Most Frequently Asked Hedge Fund Interview Questions and Answers

Breaking into the hedge fund industry can be extremely challenging, especially if you are not able to show that you have a true passion for investing. Interviews can be completely different than private equity and investment banking interviews, so you need to make sure you are well prepared before beginning the interview process.

People seem to believe that landing a hedge fund job is one of the hardest transitions to make in a career. This is absolutely true if you have no passion or experience investing. Nobody wants to hire someone who can’t explain why they want to work at a hedge fund. Just saying you want to make a ton of money is not a good enough reason.

You need to prepare years in advance to be able to land a hedge fund job. The earlier you start the better.

What qualities do hedge fund managers really want when hiring?

Hiring is less complicated than it seems. Interview questions primary revolve around figuring out if you are talented, fit the culture and are motivated to work hard. It is really that simple.   

 Hedge funds want to know that:

1. You are able to pick good investments (talent)
2. You are easy to get along with (fit)
3. You are willing to work hard (motivation)
4. You have the curiosity to dig deep to find answers (inquisitiveness)
5. You can overcome being wrong (handling failure)
6. You are a straight shooter (honesty)
7. You hate losing money (risk adverse)
8. You are able to work with little direction (independence)

Make sure you portray the qualities above during your interviews. It is okay if you do not have prior hedge fund experience or don’t necessarily have investing talent. Funds that hire straight out of banking actually prefer that you do not have prior experience investing so that they can teach you the investment style of the firm.

That said, you need to have the background that will best position you for a career at a hedge fund.

What are the best backgrounds to prepare you for a career at a hedge fund?

Nobody at a hedge fund wants to hire someone that needs hand holding on a day to day basis. A hedge fund analyst position is in no way an entry level job. Yes, there are people from Ivy League schools who land hedge fund gigs straight out of college – but those positions are few and far between and usually you need to have the connections.

Given that most of these shops are lean, there will not be anyone to give you much direction or check your work. You need to have certain fundamental skills before a hedge fund manager is willing to hire you.

The basic skills needed to work at a hedge fund include:

• Mastery of Excel
• Understand what makes a good investment
• Know how to read financial statements
• Intermediate accounting knowledge
• Ability to talk to management teams

These skills can be developed in the traditional finance fields. The majority of hedge fund managers hire people straight out of banking or after two years at a private equity firm. Those who are from good middle market or mega fund private equity firms are in the best position to transition to a good hedge fund. They have the technical skillset from banking as well as a good investing foundation from private equity.

Getting a job at a multi-manager is slightly different. They will hire straight out of investment banking, private equity or sell-side research. The multi-manager investment style is completely different than many single-manager hedge funds, so you want to make sure it is what you want to do longer-term because you will easily get siloed to that specific style.

What about working at a distressed hedge fund?

If you want to work in distressed, the best possible path is to either go the legal route and work in bankruptcy law after law school or work at in a restructuring group at an investment bank.

You can also transition from private equity or general investment banking, but you need to show that you have a passion for distressed investing (either through reading, following investments, etc.).

Read more about distressed debt investing here.

General interviewing advice

There are certain things that you shouldn’t do and shouldn’t wear when interviewing anywhere.

• You have to be modest – don’t wear a crazy flashy expensive suit or a $5K+ watch and don’t act like you are better than everyone else because you went to some fancy Ivy League school
• Always show up in a suit and tie – yes, hedge funds may have relaxed cultures where you can wear whatever you want, but when interviewing you want to be seen as a professional; of course, if you are interviewing for a tech role, this advice is not relevant
• Show up 10 minutes early every time to interviews – you need to be seen as reliable and you do not want to be stressed if you are running late
• Get a good night’s rest before – you want to have energy in your interviews and be able to come up with good responses to questions
• Do not complain or brag about your hours – if somebody asks you how many hours your work, you respond by saying it depends on what is going on; some weeks it could be 80+ hours if there is a deal going on, other weeks it could be just 60 hours

You want to be able to tie together your prior experience when answering interview questions. For the majority of people, you should have at least a year of real-world experience under your belt before applying to hedge funds.  

The more prior experience you have, the easier it is to answer the majority of interview questions. I remember out of college I had to come up with BS responses when interviewing. Questions like what are your strengths, weaknesses, why do you want to work here, etc. are hard to answer when you have not been able to work with others, have other people give you feedback and understand what you are actually interested in.

Misperception about hedge fund interviews

Everyone thinks that hedge fund interviews are some of the hardest interviews out there. The common misperception is that because hedge fund managers are rich and manage hundreds of millions or billions of dollars, then they must be geniuses. And as a result, interviews must be extremely hard.

In reality this is not the case. Yes, there are definitely some very smart people who work in this industry. But on average, the majority of people who make it in this industry did so because they have been doing it for a very long time.

This is true for any other field as well. You become a so called “expert” in something after doing it for a decade or more.

Hedge fund interviews are actually very simple. As long as you can clearly explain that you have the qualities above, then you should have no problem with the interviews.

Yes, they are less structured than banking and private equity interviews, but in reality, they are pretty simple as long as you actually have an interest in investing and prepare for the common questions beforehand.

Most common hedge fund interview questions and answers

Below is a list of the most common interview questions that I’ve been asked when breaking into the industry. It took me 20+ interviews to break in, so don’t be upset if you keep getting rejected over and over again. Write down what you think went wrong after each interview and figure out how you can improve your story / interview responses going forward.

Why do you want to work at a hedge fund?

If you have no prior experience working at a hedge fund, there is a 100% chance you will be asked this question. You need to answer both:

1. Why you do not want to do what you are currently doing

2. Why are you interested in working at a hedge fund

Think of the real reason why your current job is not what you want to do. For me, I was an analyst in investment banking. I knew that the more senior I became, the more my responsibility would shift to trying to bring in M&A deals. I would essentially turn into a salesman and have to build relationships with people in order to convince them to pay me to give them M&A advice.

I knew I did not want my success to be dependent on convincing others to make decisions, so it was not a good long-term path for me. I wanted to be the decision maker. Working on the buyside allows you overtime to make decisions directly.

To answer the second part of the questions, I was a bit behind during my time in banking because I did not know I was interested in working at a hedge fund until I was a year into banking. Unfortunately, I was never exposed to investing early on in high school or college, so I had to come up with a good story to convince people I was truly interested in working at a hedge fund.

I spent a ton of time reading the top investing books out there. Also, I was lucky enough to work on an M&A deal that was the result of pressure from activist hedge funds. I saw how much value these funds created by forcing change just by being minority shareholders.

Why hedge funds over private equity?

As a rule of thumb, whenever money flows into a space returns come down overtime. In private equity you are competing against all these other funds bidding on the same companies, driving the purchase price higher. In my opinion, private equity has become such a crowded space over the last 10 years fueled by low interest rates. There is so much competition in the space now causing acquisition multiples to be at peak levels.

The main issue with private equity is that even if you find a good company to invest in, it does not mean that you will be able to acquire it at an attractive enough price (ie. you could be outbid in an auction process). The benefit hedge funds have is that the price is already known and nobody is in your way when making investment decisions.

Learn more about the differences between hedge funds and private equity firms so you can figure out how you would answer this question.

Tell me about how you became interested in the market / stocks

The earlier you start learning about the markets and how to invest, the better your story sounds. Those that started reading about investing and trading stocks in college have a much easier time landing hedge fund jobs and answering this question than those who started after college.

Talk about any investing clubs you joined in college, personal investments, experiences in banking, etc. For me, I was deeply involved in an M&A transaction that was the result of hedge fund activism and I read dozens of investment books that got me interested.

What investment books have you read?

Pretty straightforward question to answer. Spend time reading the top 10-20 investment books out there and figure out which ones are your favorite.

Who is your favorite investor?

Hedge fund managers ask this question to make sure you really have a passion for investing and also to see if your investing style matches theirs. If you are interviewing at a fundamental focused value fund and you mention that your favorite investor is Jim Simons, Ray Dalio, or other quant/macro investors, then you probably won’t get the job.

Every firm has their own investment style, so think about famous investors that have a similar style to the firm you are interviewing at. Try to pick someone other than Warren Buffet and make sure you can explain why they are your favorite investor.

What is your favorite investment idea (AKA the stock pitch)?

Before interviewing, you need to have one to two well thought out investment ideas in your back pocket. These ideas must be interesting enough to have a back and forth discussion about or else the interviewer is going to think you don’t know anything about investing.  

Read investor letters or go to valueinvestorsclub.com and find a good idea if you don’t have one off the bat. Then do all the research you can so that you know as much as you can about that company and the industry because you will get questioned on it.  

What experience do you have investing? Were you in a club, do you have a PA (ie. personal account) or mock portfolio where you keep track of investments?

This is why it is extremely important to start as early as you can if possible. By following a few names or sectors, you begin to realize what moves stocks and what makes a good investment thesis.

If you are in college, join an investment club that manages real money (hopefully your school has one) or start making small investments in individual stocks. Read all the books that you can as well on investing.

What makes a good investment?

The response you say here really depends on the type of firm you are interviewing at because every firm has its own investment style.

In general, good investments always start with a differentiated view. You will not make money making consensus bets over and over again. Contrarian ideas are where most of the money is made.

If you are interviewing at a multimanager, then a good investment is one where a company will beat expected earnings over the next six months to a year. Valuation does not really matter because the overall portfolio is hedged and expensive stocks can become more expensive if they continue to beat expectations.  

If you are interviewing at a long-term value-oriented fund, then good investments are usually good businesses that have strong competitive advantages, industry tailwinds and trade at an attractive price.

If you are interviewing at a growth / tech-oriented fund, then you are trying to find companies that have large addressable markets and are positioned to capture a ton of share in that market. You are trying to figure out the earnings power of that company 2-5 years down the road given that growth companies are most likely investing heavily today and have little to negative profits.

If you are interviewing at a distressed fund, then a good investment is one that trades below asset value, has low capital expenditure needs, is not hemorrhaging cash and has a double digit yield to maturity.

What is the difference between a good business and a good investment?

Good businesses are ones that have strong competitive advantages (either through tangible or intangible assets), are dominate players in their respective industries, have economies of scale, high operating leverage, stable cash flows and little need for capital expenditures.

A good investment is completely different. Price, having multiple ways to win to create value (through consolidation, customer penetration, market share gains, etc.), and market expectations can all be major drivers in determining whether a company is a good investment.    

What are the most important things to consider when forming an investment thesis?

• Price – market versus intrinsic value, margin of safety
• Macro trends – where is the industry heading
• Moat – high barriers to entry / economies of scale, impenetrable brands (think or Porter’s Five Forces)
• Potential near-term catalysts – paints the picture of how, when and why; forms your view on sizing of investments
• Management – high insider ownership, good allocators of capital, clean accounting

If I gave you a company and you came back to me in a week with five summary bullets, what would they be?

• First bullet would have key investment factors
• Second bullet would have macro factors and industry trends affecting the company
• Third bullet would have current market share, competitive advantages, barriers to entry, total addressable market
• Fourth bullet would have information on how the company makes money, how it compounds cash flow, and its ROIC
• Fifth bullet would have information on FCF yield, P/E, EBITDA multiple or whatever multiple the street uses to value the Company

What are the qualities that characterize a good investor?

• Curious – gives you the drive to find out more about a potential idea
• Open-minded – have the ability to consider and evaluate an opposing argument
• Emotionally stable – being able to continue to think logically during stressful situations
• Humble – being able to acknowledge and learn from your mistakes
• Contrarian – ability to think differently than the crowd

What is the best business you have seen?

One of the best businesses I have come across is Bloomberg. The company is indefinitely scalable at practically no cost. Adding another Bloomberg terminal costs practically nothing to the company. The business has a strong and proven competitive advantage, which is evident in the prices they charge for each terminal (~$25K / year).

Bloomberg is all about network effects. There are currently ~325K+ terminal subscribers out there today and each has a messaging platform that is vital to connecting with others in the financial industry across different firms. Given this dynamic, the company has very high barriers to entry which allows it to essentially have a monopoly on the market

What have you done at your current firm to prepare you for a hedge fund role?

You need to think about what skills you’ve developed at your firm that are transferring to a hedge fund role. Hedge fund analysts need to be technically savvy (ie. understand accounting, financial statements, valuation) and be very good at using excel. Analysts also talk to investor relations and management teams all the time so talk about any situations where you have interreacted with clients / CEOs / CFOs.

What was said on your reviews (AKA what are your strengths and weaknesses)?

Hopefully you are a strong performer in your current role and are able to talk about what you are really good at.

For me, I have a strong ability to figure out things independently, have a really good work ethic and have strong attention to detail. A key weakness of mine early on was that I struggled to speak up given I was intimidated by the senior guys during my first few years in finance.

You must talk about how you have improved on your weaknesses when answering this question. Talk about things you have changed, situations you have put yourself in, etc.

What motivates you?

Please DO NOT say money motivates you. Once you make enough money to pay off your loans and have a good chuck of savings, money will no longer be the best motivator. There is a reason why I quit a $500K / year job after just one year.

Talk about being given responsibility or being able to have an impact on key decisions. Feeling important and having others trust your judgement are really good motivators.  

Make sure to also read the Step by Step Guide to Landing a Hedge Job if you want to learn the best way to prepare yourself for interviews.

Hedge Fund Case Study Examples

The examples below are real written case studies and a full Excel model that were used in actual interviews. If you have to complete a case study at some point during the interview process, reading these examples and the Excel model will make it much easier to ace interviews, especially for those who have never worked at a hedge fund before.

In addition to using these examples, make sure to also read through the Hedge Fund Case Study Guide.