Most hedge fund interviews for research analysts start with a behavioral interview with a “gatekeeper.” This is usually a junior analyst or mid-level analyst. This round is to see whether the candidate is a good fit and, overall, an impressive candidate. There usually are not many technical questions at this point.
During the second round, candidates will typically meet more analysts at the fund, and they will likely test technical proficiency. Candidates will be asked questions relating to Accounting, Financial Statement Analysis, and Valuation. In this situation, a candidate will generally be put under pressure by the analysts and will be compared with other candidates based on his or her responses.
The third round is often a case study, which can be taken in-house or in a take-home format. The hedge fund will give the candidate a company name, ask him or her to build a financial model, and form an investment opinion based on the model and public information available. The candidate will typically have approximately one week to turn this case in. If it is an in-house case study, the candidate will usually be given about 1-3 hours, with the amount of work dependent on how much time is given (for example, a candidate cannot build a complete financial model and read all the important notes in the 10-K’s and 10-Q’s in only 1 hour).
Hedge Fund Interview: Pitching a Long/Short
Many candidates do not realize this, but pitching a proprietary long or short investment idea is by far the most important part of the interviewing process. Portfolio managers almost unanimously say, “I’m here to make money, bottom line.”
Note: do NOT try to pitch 5-10 ideas—learn 1 or 2 ideas very well and make sure to know everything there is to know about the investment situation and why it is an attractive investment (the company, competitors, the dynamics, pricing, expected return, etc.).
Practically every interviewing hedge fund professional will want to talk to candidates about stocks. Candidates will be required to pitch at least one long idea and one short idea in almost every interview they attend. This tests the candidate’s ability to understand a company while demonstrating his or her interest in investing. Knowing what to expect and how to truly understand an investment idea is of great advantage in this process.
A good rule of thumb is this: have 2 good long investment ideas and 1 good short investment idea. All three ideas should be as current as possible.
- Read the “Business Overview” section of the Company’s 10-K.
- Read at least 2 sell-side initiation reports.
- Read or listen to the company’s last 2-4 earnings conference calls.
- Read the company’s latest investor presentation.
- Read the last 2 years worth of press releases via the company’s website.
- Read the last 6 months worth of sell-side equity research.
- Learn about the industry and company competition.
- Understand the general investor sentiment around the company (i.e., are sophisticated investors bullish or bearish on the stock?).
- What is the consensus opinion of the company?
- What is your perception or view and how does it deviate from the consensus? Why?
- How does the hedge fund get paid (what has to happen for your view to play out)?
- How much do you expect to make if you are right?
In reality, this is exactly what you would be doing at a hedge fund – making investments based upon very diligent analysis of a company and its situation, coming up with unique views, and (hopefully) making a positive return relative to that consensus because of a superior view. It is critical to understand the companies you are pitching inside-and-out if you expect to be successful at this in the long run.
Hedge fund interviews, in general, are arguably some of the most competitive in finance. You will not only be up against Ivy League candidates but also against top college graduates working out of Bulge Bracket investment banks and occasionally other hedge fund analysts looking for a change. Street of Walls finds that bringing ideas with you into the interview can be a good way to differentiate yourself and also to show the fund that you are serious about landing this job. In the chapters to come you will see real-life examples of quick one-page case studies to give you ideas for how to build your own.
Hedge Fund Interview: Tips on How to Dress
Men: Style & Colors
- Suit: Wear a solid colored suit, either dark grey or dark blue, with a two-button coat. Classy but conservative is the name of the game.
- Shirts: Wear solid shirts as well, white or light blue. No French cuffs.
- Tie: Wear something conservative.
- Shoes: Black cap-toes are the classic banker look.
Men: Suggestions on Brands
- Suit: Zegna (expensive but good), Hickey Freeman, Hugo Boss, Brooks Brothers
- Shirts: Brooks Brothers, Charles Tyrwhitt, Bloomingdales, Macy’s
- Tie: Brooks Brothers, Charles Tyrwhitt, Vineyard Vines, Zegna, Hickey Freeman, Ferragamo
- Belts: Brooks Brothers or similar
- Shoes: Allen Edmonds, Cole Haan, Salvatore Ferragamo
Women: Style & Colors
- Wear a conservative suit, generally either navy, dark grey or black
- If wearing a skirt suit, do not wear a tight nor revealing one
- Button-down shirt of a solid, light color
- Be conservative with respect to makeup and perfume
Women – Suggestions on Brands/Shopping
- J. Crew
- Banana Republic
Very important: No French cuffs. No pocket squares. No cut-back collars. These looks are not conservative, and may clash with the interviewer’s sensibilities.←Hedge Fund AnalystHedge Fund Interview Questions→