Hedge Fund Investing: A Practical Approach to Understanding Investor Motivation, Manager Profits, and Fund Performance

Organizational Structure

Typical long and short fund organizations are somewhat similar, although there can be significant variations across the type of strategies employed by various managers. A long bias fund looks slightly different from a risk arbitrage fund, and a variable bias firm looks different from an event or an equity market neutral shop. Some of the common features of each style and their variations are highlighted here.

Generally, a long and short equity fund is owned and operated by a single general partner who is the founder and/or by a small number of additional partners. The general partner and founder typically acts as the CEO of the firm and the firm's CIO. Firms often have a COO and CFO reporting to the CEO to handle the day-to-day business and operational aspects of the firm and a head of investor relations to raise capital for the firm, provide client service, and respond to external questions about the company. The operations, compliance, legal, accounting, and investor relations functions generally also report to the firm's COO, although sometimes they may report to the CFO instead. The firm normally also has a director of research and may have several portfolio managers who report to the CEO and who are also partners in the firm. The director of research may have a staff that is sector or industry focused and is responsible for presenting research ideas to the various portfolio managers or the CIO. Larger long and short equity funds have their own trading ...