Interviewing at a hedge fund can be an unpleasant experience. Known for testing candidates’ resilience under pressure, hedge funds hire comparatively few people. Therefore, they're either looking for raw potential, or for someone with a track record that speaks for itself.
However, according to hedge fund professionals and specialist recruiters, there are several types of interview questions that are practically guaranteed to come up every time. Here’s how to ensure you’re prepared.
If you're applying for an analyst or portfolio manager role with a hedge fund, you'll need ideas. How can you develop ideas? Well, Bridgewater Associates lays out its theory of forming investment opinions in its 123-page principles document.
Hedge funds won't want you to come up with boring ideas: it's no good pitching AAPL, for example.
“What they don’t want to hear is why a huge commonly followed stock is your choice (unless you're going against the consensus),” says Anthony Keizner, managing director at headhunters Odyssey Search Partners. “They want to hear good business logic and why the stock is over or under-valued, what the market is missing and what the catalyst is for the stock to hit your price target.”
The chances are that you’ll be asked to quantify the case for investing in a company or industry as well as trying to explain why the market is wrong about a particular stock. Before you step in, make sure you know everything there is to know about three different investment ideas and strategies. Tailor your ideas to the fund you're applying to (it's no good pitching emerging market stocks to a bond fund). Try to have one idea which involves going long and and another that involves going short. And be prepared to justify your ideas to the nth degree.
This is more aimed at junior recruits and suggests that it’s another opportunity to show what a great trader or portfolio manager you could become. In reality, it’s more of a ‘cultural fit’ question, a chance to prove that a career in a hedge fund is for you and that you’re in investing for the long-haul.
“You need to be succinct and demonstrate a passion for investing. You might have started trading on your personal account, or gained work experience from an early age,” says Barry Seath, managing director of hedge fund focused recruiters Mirage Recruitment.
Yes, this is an obvious question generic to any job interview, but it’s also a chance to sell yourself to the hedge fund. They want you to prove, by going through your skills and experience, that you can evaluate businesses, easily navigate your way through financial statements and analyst reports and, most importantly, have enough ability to be trusted with a large amount of money to put behind your trading ideas.
This should be a short pitch – MBAs, known for creating a process for every aspect of their job search, suggest 90 seconds for the concise version and three minutes when there’s potential for expansion.
The days of brain-teasers, designed to test candidates’ mathematical reasoning skills, are slowly coming to an end in hedge funds. “It’s been a while since clients have asked candidates how many glasses of water it takes to fill the Atlantic ocean,” says Seath. “What they want to see is logical and punchy answers, often with a mathematical reasoning, throughout.”
Essentially what this means is that if you linger too long on a point, or go off on a tangent that is likely to present a complex argument, the interviewer will pick up on this. Expect to be interrupted, have your thought processes questioned and argument torn apart. This, you’ve probably guessed, is less about the answer and more how you handle a stressful situation. The secret is to remain cool.
These types of questions come in a few guises, with one hedge fund CEO asking a candidate ‘How much money do I have in my pocket?’ After weighing up the pros and cons of answering based on assumptions and ethics, he instead went with ‘$500 +/- $500 ($0-1,000)’, which was the correct answer to a seemingly impossible question. The secret, say hedge fund professionals, is to always fall back on maths if a question seems a little leftfield.
Finally, you need to be prepared for quant-related questions - especially (and self-evidently) if you're applying to a fund with a quantitative focus. You might be asked, for example, to create a declarative algorithm from a recursive algorithm. You might be asked to reverse a string. You might be asked to estimate the square root of 5, to write a function that determines whether a number is prime or not, and to describe the logic you'd use if you were creating a chess game in Java.
Brush up on your programming languages before the interview. Especially if you're a major in computer science.
Finally, you'll need to know everything that's humanly possible about the fund you're interviewing with. Hedge funds can be very secretive, but you can usually find information on sites like Hedge Fund Intelligence or Opalesque.
At the very least, you should have an idea of the hedge fund's assets under management, sector focus and strategy. It will help if you also know the names of its top trader(s) and the nature of its investor base. Try talking to some other employees (or past employees) before the interview. Ask them what made it a good place to work.
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