the years – from individuals to institutions such as pensions, universities and foundations – their core goals have remained the same.
Hedge fund managers typically earn above-average compensation, often from a two-and-twenty fee structure. Hedge fund managers typically specialize in a particular investment strategy that they then use to power their fund portfolio's mandate for profits.
Because of this, hedge funds tend to cater to high net-worth individuals and require large sums to invest—leaving the ordinary investor out of luck. It is possible to invest in hedge funds, but there are some restrictions on the types of investors who comprise a hedge fund's investor pool.
Hedge funds are actively managed by professional managers who buy and sell certain investments with the stated aim of exceeding the returns of the markets, or some sector or index of the markets. Hedge funds aim for the greatest possible returns and take the greatest risks while trying to achieve them.
Hedge fund analysts typically work between 60 and 70 hours a week. Working on the weekend is not common but it certainly does happen from time to time.
This outcome is very likely because around 80% of all new hedge funds fail – not necessarily in the first year, but within the first few years before they can raise enough AUM to survive. If this happens, your options depend on why it failed.
Over the years, he noticed that the average lifespan of a hedge fund is quite short – less than five years. Sometimes these ideas get funded and sometimes they don't. As such, the success (or failure) of a fund is not easy to discern.
A Hedge fund's average lifespan is about five years, and many of them don't even make that.
On the negative side, the hours are still long and stressful (though better than investment banking hours), job security can be low, and your exit opportunities will be limited.
The Bottom Line. Business-related majors make sense for working in finance but they aren't the only majors that hedge funds look for. Engineering, math, and statistics are also valuable majors in the world of hedge funds. Remember that hedge funds cater to high-net-worth, accredited investors.
Do hedge funds hire out of college?
Apply for a position
After earning your degree, completing an internship, finding a mentor, expanding your network and creating a resume, you can apply for a position working for a hedge fund. Research companies that best fit your goals and expectations and look for open entry-level positions.
Hedge Fund Analyst Hours and Lifestyle
At smaller, single-manager funds, the average might be 10-12 hours per day, for a total of 50-60 hours per week (weekend work is rare). As you move to larger, multi-manager funds, the hours and stress get worse, so the average may be more like 60-70 hours per week.
In total, Forbes counts 47 hedge fund billionaires who have a combined net worth of $312 billion, up slightly from the same number in 2022 who were worth $310 billion.
However, because hedge funds are typically much higher-risk portfolios that are more actively traded, they require close monitoring and a greater amount of day-to-day hands-on management and decision-making regarding investments.
Hedge Fund salaries range between $58,000 a year in the bottom 10th percentile to $172,000 in the top 90th percentile. Hedge Fund pays $48.12 an hour on average. Geographic location also impacts Hedge Fund salaries. Hedge Fund employees in New York, NY get paid the most.
