Hedge Funds

Earning Potential
Like their private-equity counterparts, hedge funds manage pools of capital with the intention of securing favorable returns for their investor clients. Typically, this money is raised from institutional and high-net-worth investors. Hedge fund managers can make tens of millions of dollars because of a similar compensation structure to private equity; hedge funds charge both an annual management fee (typically 2% of assets managed) and a performance fee (typically 20% of gross returns).

Job Duties
Hedge funds tend to be staffed less than private equity (assuming the same amount of capital managed), and they can have more leeway in choosing how to deploy and invest their clients' capital. Parameters can be set on the front end on the types of strategies these hedge fund managers can pursue.

Unlike private equity, which buys and sells companies typically within an investment horizon of between four and seven years, hedge funds can buy and sell financial securities with a much shorter time horizon, even selling securities within days or hours of purchase. Because of this condensed investment horizon, hedge fund managers are much more involved on a daily basis with their investments (as opposed to private-equity principals and partners), closely following market and industry trends and geopolitical and economic developments around the world.

Being heavily compensated on performance fees, hedge funds can invest (or trade) in all kinds of financial instruments, including stocks, bonds, currencies, futures and options.