Hedge Funds interview preparation

Questions

100

Traced to a firm

39

Firms

16

Updated

September 2026

Asked at

All firmsMan Group10Balyasny Asset Management7Bridgewater Associates3DED.E. Shaw3Apollo Global Management2KKR2Oaktree Capital Management2Point722SCSquarepoint Capital2ACAQR Capital Management1BGBaupost Group1Coatue Management1HPS Investment Partners1Northern Trust1Viking Global Investors1Wolverine Trading1

Topic

All topicsStrategy taxonomy8Stock pitch10Short selling6Portfolio construction8Risk and drawdown8Performance and alpha7Event-driven and merger arb8Distressed and credit5Fund structure and economics7Financing, NAV and operations6Compliance and research process5Quant and systematic6India and Category III AIFs5Career and fit11

Level

AnyCoreIntermediateHard

Type

AnyTechnicalMarket viewBrainteaserCaseFit

1. 048What is event-driven investing?Event-driven and merger arbCorephone / first roundEvent-drivenMulti-manager platforms

   Say this

   Investing where the return depends on a specific corporate event happening rather than on the business getting better. Mergers, spin-offs, restructurings, index changes, rights issues, activist campaigns. Because the payoff is tied to an event with a date, the main risk is completion and timing rather than valuation.

   Then walk it

   1. The sub-strategies: merger arbitrage, which is the biggest; spin-offs and stub trades; distressed and bankruptcy; capital structure arbitrage; index and technical events; activist and special situations.
   2. What unites them is a defined catalyst with a legal or contractual structure. You are underwriting a process, so the work is documents, regulators and counterparties rather than modelling ten years of cash flow.
   3. The payoff shape is characteristic: a high probability of a small gain and a small probability of a large loss. That is short optionality, and it means the return series looks smooth until it does not.
   4. Which has an important consequence for measurement. Event-driven strategies show attractive Sharpe ratios in benign markets because they are structurally short a tail. Any evaluation has to price that explicitly.
   5. Skill sits in unusual places: reading merger agreements, judging antitrust outcomes, understanding creditor classes and voting mechanics, and knowing the arbitrage community's positioning.
   6. The environmental dependency is worth naming. Deal flow is the raw material, so event-driven returns depend on corporate activity and on the regulatory climate. A hostile antitrust regime widens spreads, which raises returns and raises break risk at the same time.

   Where candidates lose it

   Describing it as 'investing in companies with catalysts', which is just fundamental investing with better timing. The defining feature is that the payoff comes from a structured event with legal mechanics, and the defining risk is that the event does not complete. Say the short-optionality point and you sound like someone who has looked at the return distribution.

   Expect next

   • Which event-driven strategy has the most capacity?
   • Why do these strategies show high Sharpe ratios?
   • What happens to event-driven returns when antitrust enforcement tightens?
2. 049Explain merger arbitrage and how the spread works.Event-driven and merger arbCoretechnicalEvent-drivenMerger arbitrage

   Say this

   You buy the target after a deal is announced at a discount to the offer and collect the gap when it closes. The spread exists because the deal might not close and because your capital is tied up until it does. So the spread is the market's price for break risk plus a time value of money.

   Then walk it

   1. The set-up for a cash deal: offer is 50, stock trades at 47.50, so the gross spread is 2.50 or about 5.3 percent. If it closes in four months, that is roughly 16 percent annualised before financing.
   2. The spread decomposes into three things: probability of break times the downside if it breaks, the time to close, and the financing cost of holding the position. You can invert it to extract the market-implied probability.
   3. That inversion is the standard piece of analysis and it is worth doing out loud. If the undisturbed price was 38, downside on a break is 9.50 and upside is 2.50, so the implied break probability is roughly 2.50 divided by 12, about 21 percent. Now you can compare the market's view with your own.
   4. The spread narrows as the deal clears hurdles: shareholder vote, financing, each regulatory approval. The P&L is earned in steps at those milestones, not smoothly.
   5. A stock-for-stock deal is different mechanically. You go long the target and short the acquirer at the exchange ratio, so you are trading the ratio rather than an absolute price, and you must handle the borrow on the acquirer and any dividends.
   6. The honest description of the payoff: you are writing insurance on deal completion. Low volatility, positive carry, and occasionally you lose several years of spread in one morning when a deal breaks. Which is why sizing, not spread hunting, is the skill.

   Where candidates lose it

   Calling it risk-free arbitrage. It is a short volatility, short tail trade. The two things that make an answer credible are computing the market-implied break probability from the spread and the undisturbed price, and naming the asymmetry of the payoff. Also get the annualisation right; a 5 percent spread over four months is not a 5 percent return.

   Expect next

   • What is the implied probability of completion in that example?
   • How does a stock-for-stock deal change the trade?
   • What is the undisturbed price and why does it matter?

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.