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. 050A target trades at 46, the cash offer is 50, and the deal is expected to close in six months. What is your return, and what are you being paid for?Event-driven and merger arbIntermediatetechnicalMerger arbitrageEvent-driven

   Say this

   The gross spread is 4 on 46, which is about 8.7 percent over six months, or roughly 17 to 18 percent annualised before costs. You are being paid for the risk the deal breaks, and given where rates are, roughly half of that annualised number is just compensation for tying up capital.

   Then walk it

   1. Arithmetic first: 50 minus 46 is 4, over 46 is 8.7 percent. Doubling for the six-month period gives about 17.4 percent annualised, or 18.1 percent if you compound it. Say the simple number, then note the compounding refinement.
   2. Net it down. Subtract the financing cost of the long, add back any target dividend you receive, and subtract the cost of any hedge. At a 5 percent financing rate, roughly half the annualised spread disappears.
   3. Then the risk question, which is the real question. What is the undisturbed price? If the target traded at 34 before announcement, a break costs you 12 while success pays 4. Three to one against, so you need a completion probability well above 75 percent to break even.
   4. Compute the implied probability: 4 divided by 16 is 25 percent implied break risk. Then ask whether that is right. A friendly, all-cash, fully financed strategic deal with no antitrust overlap should be well below that, which would make the spread attractive.
   5. A spread this wide is a message. Eight percent over six months usually means antitrust review, a financing condition, a shareholder who has objected, or a regulatory regime with a track record of blocking. Find out which before you take the other side.
   6. And the sizing conclusion: because the payoff is three to one against you, position size and deal diversification do more for the return than spread selection. Twenty deals at 2 percent each beats four at 10 percent, and that is the whole discipline of the strategy.

   Where candidates lose it

   Quoting 8.7 percent as the return and stopping. You must annualise, and you must net the financing. Then the bigger trap: giving a return with no reference to the downside. Without the undisturbed price the spread is meaningless, and an arb interviewer will judge you almost entirely on whether you asked for it.

   Expect next

   • What was the price before the deal was announced?
   • What implied break probability does that spread give you?
   • How many deals would you hold, and why?
2. 052How does a stock-for-stock merger arb trade differ mechanically from a cash deal?Event-driven and merger arbIntermediatetechnicalMerger arbitrageEvent-driven

   Say this

   In a cash deal you only own the target and you are trading an absolute spread. In a stock deal you go long the target and short the acquirer at the exchange ratio, so you are trading the ratio itself, and you inherit a borrow, a dividend obligation and the risk that the ratio is not fixed.

   Then walk it

   1. Set it up concretely. The offer is 0.8 acquirer shares per target share, the acquirer trades at 60, so the implied offer is 48. The target trades at 46, so the spread is 2. You buy 100 target and short 80 acquirer.
   2. Now your P&L is the ratio, not the price. If both stocks fall 20 percent, the spread is roughly intact and you have lost little. That is the attraction: the trade is naturally hedged against market direction.
   3. Borrow becomes central. You need the acquirer borrow for the life of the deal, and it usually gets tight and expensive, because every arb in the trade needs the same short. A recall on the acquirer leg is a real operational risk.
   4. You owe the acquirer's dividends and receive the target's. Net dividend carry can be a meaningful part of the expected return over a nine-month deal, positive or negative.
   5. Collars and floating ratios change everything. A fixed-value collar means the number of shares adjusts within a band, which makes the hedge ratio dynamic and gives the position embedded optionality you have to delta hedge.
   6. And the asymmetry to name: because arbs are systematically short the acquirer, acquirer stocks are pressured after announcement, which is part of why acquirers underperform. That is also why a deal break is doubly painful: the target falls and the acquirer often rallies as the short base covers.

   Where candidates lose it

   Treating the short leg as a detail. The acquirer short is where the operational risk lives: borrow cost, recall, dividends and the arb crowd all being on the same side. Also, if the deal has a collar, the hedge ratio is not static, and missing that means your hedge is wrong from day one.

   Expect next

   • What happens to your hedge if the deal has a fixed-value collar?
   • Why do acquirer shares often fall after announcement?
   • What do you do if the acquirer borrow gets recalled?
3. 054What is a catalyst, and what makes a good one?Event-driven and merger arbIntermediatetechnicalLong-short equityEvent-driven

   Say this

   A catalyst is a dated, identifiable event that forces the market to reprice. A good one has three properties: it happens on a known timeline, it is material enough to move the numbers, and it resolves your specific disagreement with consensus rather than just being news.

   Then walk it

   1. Dated matters most. 'Eventually the market will notice' is not a catalyst, it is a hope, and it is how a thesis becomes a value trap that ties up capital for three years.
   2. The good ones in practice: an earnings print where your variant number becomes visible, a capacity ramp or product launch, a contract renewal, a refinancing or covenant test, a capital markets day, index inclusion or exclusion, a spin-off, a lock-up expiry, a regulatory decision.
   3. Materiality: it has to change the numbers people model, not just the narrative. A new disclosure that reveals segment profitability can be a bigger catalyst than a product announcement, because it changes the input rather than the story.
   4. Resolution is the subtle one. A good catalyst settles your disagreement either way. If the event can happen and leave the debate exactly where it was, it is not a catalyst for your thesis even if it moves the stock.
   5. Catalysts also enable risk management, which is the hedge fund reason they matter. A dated event gives you a review point and a natural place to size up or cut, so the position has a defined lifespan instead of drifting.
   6. The limitation to say: catalysts get anticipated. If the trade is well known, the move happens before the event and you get the classic sell-the-news outcome. So I would also ask how the stock is positioned going in, not just what is going to happen.

   Where candidates lose it

   Listing events without the dated and resolving criteria. Every stock has news coming. What makes something a catalyst for your position is that it tests your specific variant view on a known date. And do not ignore positioning: a widely anticipated catalyst in a crowded name is a reason to be smaller, not larger.

   Expect next

   • Give me a catalyst on a name you follow and the date.
   • What do you do when a catalyst passes and nothing happens?
   • How does positioning into a catalyst change the trade?
4. 055What is an activist campaign, and how would you trade one?Event-driven and merger arbIntermediatetechnicalEvent-drivenActivist funds

   Say this

   An activist takes a stake and pushes for a change the market will pay for: a break-up, a sale, a capital return, a management change or a strategy reset. To trade it you underwrite two separate things, the value of the change and the probability it actually happens, and the second is mostly about the shareholder register.

   Then walk it

   1. First, price the gap. What is the sum of the parts or the value under the activist's plan versus the current price? If a conglomerate's divisions are worth 40 percent more separately, that is the prize and it bounds the trade.
   2. Second, the probability, which is a vote-counting exercise. Who owns the stock, how concentrated is it, what have the index funds' stewardship teams done in similar situations, and what will ISS and Glass Lewis recommend. Proxy advisers move a meaningful block of votes.
   3. Third, read the board's position. Is there a staggered board, a poison pill, dual-class shares, or a supportive founder with 25 percent? Any one of those can make a campaign unwinnable regardless of the merits.
   4. Fourth, the timeline and the escalation path. Letter, then meetings, then a public presentation, then a nomination of directors, then a proxy fight to the annual meeting. That gives you the dates to trade around, which is what makes it a position rather than a view.
   5. Fifth, the expression. Long the stock is the simple version. If the outcome is binary and dated, call options can be a better risk-reward. If the campaign will re-rate the whole sector, pair it against a peer to isolate the situation.
   6. The empirical caveat worth citing: the announcement pop is real and well documented, but longer-term outcomes are mixed and depend on the activist and whether the ask is operationally credible. A demand to lever up and buy back stock is easier to win and often worse for the business than a demand to sell a division.

   Where candidates lose it

   Assuming the activist wins. Most campaigns are settled or partially conceded, and some fail completely against a protected board. The analytical content is in the register, the proxy adviser view and the structural defences. Also note that buying after the 13D is buying after the pop, so the trade is about what happens next, not about the announcement.

   Expect next

   • How would you count the votes?
   • Would you rather own the stock or calls?
   • What structural defences make a campaign unwinnable?

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.