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

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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

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1. 042What is the Sharpe ratio, and what are its limitations?Performance and alphaCorephone / first roundAsset managementMulti-manager platforms

   Say this

   Excess return over the risk-free rate, divided by the volatility of that excess return. It is return per unit of risk, and the limitation is that it defines risk as volatility, which is the wrong definition for anything with a skewed or illiquid payoff.

   Then walk it

   1. Rough benchmarks to have in your head: a long-only equity index sits around 0.4 to 0.5 over the long run, a decent hedge fund 0.8 to 1.2, a platform at the fund level 2 or more because of diversification across pods, and anything claiming 4 over a long period needs explaining.
   2. Annualisation matters and gets fumbled. Multiply the monthly mean by 12 and the monthly standard deviation by the square root of 12. That scaling assumes independent returns, which is exactly what fails for illiquid books.
   3. Limitation one, symmetry. Volatility punishes upside surprise as much as downside. A fund whose good months are huge looks worse than a fund grinding out the same return, which is backwards for an investor.
   4. Limitation two, and this is the big one: a strategy that sells tail risk has a beautiful Sharpe until the tail arrives. Writing out-of-the-money options or running a levered convergence trade manufactures a high Sharpe by hiding the risk in the third and fourth moments.
   5. Limitation three, smoothing. Illiquid positions marked on stale prices have artificially low measured volatility, which inflates the ratio. The tell is high autocorrelation in monthly returns, and I would check that before believing any private-credit or distressed Sharpe.
   6. So I would look at Sharpe alongside skew, kurtosis, worst drawdown, time to recover and return autocorrelation. Sortino and Calmar cover part of the gap, and neither fixes the fundamental point that one number cannot describe a return distribution.

   Where candidates lose it

   Forgetting the risk-free rate in the numerator, or annualising by multiplying volatility by 12. Then, on limitations, giving only the symmetry point. The tail-selling and the stale-marks problems are what an allocator actually worries about, and naming autocorrelation as the diagnostic is the detail that lands.

   Expect next

   • How would you detect a fund that is selling tail risk?
   • What does high autocorrelation in monthly returns tell you?
   • What is the difference between Sharpe and Sortino?

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.