"Can you teach someone how to be a hedge fund manager?" asked one of our readers in a recent email. The mail said our reader came across a seminar that claims that it can teach people how to be a successful hedge fund manager like John Paulson, David Tepper, and David Einhorn.
Clearly this seminar or email is a joke. However, we can tell you that you can definitely teach someone how to be a hedge fund manager. The proportion of successful hedge fund managers to all money managers is very low. However, several proteges of Julian Robertson went on to become extremely successful hedge fund managers. Stephen Mandel, Chase Coleman, John Griffin, Andreas Halvorsen, Lee Ainslie, Roberto Mignone, Philippe Laffont, Arthur Cohen, and David Gallo are some of these Tiger cubs. Stephen Mandel and Chase Coleman became billionaires. John Griffin, Andreas Halvorsen, and Lee Ainslie are on their way to become billionaires. Julian Robertson definitely did teach these analysts how to be a hedge fund manager. It wasn't just coincidence that these people became successful fund managers.
It isn't easy to become a successful hedge fund manager. Most hedge fund managers are former traders or analysts. A large proportion of them have MBA degrees but it isn't a requirement. The most important thing you need to become a hedge fund manager is having access to capital and the ability to outperform your benchmarks. Hedge fund managers have been beating the market by around 3-4 percentage points per year since 1994. In recent years, their annual alpha declined below 3%.
However, this doesn't mean that anyone who can beat the market by 10 percent for a few years can become a hedge fund manager. I think the most important factor in becoming a hedge fund manager is credibility. Investors generally pick fund managers who have formerly worked at investment banks or other hedge funds.
Here is a video about how to be a hedge fund manager: