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. 033You are down 4 percent on the month and your risk manager is on the phone. What happens next?Risk and drawdownHardsuperdayMulti-manager platforms

   Say this

   First I would know the answer to their question before they ask it: what lost the money, whether it was the thesis or a factor, and what I am doing about it. Then I would cut risk to the level they need, without arguing, and keep the positions I still believe in at a smaller size.

   Then walk it

   1. Attribution first, and fast. Split the loss into market, sector, style factor and idiosyncratic. A 4 percent loss that is mostly a momentum unwind is a very different conversation from a 4 percent loss on two broken theses.
   2. If it is factor, the fix is mechanical: neutralise the offending exposure and the drawdown stops compounding. That is a risk process failure, and I would own it as such.
   3. If it is idiosyncratic and the theses are intact, I still have to reduce, because a drawdown limit is not an opinion. The question is which positions to keep. I would cut the ones where the falsifier has been triggered or where liquidity is worst, and keep the highest conviction, most liquid, nearest-catalyst names at reduced size.
   4. Say the number out loud, because it is how these seats work. Most platforms run a soft limit around 3 to 5 percent where gross is cut hard, and a hard stop near 7 to 10 percent where the book is closed. Knowing that is what shows you understand the seat.
   5. Then the behavioural discipline: do not double down to get it back, do not switch style, and do not stop communicating. PMs who go quiet in a drawdown get taken down faster than PMs who over-communicate.
   6. And the honest part: I would reserve the right to say that a position is being cut for risk reasons, not because I think it is wrong. That distinction is worth recording, because it is how you learn whether your process or your judgement failed.

   Where candidates lose it

   Saying you would defend the book and ask for more room. On a multi-manager platform the drawdown limit is the contract, not a negotiation, and that answer gets you marked as someone who will not survive the risk framework. Lead with attribution, accept the reduction, and show judgement in what you keep.

   Expect next

   • Which positions would you cut first, and why?
   • At what level does the platform close your book?
   • How would you tell the difference between bad luck and a broken process?
2. 035Write a function that returns the n largest drawdowns in a return series.Risk and drawdownHardtechnicalBalyasny Asset ManagementQuantitative Trading · London · 2025

   Say this

   Build the cumulative NAV, walk it once tracking the running peak, and record a drawdown episode whenever the series falls below a peak and then makes a new high. Each episode gets a depth, a start, a trough and a recovery date. Then sort the episodes by depth and return the top n. It is a single linear pass.

   Then walk it

   1. Step one: turn returns into a wealth index, cumulative product of one plus r. Do this before anything else, because drawdowns are multiplicative and summing returns gives the wrong depth.
   2. Step two: running maximum of the wealth index. The drawdown series is wealth divided by running max, minus one, which is zero or negative at every point.
   3. Step three, the part interviewers actually test: segment into episodes. An episode opens when the drawdown series goes below zero and closes when it returns to zero, meaning a new high water mark. Within each episode the trough is the minimum.
   4. Step four: sort episodes by depth, take the first n. Say the complexity: O(T) for the pass plus O(k log k) for the sort, where k is the number of episodes, so linear in practice.
   5. State the edge cases before being asked, because this is where candidates get cut: the series ends while still in a drawdown, so the last episode is unrecovered and you should report it with no recovery date. Also decide whether overlapping nested dips count as one episode or several, and say which convention you are using.
   6. The naive alternative is to take the n most negative points of the drawdown series, and it is wrong: they will all sit inside the same crash. Volunteering why that fails is what shows you understood the question rather than pattern-matched it.

   Where candidates lose it

   Returning the n most negative values of the drawdown series. They cluster in one episode, so you report the same crash n times. The question is really about episode segmentation. Also, sum returns instead of compounding them and every number is wrong. State your episode convention out loud.

   Expect next

   • How would you handle a series that ends mid-drawdown?
   • How would you report time to recovery?
   • How would you do this for a portfolio of a thousand instruments efficiently?

   Reported by candidates at Balyasny Asset Management (Quantitative Trading, London, 2025). Source: Wall Street Oasis.

3. 040Your best long and your best short are in the same sector and both going against you. What do you do?Risk and drawdownHardsuperdayLong-short equityMulti-manager platforms

   Say this

   If both legs are losing at once, the pair is not hedged on the dimension that is moving, so first I would find out what that dimension is. It is usually a style factor rather than the sector, and the answer depends entirely on whether I have a factor problem or two independent thesis problems.

   Then walk it

   1. Diagnose before acting. Run the attribution: if the long is a value name and the short is a growth name, a growth rally hurts both and the sector hedge was never doing the work I thought it was.
   2. If it is a factor, the fix is to neutralise the factor, not to abandon the theses. Overlay a style hedge or adjust the pair weights so the loadings offset, and keep the idiosyncratic view.
   3. If both theses are genuinely deteriorating on their own facts, that is a different message: my process has a common flaw, probably a shared assumption about the end market. Then I cut both and go back to the work rather than pick one to defend.
   4. Check the correlation assumption I entered with. If I sized the pair as a hedged position and it is behaving as two directional positions, my risk is roughly double what I thought and the size has to come down immediately, regardless of the diagnosis.
   5. Then the liquidity ordering. Reduce where reducing is cheap, which often means cutting the more liquid leg first, and accept that this temporarily unbalances the pair.
   6. And I would say the part people skip: an adverse move in both legs of a pair is one of the most useful signals a book gives you, because it means your model of what the trade was exposed to was wrong. That is worth more than the P&L.

   Where candidates lose it

   Picking one leg to cut on instinct, usually the loser you like less. Without attribution you do not know whether you have one problem or two. Say what you would measure first. And if the pair was sized as a hedge but behaves directionally, the size is wrong now, so address that before discussing the theses.

   Expect next

   • How would you separate factor loss from idiosyncratic loss?
   • If it is a factor, do you hedge it or reduce?
   • What would you have done differently when you put the pair on?

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.