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. 057What is the fulcrum security, and how do you find it?Distressed and creditHardsuperdayDistressed debtSpecial situations

   Say this

   The fulcrum is the most senior claim that does not get paid in full, so it is the layer that converts into the equity of the reorganised company. You find it by valuing the business, then walking the capital structure down in priority order until the value runs out. Whichever tranche is sitting where the money stops is the fulcrum.

   Then walk it

   1. Worked example. Enterprise value 800. Secured bank debt 500, senior unsecured 400, subordinated 200. The banks are covered in full, the seniors receive 300 against 400 claims, so they recover 75 cents and take the new equity. Senior unsecured is the fulcrum; the subs and old equity get nothing or a nuisance tip.
   2. So the first job is the enterprise value, and the whole answer hinges on it. Use a multiple on normalised through-cycle EBITDA plus a liquidation floor on hard assets, and be explicit that you are valuing a restructured business without the current debt burden.
   3. Then build the waterfall properly, which means reading the documents. Structural seniority from where debt sits in the group, collateral and whether the lien is perfected, guarantees from operating subsidiaries, intercompany claims, and any leakage from drop-down or J. Crew style transactions that moved assets away from lenders.
   4. Then add the claims people forget: DIP financing, which is super-priority; administrative and professional fees, which in a long case are enormous; pension deficits; tax claims; and rejected lease and litigation claims that crystallise in the process.
   5. Why it matters: owning the fulcrum means owning the equity upside for a debt price, and it gives you a seat at the negotiating table because your class has to vote on the plan. That control is often worth more than the recovery arithmetic.
   6. The honest limitation: the fulcrum moves. A change in the EBITDA estimate or the exit multiple of one turn can shift it a whole layer, and the process itself can reallocate value through negotiation rather than arithmetic. So I would buy the fulcrum with a margin of safety, or buy the layer just above it and give up some upside for structural protection.

   Where candidates lose it

   Identifying the fulcrum from the capital structure table without an enterprise value. The fulcrum is defined by where the value breaks, so no valuation means no answer. Second trap: ignoring administrative costs and DIP priority, which routinely push the break a layer higher than a clean model suggests.

   Expect next

   • What happens to the fulcrum if your EBITDA estimate is 20 percent too high?
   • What is a DIP loan and why does it price so well?
   • How does a drop-down transaction hurt existing lenders?
2. 060Tell me about recent trends a distressed manager would be affected by.Distressed and creditHardtechnicalOaktree Capital ManagementRisk · Los Angeles · 2022

   Say this

   Three things dominate: the maturity wall of debt raised in the cheap-money years now refinancing at much higher coupons, the rise of private credit changing who holds the paper, and much weaker documents, so lenders have fewer protections than the last cycle. Together they mean more stress with slower, messier resolution.

   Then walk it

   1. Start with rates and the refinancing wall. Loans issued at low single-digit coupons are repricing several hundred basis points higher, and for a leveraged borrower that can consume most of its free cash flow. Interest coverage, not leverage, is the binding constraint this cycle.
   2. Then private credit. A very large share of leveraged lending has moved from syndicated markets to direct lenders, so stress shows up in negotiated amendments rather than in visible secondary prices. Marks are held by the lender, which delays price discovery and makes the cycle look calmer than it is.
   3. Then documentation. Covenant-lite is standard, so there is no maintenance covenant to trip. Defaults happen at a payment date instead of early, which means companies arrive at restructuring with less value left and lenders have less negotiating leverage.
   4. Then liability management, which is the defining feature of the current cycle. Drop-downs, uptiering and other creditor-on-creditor transactions move collateral away from non-participating lenders. That makes intercreditor documents the central analytical exercise and raises the value of a blocking position.
   5. Then the composition. Stress has been concentrated in specific pockets rather than economy-wide: commercial real estate with office valuations and refinancing, some healthcare and consumer services, and highly levered businesses with floating rate debt.
   6. How that changes the job, which is the point of the question: fewer clean recoveries and more negotiation, so a manager values legal capability and the ability to build blocking stakes over screening for cheap paper. And a risk-first manager would say the honest part out loud, that spreads spent long periods too tight to be compensated for this, so patience and dry powder were the correct posture rather than forcing deployment.

   Where candidates lose it

   Giving generic macro commentary. This question is asking whether you follow the credit market specifically. The three details that land are the coverage ratio squeeze rather than leverage, private credit delaying price discovery, and liability management exercises. Refresh the numbers the week of the interview and name a real situation.

   Expect next

   • What is an uptier transaction and why do lenders sue over it?
   • Where in the market would you look for distressed opportunities today?
   • Why have default rates stayed lower than the rate move implied?

   Reported by candidates at Oaktree Capital Management (Risk, Los Angeles, 2022). 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.