28 June , 2010
I often get asked, “Hunter – what are typical hedge fund interview questions for XYZ fund.” Now, unfortunately (or fortunately depending on whose vantage point you are coming at it from), I have not interviewed at all funds out there. And I know each fund has a different set of interview questions for different candidates. For example, I know of one fund that literally asked probability questions throughout the entire interview process for one candidate, and then barely asked any for another candidate friend of mine. Alas, I do not have a silver bullet. But when I am in the interview seat, I like to ask three interviews questions of all candidates:
- What are your thoughts on the equity / credit markets? – Now, technically this is unfair because I generally have little conviction one way or the other in terms of where the market is going to get in the next month or three months or six months for that matter. Instead, what I am trying to get to is how you approach market valuation and really who you read / listen to. If you quote something from John Mauldin I will probably come away more impressed versus quoting something from AJC (if you don’t know what whose initials those are, you probably should start reading more). I am not looking for an answer such as “I think the S&P; 500 will end the year at 1150” – I am looking for things like what is happening with capacity utilization here and abroad, where inventory levels are at retailers across the country, what is going on in train traffic, etc. I want to see that you are interested in these things and have a view point that you can articulate well and can base in factual data and not solely water cooler opinions.
- What is your favorite investment right now? I do not want to hear about your best investment from 2005. I want to know if I gave you $5M in capital today, and you had one shot, where would you invest said capital. If you say “Well – nothing is really interesting right now” I may just ask you to leave right there. Again, I might not agree with your assessment and frankly could be short a long your propose, but if your reasoning is sound supported by fact, you may have my ear. Every candidate that goes into a buy-side interview must come equipped with two or three ideas he/she can succinctly present (and defend) because that is how you are going to add value in the trading room
- I will pose four investment alternatives: You rank them in order of preference. 1) A single site casino 2) A single peaking power plant 3) A commodity chemical company 4) A regional retailer. Note: All 4 companies have the same top line. I hope no one I interview is reading this post right now because that is a unique question, but I truly think it sheds light on how an analyst thinks. This question is solely for credit interviews mind you, but could be spun for long/short equity funds. In my opinion, there is a correct answer, but I have heard fantastic explanations of why I was completely wrong. For this type of question, I want you to list the pros and cons of each of the four alternatives and then tell me how that relates to credit spreads, default risk, recovery rates, etc. I know it sounds tough, but each of you should try this exercise on your own and see what you come up with. Hell, shoot me an email and I’ll debate it with you if you want.