he process of getting a job at a hedge fund is a competitive and time-consuming task.  The competition with a field of exceptionally talented individuals each spending tens / hundreds of hours of preparation means that you need to spend the same if not more time to prepare in order to be competitive.  In this guide, we will go through a step by step process to help you be fully prepared at a hedge fund interview.

Step 1:  Assess the Type of Hedge Fund You Want to Join

While a hedge fund typically means an investment vehicle open to a limited range of investors who pay a performance fee (typically based on returns of the fund and typically ~20% of returns) and an asset management fee (typically based on assets under management contributed and typically ~2% of assets), hedge funds employ a number of different strategies and each strategy type would require a different preparation method.

Typical strategies include:

• Global Macro - Top-down approach to investing and invests based on predictions of future events affecting the global economy
• High-Frequency Trading - Computerized trading approach.  Typically makes money through speed of execution of trades.  Industry is becoming more regulated and has been popularized in Michael Lewis' "Flash Boys"
• Long / Short Equity - Long positions deemed as favorable and short positions deemed as unfavorable.  Hedge funds can have a net long, net short or an equity market neutral positions.  Long / Short Equity can employ a number of different focuses:
  • Can focus on either specific markets (established / emerging) or sector (healthcare, financials, telecom, technology, etc.)
  • Growth (focused on earnings growth potential rather than current value) vs. value (focused on undervalued investments)
  • Multi-Strategy can employ combination of different strategies
• Event Driven - Trade based on inefficiencies in anticipated corporate events
• Merger Arbitrage - Trade based on discrepancies in share pricings around M&A transactions
• Activist - Acquire large positions in inefficient companies and urge management to take radical change in order to generate shareholder value
• Distressed Debt - long / short debt of companies at or near bankruptcy and make money based on price discrepancies

For the purposes of this blog post, we will focus on getting a job at a long / short hedge fund.

Step 2:  Research the Hedge Fund

Whether you are cold emailing or being referred to a hedge fund by a friend / head-hunter, one of the most important things to do is to understand the hedge fund to the greatest extent possible.  Ask yourself the following questions and see if you can answer them based on publicly available information

• What strategy does the hedge fund employ?
  • Focus your interview preparation on the right strategy.
• Who is the portfolio manager or senior analyst at a single manager fund I will be working for?
  • Understand your bosses history, background, and reputation.
  • Can help prepare some talk points to cater to his interests.
• What are the assets under management of the team you will be working for? At the hedge fund?
• How many investment professionals are there working for the portfolio manager? Investment professionals in total at the hedge fund?
  • The above two questions can help gauge the size of team / hedge fund and potentially level fo compensation expected.
• How has the performance of the hedge fund been since inception on an annual basis?
  • While historical returns will not dictate future performance, a reputable hedge fund that has been a strong performer historically over a number of years carries a more compelling reason to join the fund vs. a new fund or a fund with a volatile return pattern.

Step 3:  Idea Generation

The single greatest component of a hedge fund interview is being able to pitch at least one long and one short investment idea.  Typically, you would want to focus on targets that either have an internal (company specific) or external (macro / market) catalyst which will drive volatility in the share price of a particular stock in one way or another.  Sources that you can use to identify targets to do further research on include:

• Seeking Alpha - Best website for investor information.  You can find free write-ups regarding companies when you search by stock ticker.
• Motley Fool - Alternative website with investment idea recommendations and write-ups to explain why a particular catalyst is driving stock in one direction or another
• Street Insider and Wall Street Journal - Up-to-date macro and company-specific news to start building your thesis
• Value Investors Club - Hand selected membership to idea posting bulletin board
• Sum Zero - Another idea posting board that is less exclusive than value investors club

An interview is a short 30 minute window for the interviewer to get to know a candidate. During those 30 minutes, the candidate must impress the interviewer in a way to be memorable. 
​
The interviewer generally looks for two things:

1. Technical Ability – Can this person do the job? This is less important as a finance skillset can be taught. However, the candidate must be intelligent and be willing to learn.
2. Fit  – Will this person be able to work with other people? This is called the Airport test. (i.e., will others be able to stand in you in an airport if a flight got delayed?) Or fit into the company’s culture? For example, Wachovia has a Southern culture – they tend to prefer Southern candidates.

           
And the question that is always in the interviewers’ heads is “Why should I choose this person over the other 12 people?” Always tailor your responses so that it directly or indirectly answers this question. You have to sell yourself and your abilities. That might sound trite, but it is very true. For example, if asked, “What traits does an ideal analyst possess?” Instead of answering the question straight up, mention key traits, and then illustrate how you possess them. Always tie in yourself and why you are the best candidate. During a mock interview, review each answer and ask yourself if the story or experience you are telling is a key skill set they are looking for.
 
You need to make it clear that you are not the better candidate, but the best candidate.
 
Am I going to remember this person when I interview the other 12 people? (Try to make the interview memorable for the interviewer, talk about something in the “Additional Information” section or perhaps bring up something you two might have in common.)
 
Keep your answers short and concise. What do I mean?
If he asks you what your greatest challenge is, don’t say, “My greatest challenge was when I climbed Blood Mountain in North Georgia and we spent a few days camping and hiking there. We spent the trip with four other guys sleeping in a tent in the outdoors. It was fun to hunt but it was hard living without running water or toilet.”
 
That’s a great answer if your friend asked you that question. But your interviewer doesn’t have the attention span your friend does and sure as hell doesn’t care about your mountain trip. He’s interested in what you learned on the mountain trip that may somehow be applicable to the job position. A better answer would be:
“My greatest challenge was when my friends and I went camping in North Georgia. We ended up losing half our gear on the way up and temperatures dropped to sub zero. We had to adapt to the environment. If that meant sleeping next to two guys, we did it. My key takeaway is that no matter what challenges lie ahead, you have to adapt and be flexible to anything that arises.
 
Takeaways are key. They are a quick summary of what you learned and to make sure that if the interviewer wasn’t paying attention in the beginning, to focus on the end.
 
The second answer was better because it was shorter, concise, and tied it nicely to a skill set you developed from this experience. You normally want to format your answers to this:
 
1. State your answer. (In this case, mountain camping)
2. Tie to short anecdote (Losing gear, cold temperatures)
3. Key takeaway (Adapt to changing environment)