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. 002Explain the difference between discretionary and systematic trading.Strategy taxonomyIntermediatetechnicalMan GroupGeneralist · London · 2023

   Say this

   A discretionary manager makes the decision on each trade, using a rules-guided but human judgement. A systematic manager makes the decision once, in code, and then the rules trade without intervention. The real difference is where the human judgement sits: in the position or in the process.

   Then walk it

   1. Discretionary: deep work on few positions. A macro PM might run fifteen expressions of four themes. Breadth is low, so the edge has to be depth of insight.
   2. Systematic: shallow work on many positions. A trend or stat arb book may hold thousands of instruments, each with a small expected edge, and the edge is breadth plus discipline.
   3. The fundamental law of active management is the clean way to say it: information ratio is roughly skill times the square root of breadth. Discretionary buys the skill term, systematic buys the breadth term.
   4. Capacity differs. Systematic strategies hit capacity limits in the market microstructure and can be measured; discretionary capacity is limited by how many names one human can genuinely know.
   5. Failure modes differ too. Discretionary fails through anchoring, averaging down and story-telling. Systematic fails through overfitting, regime change and everyone crowding the same signal.
   6. The blurred middle is where most large firms live now: quantamental. Human thesis, systematic screening, portfolio construction and risk done by the machine. Man Group itself runs both AHL on the systematic side and discretionary equity books, which is worth naming if you are sitting there.

   Where candidates lose it

   Framing it as 'humans versus computers'. Discretionary PMs use enormous amounts of quantitative tooling, and systematic researchers make thousands of judgement calls when specifying a model. Say where the judgement sits instead, and mention the fundamental law if you want to sound like you have thought about it rather than read about it.

   Expect next

   • Which has more capacity, and why?
   • How would you know a systematic strategy had stopped working rather than just having a bad month?
   • Which would you rather work in?

   Reported by candidates at Man Group (Generalist, London, 2023). Source: Wall Street Oasis.

2. 004What is global macro, and how is it different from long-short equity?Strategy taxonomyIntermediatetechnicalGlobal macro

   Say this

   Macro trades the price of money and the economy rather than individual companies: rates, currencies, sovereign credit, commodities and index-level equity. The difference from long-short equity is breadth and depth reversed. Macro takes a few large views expressed in liquid derivatives; long-short takes many small company-level views.

   Then walk it

   1. The instruments give it away. Macro lives in futures, swaps, FX forwards and options because those give you enormous notional exposure with a small cash outlay and can be exited in a day.
   2. The unit of analysis is a policy path, not an earnings number. A typical trade is 'the market is pricing three cuts, I think there will be one, so I am short the front end of the curve'.
   3. Expression matters as much as the view in macro. If you think a currency is overvalued, you can short it outright, own a put, or express it through the rate differential. Each has a different carry and a different way of being right on the view and losing money.
   4. Hit rates are low and honest macro managers say so. You might be right on four trades in ten and still have a good year if the winners run and the losers get cut small. That is why stop discipline is cultural in macro and thesis discipline is cultural in equity.
   5. Carry is the silent factor. Many macro trades pay you to wait or cost you to wait, and a trade with negative carry has to be right quickly.
   6. The limitation: because positions are big and liquid, macro books can be fine on the view and get stopped out by positioning and flow. The 2022 gilt episode is the clean example. The direction was right and the path killed people.

   Where candidates lose it

   Talking about macro views with no instrument attached. 'I think inflation stays sticky' is not a trade. The interviewer wants to hear the expression, the carry and the stop. Name the instrument in the same breath as the view.

   Expect next

   • Give me a macro trade you would put on today and how you would express it.
   • What is the carry on that trade?
   • How would you size it, and where would you stop out?
3. 005What is relative value, and give me an example of a relative value trade.Strategy taxonomyIntermediatetechnicalRelative valueFixed income arbitrage

   Say this

   Relative value is long one instrument and short a closely related one, betting that the price relationship between them converges rather than that either one goes up. Because the two legs are similar, the expected return per unit of notional is tiny, so the strategy only pays after leverage.

   Then walk it

   1. Classic example: the cash-futures basis in government bonds. Own the cash bond, short the future, earn the small mispricing as it converges into delivery. Levered ten or twenty times, a few basis points becomes a real return.
   2. Other standard ones: on-the-run versus off-the-run Treasuries, swap spreads, index arbitrage against the basket, convertible bond arb long the convert and short the equity, and capital structure arb long the bond and short the stock.
   3. The economic function is real. These trades supply liquidity and enforce pricing consistency between related markets, which is why the spreads exist at all.
   4. What you are actually short is liquidity and funding. The trade works while you can hold it; it fails when margin calls force you out at the widest point. LTCM in 1998 and the March 2020 Treasury basis unwind are the same story twice.
   5. So the real risk metric is not volatility of the spread, it is how much the spread can widen before your financing is pulled. Haircut, repo term and counterparty diversification are the actual risk controls.
   6. The honest caveat to say out loud: a relative value P&L looks like a beautiful straight line right up until the day it does not. Sharpe ratios computed on the calm period are meaningless without a stress assumption.

   Where candidates lose it

   Calling it arbitrage without leverage or funding in the answer. Unlevered, these spreads are not worth trading. The moment you mention leverage you have to mention repo haircuts and forced unwinds, and a candidate who volunteers that is immediately more credible than one who says 'risk-free'.

   Expect next

   • How much leverage would that basis trade need to be interesting?
   • What happened to the Treasury basis trade in March 2020?
   • How would you size a trade whose volatility is understated by its history?
4. 006What is statistical arbitrage, and why does it need so much capital and infrastructure?Strategy taxonomyIntermediatetechnicalStatistical arbitrageQuantitative hedge funds

   Say this

   Stat arb takes thousands of small, statistically estimated bets on relative price moves, holds them for days to weeks, and relies on breadth rather than conviction. It needs scale because each position's edge is a few basis points, so you only get a reliable return by running many of them at once with costs under tight control.

   Then walk it

   1. The canonical version is cross-sectional mean reversion: rank a universe on a residual signal, go long the bottom decile and short the top decile, rebalance frequently, hold nothing idiosyncratic enough to matter on its own.
   2. The maths is the fundamental law again. If your per-bet edge is small but your bets are numerous and roughly independent, the portfolio Sharpe scales with the square root of the number of bets. Two thousand weak signals beat ten strong ones on a risk-adjusted basis.
   3. That is why infrastructure is the moat: you need clean point-in-time data, survivorship-free universes, a risk model to neutralise factors, a cost model, and an execution stack that can turn over a large book without paying away the edge.
   4. Transaction cost is not a detail, it is the constraint. A signal with 8 basis points of gross edge and 6 basis points of round-trip cost is not a strategy. Most stat arb research time goes into cost and capacity, not into finding signals.
   5. It is also crowded. Many desks run correlated versions of the same value, momentum and reversal residuals, which is why quant equity has coordinated drawdowns. August 2007 is the textbook one: deleveraging in one corner forced liquidation across the whole cohort.
   6. The limitation to state plainly: the alpha decays. A signal that worked for five years will be arbitraged, so the business is really a research pipeline that retires signals as fast as it adds them.

   Where candidates lose it

   Describing it as pairs trading and stopping. Pairs trading is the toy version. What makes it a real strategy is the factor-neutral portfolio construction, the cost model and the research pipeline, and those are what the interviewer wants to hear you mention.

   Expect next

   • How would you test whether a signal is just a repackaged momentum factor?
   • What happened in the August 2007 quant quake?
   • How do you estimate capacity for a signal?

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.