This is going to be the first part in a series of posts on the in’s and out’s of interviewing at a hedge fund – more specifically, what actually goes on during a hedge fund interview. Oftentimes, I get emails asking what sort of hedge fund interview questions to expect or if I have any hedge fund interview tips.

A hedge fund interview is really a series of interviews. This post assumes that you have made it past the resume filtering stage and that you have an interview scheduled and ready to go. If you remember if a previous post, Hedge Fund Case Studies, I suggested you prepare a comprehensive case study and attach that to your resume when you send it off.

The benefits are numerous to this approach. But one stands out when preparing for the hedge fund interview: You have just given yourself an advantage in terms of questions the interviewers will ask. Upon reading the case study, the interviewer will generally try to outfox you with questions related to the subject companies industry, or management, or historical trends etc. You should know all this cold and furthermore enlighten them with new, fresh information that cannot be found in sell-side reports.

So what to expect at your hedge fund interview. Depending on the shop, as I have interviewed at a fund with many billions of assets and at a fund with less than $50M of assets, you will probably meet with a few senior analysts, a portfolio managers, and if the fund is really big, an HR person.

In my opinion, the HR person has effectively very little say on the hiring process. They will ask you layup questions like “What are you hoping to get out of this opportunity” and provide you with basic information about the job / specifics etc. These ‘fluff’ interview questions, which sometime appear in interview guides, are in my opinion, worthless. If an HR person asked me what my goals were, and I said, “To fly to Mars in a hot air baloon“, I do not think that would derail my hiring chances if I blew the analyst / PM away. Only slightly kidding.

That is a long-winded way to say, don’t worry about the qualitative nonsensical questions. Just don’t come off as a nut-job and you should be ok.

So the real test comes when you start to sit down with some analysts or a portfolio manager. This post really relates to the first interview and as mentioned above, who you meed with on the first day will change with asset size / availability of the PM. If you think you will walk into Harbinger at Round 1 of the interview process, and chat it up with Phil Falcone, I believe you are mistaken.

The first thing you want to do is to get into a rapport with the person you are interviewing with. No one just likes sitting around and asking a person he / she just met a series of questions. You should get into a DIALOGUE with the person sitting across from you. Talk about what industries he/she is covering. If you feel you are reasonably well acquainted with the industry, talk about some metric or trends currently showing up in the earnings of the companies in the industry. Talk about buy-side or sell-side contacts you might know that also cover the industry. If you have no idea about anything related to the industry, change topics to an industry that you do know a lot about, using phrasing such as… “The health care industry? Interesting. The CEO of ‘XYZ Company I know a lot about’ used to work at ‘ABC Company in the Health Care Industry’…and then just start plowing about a topic you know a lot about.

Too many times, someone will come into the office and interview and talk about something that he/she should not be simply because of lack of knowledge. Don’t try to impress me with your rudimentary knowledge of LCDX or CDX relative recovery value that you read off a sell side report a few weeks ago. Put the ball in your court on something that you can add value to.

For example, as discussed in my main blog, I used to be the Enron analyst at a previous fund. I spent so much time on Enron, while it was in bankruptcy, it makes me cry. When I started looking for a new job at a larger fund, I always dovetailed the conversation back to Enron. I would not bog the interview down with disturbing details on double dip claims or the relative attractiveness of the Class 4 with S vs the Class 4 w/o S but I would talk generally about the topic to showcase that understood the situation very well and if called into question, I could defend my position handily.

So you are establishing rapport with this person, talking about thing that you have knowledge of. From here, you should try establishing if the two of you have any acquaintance / friend in common. This doesn’t have to mean you two are Linked In buddies … it more means that you are finding a common ground with this person. For example, let’s go back to the Enron example. Many times the Enron analysts at the distressed desks of major investment banks also covered a few other situations. Maybe it was Worldcom/MCI or something like Conseco or Finova. By establishing a similar network, this person interviewing you can call up this contact in question to check you out. You, in the meanwhile, will also call this connection, and will say “Oh. I met XYZ person at ABC fund yesterday. Said you two worked on Conseco together. Etc Etc.” This is also another check for the interviewer that you are a decent person that will work well on the team.

Now, at some point, this person will ask you questions. In my past experiences, these questions will fall into one of five broad categories. Here are the categories and examples, in decreasing order or frequency…i.e. #1 = you will always see:

  1. Personal Experience Questions: Give me a 5 minute run down of your education and past experiences? What was it like working on a trading floor? Did you enjoy investment banking? How were portfolio decisions made at your old shop? What industries have you worked in? Etc.
  2. Case Study Questions: How did you go about your research? Did you talk to management and if so, what did they say? Who are the competitors and what is the margin structure of the industry? What do the covenants look like?
  3. Views on the Market/Individual Stocks: What do you think about the market? Have you looked at XYZ Situation? What do you think about it? Where are interest rates going? Any sectors you currently bearish/bullish on? Any stocks you like here? (as an aside, above all single questions, that is the most frequent one of the whole list)
  4. Technical Knowledge: How do you calculate FCF? How do you calculate the cash conversion cycle? Do unsecured note holder want a high or low valuation in a bankruptcy? What is fraudulent conveyance? Etc.
  5. How you think Questions: Why are manhole covers round? How many Christmas Trees are sold in the United States? If you had two companies with identical capital structures, how would you decide which one to invest in? What is the most important thing you look for on the balance sheet?
Rapport has been established. Questions asked. You should have impressed him/her by now and they probably should already think you deserve a round #2. They will then ask if you have any questions for them. Yes. You always have questions for them. The questions I always ask:

  • How does an analyst get ideas in the book? Is there a give and take with the PM, group discussions? How is the idea generation process performed? Etc.
  • If they have not already delved into it, the history of the fund and its founders and the background of the interviewer.
  • Historically, what has distinguished the people succeed in the culture of the firm and moved up their responsibility?
In the next two parts of this series, we will discuss the more in-depth, and usually technically second round, and finally what to expect for the at-home or in-office case study.

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