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. 068What makes up a NAV?Financing, NAV and operationsIntermediatetechnicalMan GroupEquity Hedge · Boston · 2019

   Say this

   Total assets at fair value, minus total liabilities, divided by units outstanding. On a hedge fund the interesting parts are all in the details: how positions are priced, and everything that sits in liabilities, which includes the short book, the financing and the accrued fees.

   Then walk it

   1. Assets: long positions at fair value, cash and cash equivalents, margin and collateral posted at the prime broker, receivables from unsettled trades, dividends and interest receivable, and the positive mark-to-market on derivatives.
   2. Liabilities, which is where hedge funds differ from a mutual fund: the market value of short positions, margin loans and repo borrowings, negative derivative marks, payables on unsettled trades, dividends payable on shorts, accrued borrow fees, plus accrued management and performance fees and fund expenses.
   3. So the accruals are a real part of the number. An accrued performance fee is a liability that reduces NAV even though it has not been paid, which is why NAV can be quoted gross and net of fees and the difference matters.
   4. Pricing policy is the substance of the answer. Exchange-traded positions at the official close, over-the-counter instruments from broker quotes or a model, and illiquid positions by a documented valuation policy. The hierarchy is level one, two and three, and the percentage in each tells you how much of the NAV is opinion.
   5. Governance is the other half. An independent administrator strikes the NAV, the prime broker's records are reconciled against it, a pricing committee approves level three marks, and the auditor tests them annually. The manager should not be the sole source of a price.
   6. One practical detail worth having: NAV is usually struck monthly for subscriptions and redemptions but estimated daily for risk, and the two can differ. Investors transact on the official NAV, so the gap between the daily estimate and the final struck number is itself a control worth monitoring.

   Where candidates lose it

   Giving the mutual fund answer, assets minus liabilities, and missing that the short book and the financing sit in liabilities. Also missing the accrued performance fee. The question in a hedge fund interview is really about pricing policy and who strikes the number, so say level one, two and three, and say the administrator's role.

   Expect next

   • Who should strike the NAV and why not the manager?
   • How would you value a level three position?
   • What is the difference between gross and net NAV?

   Reported by candidates at Man Group (Equity Hedge, Boston, 2019). Source: Wall Street Oasis.

2. 069What does a prime broker actually do for a hedge fund?Financing, NAV and operationsIntermediatetechnicalPrime brokerageLong-short equity

   Say this

   It is the fund's financing and operations counterparty. It lends against the long book, sources stock to borrow for the shorts, clears and settles trades, holds custody, provides consolidated reporting and margin calculation, and often introduces the fund to investors. Without a prime broker a long-short fund cannot function.

   Then walk it

   1. Financing first, because that is the core service. The PB extends margin against the long portfolio and rehypothecates the collateral, which is how a fund gets to 3 or 4 times gross on its equity.
   2. Securities lending second. The PB locates borrow for shorts and sets the fee, and that pricing power is a real cost line for the fund. Access to hard-to-borrow names is one of the main reasons funds pay up for a top-tier prime.
   3. Then operations: clearing, settlement, custody, corporate actions, stock loan administration, portfolio reporting, and the risk and margin system the fund reconciles to daily.
   4. Then the relationship services: capital introduction to allocators, research access, and sometimes seed or working capital. Cap intro is a genuine reason emerging managers choose a particular prime.
   5. Multi-priming is standard for anything of size, and the reason is the lesson of 2008. Lehman's prime brokerage clients found their assets frozen in administration and their rehypothecated collateral entangled in the estate. So funds now split balances across two or three primes and negotiate asset protection and segregation terms.
   6. The dependency to name honestly: the PB sets your margin terms and can change them. A prime that raises haircuts in a stress event forces you to delever exactly when you least want to, which is how a financing relationship becomes the real source of risk. Archegos is the recent illustration from the other side of the same relationship.

   Where candidates lose it

   Listing services without naming the dependency. The interesting part of prime brokerage is that the fund's leverage, borrow and continued operation all sit with a counterparty whose terms can change. Mention multi-priming and the Lehman lesson; that is what separates an operational answer from a brochure.

   Expect next

   • Why would a fund use more than one prime broker?
   • What is rehypothecation and why did it matter in 2008?
   • What happens if your prime raises your haircuts overnight?
3. 072What is the difference between holding a position in cash equity and through a swap?Financing, NAV and operationsIntermediatetechnicalLong-short equityPrime brokerage

   Say this

   Cash equity means you own the shares. A total return swap gives you the same economic exposure without owning them: the counterparty holds the stock and pays you the return, you pay a financing spread. The economics are similar, the ownership, disclosure, financing and counterparty risk are not.

   Then walk it

   1. Mechanically, the swap pays you price return plus dividends and you pay a floating rate plus a spread, against posted collateral. Your exposure is the full notional while your outlay is the margin, which is where the leverage comes from.
   2. Reasons funds use swaps: access to markets where direct ownership is restricted or operationally painful, notably parts of Asia and specifically the foreign investor route into some Indian instruments; simpler shorting because the borrow is embedded in the counterparty's book; and a single financing relationship across many positions.
   3. Disclosure is the big structural difference and the one interviewers probe. Economic exposure through a swap has historically not triggered the same beneficial ownership disclosure as shares, which is how large positions can be built quietly. Rules have tightened after several incidents, but the asymmetry is the reason the instrument is popular for stake-building.
   4. You also give up the shareholder rights. No vote, no ability to engage, no standing in a restructuring. For an activist or an event-driven investor that can matter more than the financing saving.
   5. Counterparty risk replaces settlement simplicity. If the dealer fails you are an unsecured creditor for the mark-to-market above your collateral, so you care about the dealer's credit and about netting agreements.
   6. Archegos is the case study that ties it together: enormous swap-based exposure spread across several dealers, each of whom could not see the whole position, with margin that proved thin. The lesson is that swap leverage plus fragmented dealer visibility hides concentration from everyone including the dealers.

   Where candidates lose it

   Saying they are economically identical and stopping. The differences that matter in practice are disclosure, voting rights, counterparty exposure and how the margin is set. Naming the Archegos dynamic shows you understand why regulators now care, rather than just how the instrument is priced.

   Expect next

   • Why would you use a swap rather than buying the stock?
   • What is the counterparty risk on a swap, exactly?
   • Why do swaps matter for stake-building disclosure?
4. 077Walk me through your research process on a new name.Compliance and research processIntermediatetechnicalLong-short equityMulti-manager platforms

   Say this

   I work backwards from the question that decides the stock. Understand the business and what the price implies, find the one or two variables the thesis turns on, then spend almost all the time on those. The goal is not to know everything, it is to have an edge on the thing that matters.

   Then walk it

   1. Day one is the price. What does today's valuation imply about growth, margin and duration? A reverse DCF or an implied-multiple check tells me what I have to disagree with, which stops me doing a month of work on a stock that is fairly priced.
   2. Then the primary documents: the last three annual reports, the segment notes, the accounting policies, and the last eight quarterly transcripts read back to front so I can see which promises were kept. Filings before sell-side notes, always.
   3. Then the industry structure. Who are the competitors, where does the profit pool sit, who has pricing power, what are the barriers, what is the customer's alternative. This is where the durability question gets answered and it is what business judgement actually means.
   4. Then identify the crux and state it as a question with a number attached. 'Does gross margin reach 42 percent by 2028?' Then the work plan follows: channel checks, pricing data, competitor disclosure, supplier commentary, whatever bears on that number specifically.
   5. Then build the model to the drivers, put consensus next to my numbers, and write a one-page thesis with the variant view, the catalyst, the bear case with a price, the falsifiers and the sizing. If I cannot write it in one page, I have not found the crux.
   6. Then the falsification step, which is the part that separates research from advocacy: go and find the best bear argument, ideally from someone short the name, and see if it survives. And say the honest limitation, that time is the constraint, so tier three names get a screen and a model rather than this whole process.

   Where candidates lose it

   Describing a linear process that ends with a recommendation. A hedge fund process starts with what the price implies and converges on one crux. Candidates who say 'read the 10-K, build a model, do comps, make a recommendation' have described a training programme, not a research process. Name the crux and the falsification step.

   Expect next

   • How long does that take and what do you cut when you have two days?
   • What is the crux on a name you are following now?
   • How do you find the best bear argument?
5. 080What are the assumptions of linear regression?Quant and systematicIntermediatetechnicalSCSquarepoint CapitalHedge Fund · Montreal · 2024

   Say this

   Linearity in the parameters, exogenous errors with zero conditional mean, no perfect multicollinearity, homoscedastic and uncorrelated errors, and for exact small-sample inference, normally distributed errors. The first two give you unbiasedness; the rest are about whether your standard errors mean anything.

   Then walk it

   1. Separate the tiers, because that is what distinguishes someone who has used regression from someone who memorised a list. Linearity and exogeneity are needed for the coefficients to be unbiased. Homoscedasticity and no autocorrelation are needed for the usual standard errors to be correct. Normality is only needed for exact t and F inference in small samples.
   2. So a violation of homoscedasticity does not bias your beta, it biases your confidence in it. That distinction matters enormously in practice: you can still use the estimate, you just cannot trust the t-statistic.
   3. In financial time series the assumptions that actually break are autocorrelation and heteroscedasticity, because volatility clusters and returns overlap. The standard fixes are Newey-West or White standard errors, and clustered errors in panel data.
   4. Endogeneity is the serious one. If a regressor is correlated with the error, the coefficient is biased and no standard error fix helps. In finance this usually arises from omitted variables or from a feedback loop where price affects the supposed predictor.
   5. Multicollinearity does not bias anything, it just inflates variances, so coefficients become unstable and flip sign between samples. That is very common with factor exposures, and the tell is a large R-squared with no individually significant coefficient.
   6. Practical additions I would name: outliers dominate least squares because it minimises squared errors, so winsorise or use robust regression; and out-of-sample performance matters more than any in-sample diagnostic, because for a trading signal I care about prediction, not about the p-value.

   Where candidates lose it

   Reciting the list without saying what each assumption buys you. Tiering them into unbiasedness versus valid inference is the differentiator. Also, do not claim normality of the dependent variable is required; it is normality of the errors, and only for small-sample inference.

   Expect next

   • Which assumption is most often violated in financial data, and what do you do about it?
   • What is the consequence of multicollinearity?
   • How would you detect endogeneity?

   Reported by candidates at Squarepoint Capital (Hedge Fund, Montreal, 2024). Source: Wall Street Oasis.

6. 085What is a Category III AIF, and why is it the Indian hedge fund vehicle?India and Category III AIFsIntermediatetechnicalIndian hedge fundsCategory III AIFs

   Say this

   It is the SEBI alternative investment fund category for funds that use complex trading strategies, leverage and derivatives. Categories I and II cannot leverage except for operating needs, so Category III is the only domestic wrapper in which a long-short or arbitrage strategy can actually be run.

   Then walk it

   1. The structure: a privately pooled vehicle, usually a trust, registered with SEBI under the AIF Regulations of 2012. Minimum investor commitment of 1 crore rupees, minimum corpus of 20 crore, and a maximum of 1,000 investors per scheme.
   2. The manager must commit its own capital alongside investors: the continuing interest requirement, the lower of 5 percent of the corpus or 10 crore rupees for Category III. That is skin in the game written into the regulation.
   3. What makes it the hedge fund category is permitted leverage and unrestricted use of listed derivatives, subject to disclosure of the leverage limit in the fund documents and periodic reporting to SEBI. Gross exposure is capped at two times NAV for most schemes.
   4. Category III splits into close-ended and open-ended schemes, and most long-short funds are open-ended with monthly or quarterly liquidity, so the terms look more like a hedge fund than a private equity fund.
   5. Why not the alternatives: a mutual fund under SEBI's mutual fund rules cannot short physical stock and faces tight derivative limits; a PMS is a managed account, not a pooled vehicle, so it cannot run a fund-level short book efficiently. Category III fills exactly that gap.
   6. The honest limitation for a candidate to name: the 1 crore minimum restricts the investor base to high net worth individuals and family offices, so the domestic capital pool is far smaller than the US institutional base. Many Indian strategies therefore run offshore feeder structures in parallel to access foreign capital.

   Where candidates lose it

   Confusing the three AIF categories. Category I is social or infrastructure venture capital with incentives, Category II is private equity and debt funds with no leverage, Category III is the trading category. Get that wrong and an Indian interviewer stops listening. Also know the 1 crore minimum and the manager's continuing interest requirement.

   Expect next

   • How is a Category III AIF different from a PMS?
   • What are the leverage limits?
   • Why would a manager run an offshore feeder alongside it?
7. 086How are Category III AIF returns taxed in India, and why does that shape the strategy?India and Category III AIFsIntermediatetechnicalIndian hedge fundsCategory III AIFs

   Say this

   Category III AIFs do not get the pass-through treatment that Categories I and II enjoy, so tax is generally paid at the fund level rather than by the investor. Because business income for a trust can be taxed at the maximum marginal rate, the tax drag is material and it pushes managers towards holding periods and instruments that attract capital gains treatment rather than business income.

   Then walk it

   1. The structural point first: Categories I and II have explicit tax pass-through, so income other than business income is taxed in the investor's hands. Category III was left out, so the fund itself is generally the taxable entity and the character of its income determines the rate.
   2. That makes income characterisation the central question. Gains treated as capital gains attract the capital gains rates; gains treated as business income, which is where frequent trading and derivative activity often land, can be taxed at the maximum marginal rate applicable to the trust.
   3. Derivatives complicate it further, because exchange-traded derivative income is typically business income rather than capital gains. A strategy that expresses everything through futures and options can therefore carry a heavier tax profile than the same view held in cash equity.
   4. Then the transaction taxes layered on top: securities transaction tax on equity and derivative trades, stamp duty, and exchange charges. STT is small per trade and becomes significant for a high-turnover book, so it is a direct constraint on turnover-heavy strategies in India.
   5. The practical consequence, which is the part that answers the question: after-tax return dominates strategy design. Managers lengthen holding periods where they can, prefer cash-market expressions when the tax treatment is better, and often run an offshore vehicle for foreign investors where the treatment differs.
   6. The caveat to say plainly: this is an area where the treatment turns on facts, on how the fund is set up and on rules that have been amended repeatedly, so any specific number I give you should be checked against the current Finance Act. The framework point stands: Category III is not a pass-through, and that is the thing that drives behaviour.

   Where candidates lose it

   Stating confident tax rates. The regime has changed several times and the characterisation of income depends on the facts, so precise rates quoted with certainty read as bluffing. What you must get right is the structural asymmetry: Categories I and II are pass-through, Category III generally is not, and that drives turnover and instrument choice.

   Expect next

   • Why does STT matter more for some strategies than others?
   • How does an offshore feeder change the tax outcome?
   • Would that push you towards cash or derivatives?
8. 093Do you see yourself doing this for the rest of your career?Career and fitIntermediatesuperdayMan GroupEquity Hedge · Boston · 2019

   Say this

   Yes, and I would make it credible by describing what specifically would sustain me for twenty years rather than saying I love markets. Investment teams are small and hire slowly, so this is a real screen. The honest reason is that the work does not change and the feedback never stops, which suits me.

   Then walk it

   1. Answer directly first. Hedging reads as someone passing through, and in a small team a departure is expensive.
   2. Then the reason that survives the novelty wearing off. The daily work at year twenty is the same as at year one: read the disclosure, form a view, be wrong sometimes, and accumulate knowledge of an industry that compounds. That accumulation is the actual attraction.
   3. Then the scoreboard point. Very few careers tell you plainly whether you were right. For someone who wants that, nothing substitutes, and it does not get less interesting with time.
   4. Then acknowledge the hard parts so it does not sound naive: long stretches where the process is right and the P&L is not, public wrongness, and the risk that a seat disappears in a drawdown. Saying this shows you have considered the downside of a long career here, not just the upside.
   5. Then connect it to the firm's horizon specifically. At a house that runs multi-decade systematic programmes alongside discretionary books, the honest version is that you want to build deep expertise in one process rather than rotate every two years.
   6. One thing to avoid: do not volunteer an ambition to start your own fund. It may be true and it may even be admired later, but in a hiring conversation it answers the question with a no.

   Where candidates lose it

   Saying you eventually want to launch your own fund, or hedging with 'I will see where it takes me'. Both signal a short tenure. The credible version names the specific, unglamorous part of the job you expect to still like in twenty years, and admits the hard parts rather than glossing them.

   Expect next

   • What would make you leave?
   • What is the hardest part of this job?
   • Where do you want to be in ten years?

   Reported by candidates at Man Group (Equity Hedge, Boston, 2019). Source: Wall Street Oasis.

9. 097Would you rather buy a low quality business at a great price, or a high quality business at an okay price?Career and fitIntermediatesuperdayCoatue ManagementTechnology, Media and Telecom · New York · 2023

   Say this

   High quality at an okay price, because compounding means time works for me. A business earning high returns on incremental capital creates value while I hold it. In a cheap bad business, intrinsic value erodes every year I own it, so I am renting a re-rating and I have to be right about timing as well as price.

   Then walk it

   1. The mathematical case: if a business reinvests at a 25 percent return on incremental capital, a long-horizon return converges towards that reinvestment rate, and a sensible entry multiple matters less than it feels like it should.
   2. The cheap bad business is the opposite. Returns below the cost of capital mean each year of reinvestment destroys value, so the entire return depends on the discount closing quickly. No catalyst, no return, and meanwhile the asset is worth less.
   3. So the honest answer is that the horizon decides it, and I would say that explicitly. For a multi-year hold, quality wins. For a six-month event-driven trade with a hard catalyst, the cheap asset can be the far better risk-reward, and in a hedge fund seat I would take both trades in different sizes.
   4. Then the counterargument, because this is a philosophy question and a one-sided answer fails it. 'High quality' is frequently a description of a stock that already worked, and paying any price for quality is precisely how people lost money in 2021 and 2022. The discipline is quality at a defensible price, not quality at any price.
   5. For a technology-focused seat, sharpen it further. The right question is durability: is the return on capital protected by something structural, network effects, switching costs, data or distribution, or by a product lead that a better-funded competitor can erase? Quality without a moat is just a good current margin.
   6. Then the asymmetry that settles it for me. Overpaying for a genuinely good business is usually recoverable with time; owning a structurally declining business is how you lose capital permanently. I would rather make the recoverable mistake.

   Where candidates lose it

   Giving the textbook Buffett answer with no acknowledgement of horizon or of the risk of overpaying for quality. The question is a philosophy test and it wants to see that you can argue both sides and still commit. In a technology seat, also be ready to define quality in terms of durability rather than current margin.

   Expect next

   • How do you define quality, specifically?
   • When does the cheap asset win?
   • How do you avoid overpaying for a compounder?

   Reported by candidates at Coatue Management (Technology, Media and Telecom, New York, 2023). Source: Wall Street Oasis.

10. 099Is television damaging to society?Career and fitIntermediatesuperdayBridgewater AssociatesGeneralist · Westport · 2024

    Say this

    On balance the medium is neutral and the business model is what does the damage. Television that competes for advertising attention optimises for engagement, which rewards outrage and simplification. The same technology used for education or shared information has been clearly beneficial. So I would say the incentive structure is the variable, not the screen.

    Then walk it

    1. Start by making the question answerable. Damaging compared with what, measured how, and over what period? Time displaced from other activities, effects on civic knowledge, effects on polarisation, effects on children. Naming the metric is the first move.
    2. Then the evidence in both directions, briefly. Broad access to news and education raised shared information enormously; there is also credible research on displacement of reading and social activity, and on attention effects in young children.
    3. Then the mechanism that explains the split. An advertising-funded model monetises attention, so content evolves towards whatever holds it. That selects for conflict and simplicity regardless of anyone's intent, which is a structural argument rather than a moral one.
    4. Then the natural experiment, which is where the answer gets interesting. Social media took the same incentive structure and made it faster, more personalised and algorithmically optimised. If the mechanism is right, the effects should be larger there, and broadly they appear to be. That is a testable implication of my claim and it is the kind of thing worth offering unprompted.
    5. Then the counterfactual test. If television were removed, would the attention go to reading or to something else with the same incentives? That question tells you whether you are indicting the medium or the underlying demand.
    6. Then commit: not damaging in itself, damaging as commercially structured, and the policy implication is about funding models and disclosure rather than about the technology. And then genuinely listen to the pushback, because at a firm that asks these questions the grade is on how you handle disagreement.

    Where candidates lose it

    Giving a cultural opinion rather than an analytical one. The test is whether you can define terms, weigh evidence on both sides, identify a mechanism and commit to a view you can defend. The other trap is being immovable. When the interviewer pushes back, update genuinely if the argument is better; that is the behaviour they are screening for.

    Expect next

    • How would you test your claim?
    • Does the same argument apply to social media?
    • I disagree. Convince me, or tell me why I am right.

    Reported by candidates at Bridgewater Associates (Generalist, Westport, 2024). Source: Wall Street Oasis.

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.