As the hedge fund industry continues to grow in leaps and bounds, the structure of the industry is changing. In the past, the vast majority of hedge funds were relatively small operations that were driven by the vision and trading skills of the founders. Now, as hedge funds grow in asset size, hedge fund managers are faced with the challenge of growing their funds beyond the vision and trading abilities of the founders. For many funds, explains hedge fund expert Ari Kiev (www.arikiev.com), the next step in their evolution is to assemble and empower a team of top traders so that the individual traders are maximizing their abilities and contributing to the success of the overall fund. While that might seem simple, in reality it’s very difficult to achieve. Many hedge fund founders have difficulty ceding trading decisions to underlings and can become particularly intrusive when a position is losing money. In many cases, manager interference worsens the loss and destroys the relationship with the individual trader. This command and control management style at many hedge funds inhibits some traders, with the result that traders may take less risk than is proper. But while Kiev believes empowerment of traders is vital, he recognizes that managers need to maintain a sufficient level of control so that the actions of a single trader or the accumulation of a single position do not threaten the health of the overall organization. Kiev asserts that the delicate balance between empowerment and control is best achieved through a flat organizational structure, in which trading positions, trading decisions, and the goals of the fund are fully visible to all participants, and individual decisions are made in the context of the overall positions and objectives of the hedge fund. Empowerment, transparency, and communication, Kiev believes, will provide a healthy atmosphere for traders to flourish and hedge funds to succeed.
