When I talk to customers that have signed up to work with our buy-side interview prep services, I try to instill in them that the interview process is really a long, sometimes drawn out, sales pitch. You are selling your skills and talents and hoping the buyer (the hedge fund or buy side organization) thinks he will get more value from you than what you cost.

What is valuable to a hedge fund?  How does a hedge fund make money.  Let’s break it down as simply as possible:

  1. Management fees which is based on AUM
  2. Performance fees, or carry, which is based on performance

The question then you have to ask yourself is how can I increase assets under management at this fund or how I can better their performance.  Increasing the assets under management is probably more of something that you do not have specific control over (outside of maybe greatly expanding your network in the fund of funds or endowment universe) which would include pedigree.

More importantly then: How can you show a fund that you will better their performance?  That you will make them money. With ideas. With lots of well thought out and well researched ideas where you have an edge or an advantage and your idea is not the consensus.  I ask every single person I have interviewed in the past five years, “Tell me your best few ideas” – In fact, I’d be surprised if every buy-side shop wasn’t asking this question OVER and OVER and OVER. As the interviewer I get two things out of this informational transfer:

  1. I get free, and probably, unique research and a new investment idea
  2. I learn how you think and better understand if you will make money for the firm if we hire you

No buysider thinks exactly alike. Each of us places more importance on certain SEC filings, or conversations with management, or third party research, etc. I almost always start with a quick read of the 10K followed by a very detailed review of the most recent proxy. I have spoken about it on the main blog, but to me, incentives are what make the world go round.  Many buyside analysts that may be better than me have never read a proxy. Each of us have a system that (hopefully) works in the long-run. I want to see what YOUR process is when you interview. I want to know how you think, if its logical and sensible, and if it meshes with the firm’s culture and ethos.

I want an actionable idea. One that I could step out of the interview that very minute, yell at some trader, and say “Buy 100,000 shares of XYZ stock.” I do not want to hear a stock that was exciting 6 months ago or last year or a situation that’s already played out. What value does that have for me today?  Yes, you may be able to intelligently lay out your process and we are frequently told process is greater than the result, but ex-post facto analysis is just that. Anyone can back into why Priceline was cheap a year ago and sound like a genius today.  When there is uncertainty (i.e. the result is not cut and dry) some applicants can crack under the pressure: I want you to be able to defend your thesis with me trying to shoot it down. Not because I do not like the idea, but because that is what makes a good investment process. I want to see that you do not take questions personably; rather you take them as chance to invert your investment thesis and have it stand on its own.

Remember: The buy-side interview is a sales pitch.  Show them you can deliver value on Day 1 of your hiring so you can differentiate yourself from the many applicants who excel at “fit” questions, but can’t deliver the results.

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