Coming from someone who has been a part of 100+ hedge fund interviews, there are a few key questions and practices that really matter. Hedge fund interviewers are judging your intelligence, demeanor, passion for investing, and ability to operate under stress. All of these questions interviewers will be asking will test these qualities, from the stock pitch, to the business intuition questions, to the accounting technicals, and finally to the behaviorals.
The most important part of your interview will be your stock pitch. Analysts and PMs live in the world of stock analysis and will primarily care to talk about your pitch rather than your deal experience. Interviews can last over an hour, and your interviewers may want to only talk about stocks the whole time. Because of this, you should have 2 long and 2 short pitches ready to go.
Books have been written on what makes a successful pitch. To boil it down, the keys to a successful stock pitch are preparation and mental flexibility. You need to know the numbers of your stocks inside and out. Memorize revenue growth rates, profitability margins, and EPS. Have a strong understanding of valuation and comparable companies. Know the business models of your stocks, what they sell and how they sell it, and who their competitors are. Finally, and most importantly, why is your view on the stock differentiated or overlooked by the market.
After you have presented your pitch, interviewers will start grilling you, trying to trip you up, and bringing up views you may not have or never thought of. The key during this part of the pitch is remaining cool and flexible, but strong. Be willing to change your view or mind if the interviewer brings up points you have not thought of, but if you still believe in your view, maintain support for your thesis, and address your interviewers points. When you are on the job, it’s the other analysts’ and the PM’s jobs to be the devil’s advocate. Your interviewer is looking to see how you respond to these pressures.
After the stock pitch, the second most important technical part of the hedge interview is business intuition. Business intuition is to judge how you think about and break down business models. Common questions include “How would you value a lemonade stand in Times Square?” or “Would you rather own an urban or rural movie theater and why?” In your answers to these questions, start by trying to break down the P&L and free cash flow of the companies in question. Start with an analysis of revenue and growth rates. Then go through margins and valuation, if applicable. The keys to answering these questions are breaking down the P&L and asking relevant questions to get to the details you need to create a full P&L. Hedge fund analysts have meetings with management teams to help them analyze companies. These business intuition questions help judge how you will interact with management teams and your ability to ask smart questions.
Similar to business intuition, another common technical question is “What is the best company you have ever seen and why?” This is a common question especially with longer duration/Tiger Cub style funds. In the question, the interviewer is not looking for the right answer like Google or Apple or McDonalds. They are looking for you to be able to articulate Porter’s Five Forces in a real world business and how those translate to financials and business value. Finding a company that checks the boxes with many or all of Porter’s Five Forces is key to doing well on this question. Once again, keep your cool when they start to grill you on your answer.
Outside of these three common questions, make sure to review your accounting and financial technicals so as not to be caught off guard. Since many hedge fund analysts come from investment banks or private equity, the same technical questions for those interviews may be asked during hedge fund interviews (outside of the LBO). Review the technical guides to be razor-sharp on these questions.
Behavioral questions are also incredibly important for hedge fund interviews. Hedge fund teams tend to be smaller and more tight-knit groups than banking or private equity. Therefore, fit is incredibly important. The most important behavioral question, especially for candidates coming from IB or PE, is “Why hedge funds/why public markets?” This question is to help the interviewer understand fit and passion for investing. They want to see more than just wanting to make money and not liking the deal process of PE. They want to see that you have a passion for stocks, like working in a fast-paced environment, like working in a meritocratic structure and not hierarchical. This is a great time to call our investing or business clubs you have been a part of. You can also talk about investing that you have done on the side of personal accounts. “Why hedge funds?” answer is very important to prepare for and tell your story. Working at hedge funds can be volatile and stressful, and the interviewer wants to see that you are in it for the right reasons.
Another important behavioral aspect to show about yourself is your ability to work in teams and be a competitor. If you were on any type of sports team in high school or college, you should find a way to talk about them during the behavioral part of the season interview. Additionally, talking about any competitive stock pitching competitions are great to call out.
In the end, interviewers are trying to gauge your intelligence, preparation, fit, passion, and demeanor. All hedge funds are different and are looking for something a little different in candidates. However, the way to perform the best in these interviews is through intense preparation, telling your story, and always remaining calm under pressure.
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