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. 070How does margin financing on a long-short book actually work?Financing, NAV and operationsHardtechnicalPrime brokerageLong-short equity

   Say this

   The prime broker requires margin against your total positions, long and short, calculated either by a fixed rule like Reg T or by a risk-based portfolio model. Your equity supports the whole book, so the constraint on gross exposure is the margin requirement, and the cost is the spread you pay on the borrowed amount.

   Then walk it

   1. Two regimes. Reg T is rules-based: 50 percent initial margin on longs and 150 percent of the short's value including proceeds, which caps you at roughly 2 times gross. Portfolio margin or a risk-based model looks at the net risk of the whole book and can allow 6 to 8 times for a hedged, diversified portfolio.
   2. That is why hedged books get more leverage. Under a risk model, a long and an offsetting short in the same industry attract far less margin than two directional positions, so factor neutrality is rewarded by the financing as well as by the risk team.
   3. The economics: you pay a financing rate on the long borrowings, roughly the overnight rate plus a spread of maybe 40 to 100 basis points, and you receive a rebate below the overnight rate on short proceeds. On a 300 percent gross book the net financing line is a large, recurring cost.
   4. Margin is marked daily. Losses reduce equity, which raises the required margin as a fraction of what is left, so the constraint tightens exactly as you lose money. That reflexivity is the core mechanic to understand.
   5. Hence the margin spiral: losses, margin call, forced selling, more losses. It is the same mechanism in LTCM, in 2008, in the 2020 basis unwind and in Archegos. The trade did not have to be wrong for the fund to die; the financing ran out first.
   6. The defences are practical and worth naming: hold an excess cash buffer above the requirement, negotiate term financing or locked haircuts where you can, multi-prime so no single counterparty can force you, and stress test the margin requirement rather than just the P&L. Most funds stress the portfolio and forget to stress the financing.

   Where candidates lose it

   Describing leverage as a single number. The insight is that the margin requirement rises as your equity falls, so leverage is reflexive rather than static. And stress testing the margin requirement, not just the portfolio value, is the answer that sounds like someone who has watched a treasurer work.

   Expect next

   • How much gross could you run under portfolio margin versus Reg T?
   • What happened at Archegos, in financing terms?
   • How would you stress test your financing?
2. 071How would you value an illiquid position for the monthly NAV?Financing, NAV and operationsHardsuperdayDistressed debtFund administration

   Say this

   By a written policy applied consistently, not by judgement each month. Hierarchy: an observable transaction price if there is one, then broker quotes, then a model calibrated to comparable market data, with the manager's own view last. Then document it, get it reviewed independently, and disclose the level.

   Then walk it

   1. Start at the top of the fair value hierarchy. Level one is an exchange price and there is nothing to decide. Level two is observable inputs, so indicative broker quotes on a similar bond or a recent trade in the same issuer's other paper. Level three is a model with unobservable inputs, which is where the real work and the real risk sit.
   2. For a private or restructured equity stake, a defensible approach is a multiple on the latest reported earnings against listed comparables, plus an illiquidity discount, cross-checked against the last primary round or any secondary transaction.
   3. For a stressed loan, recovery analysis: enterprise value, the waterfall, then a discount rate reflecting the time and uncertainty of the process. Mark the claim, not the face amount.
   4. Governance is most of the answer. Broker quotes from at least two independent sources where possible, a pricing committee that signs off, a written valuation policy reviewed by the board, the administrator striking the NAV rather than the manager, and an annual audit that tests the level three marks.
   5. Consistency matters more than precision, and this is the part to say out loud. A defensible method applied every month is better than a more accurate method applied when it suits. Changing methodology when a mark is inconvenient is the classic abuse.
   6. Then the disclosures that let an investor judge: percentage of NAV in each level, the discount applied, and a sensitivity showing what NAV would be at plus or minus a reasonable range on the key input. If the position is large and genuinely unmarkable, the right answer may be to side-pocket it rather than to invent a number.

   Where candidates lose it

   Giving a valuation technique and no governance. The question is really about controls: who marks it, who checks the marker, and how you stop the method from changing when the number is unhelpful. Also remember to mention that side-pocketing can be the correct answer rather than marking something you cannot mark.

   Expect next

   • What if the two broker quotes differ by 15 points?
   • Who signs off on a level three mark?
   • When should a position be side-pocketed instead?

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.