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. 082Talk me through your research process for a systematic signal. How do you avoid fooling yourself?Quant and systematicHardtechnicalBalyasny Asset ManagementQuantitative Trading · London · 2025

   Say this

   Start with an economic reason the signal should work, then test it in a way that can fail. Hypothesis first, then data preparation, then a simple specification, then out-of-sample and out-of-region validation, then costs, then capacity. The discipline is that the hypothesis comes before the backtest, not after it.

   Then walk it

   1. State the economic mechanism first and write it down before running anything. Who is on the other side, and why are they there? A signal with no story about who is losing money is almost certainly a data artifact.
   2. Then the data work, which is most of the time and all of the risk. Point-in-time data with correct reporting lags, restated figures handled properly, delisted and merged companies included, corporate actions adjusted, and survivorship bias eliminated. Look-ahead bias is the most common silent killer and it always flatters the result.
   3. Then the simplest possible specification. One parameter, no optimisation, sensible defaults. If the effect does not show up in the naive version, it probably is not there. Elaboration after validation, never before.
   4. Then validation that can actually fail: hold out a period you never look at, test in other regions and other asset classes, test across sub-periods, and check that the result is not driven by a handful of stocks or one month. Report the number of specifications you tried, because a t-statistic loses its meaning after the twentieth attempt.
   5. Then costs and capacity, which kill more signals than statistics do. Model spread and impact, compute net-of-cost performance at realistic size, and check whether the signal survives a one-day implementation lag. A signal requiring same-second execution is not a signal for a fundamental-horizon book.
   6. Then the honest self-checks: decide the kill criteria before the test, keep a research log of everything tried including the failures, and have someone else reproduce the pipeline. The uncomfortable truth is that most published anomalies do not replicate out of sample, so my prior on my own new signal should be low.

   Where candidates lose it

   Describing a backtest rather than a research process. The order of operations is the answer: hypothesis, then data hygiene, then a naive test, then validation, then costs. A candidate who does not mention point-in-time data, look-ahead bias and the multiple-testing problem will not get through a quant research interview.

   Expect next

   • How many specifications did you try on your last project?
   • How do you handle restated financials in a backtest?
   • What is your kill criterion for a signal?

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

2. 085What is a Category III AIF, and why is it the Indian hedge fund vehicle?India and Category III AIFsIntermediatetechnicalIndian hedge fundsCategory III AIFs

   Say this

   It is the SEBI alternative investment fund category for funds that use complex trading strategies, leverage and derivatives. Categories I and II cannot leverage except for operating needs, so Category III is the only domestic wrapper in which a long-short or arbitrage strategy can actually be run.

   Then walk it

   1. The structure: a privately pooled vehicle, usually a trust, registered with SEBI under the AIF Regulations of 2012. Minimum investor commitment of 1 crore rupees, minimum corpus of 20 crore, and a maximum of 1,000 investors per scheme.
   2. The manager must commit its own capital alongside investors: the continuing interest requirement, the lower of 5 percent of the corpus or 10 crore rupees for Category III. That is skin in the game written into the regulation.
   3. What makes it the hedge fund category is permitted leverage and unrestricted use of listed derivatives, subject to disclosure of the leverage limit in the fund documents and periodic reporting to SEBI. Gross exposure is capped at two times NAV for most schemes.
   4. Category III splits into close-ended and open-ended schemes, and most long-short funds are open-ended with monthly or quarterly liquidity, so the terms look more like a hedge fund than a private equity fund.
   5. Why not the alternatives: a mutual fund under SEBI's mutual fund rules cannot short physical stock and faces tight derivative limits; a PMS is a managed account, not a pooled vehicle, so it cannot run a fund-level short book efficiently. Category III fills exactly that gap.
   6. The honest limitation for a candidate to name: the 1 crore minimum restricts the investor base to high net worth individuals and family offices, so the domestic capital pool is far smaller than the US institutional base. Many Indian strategies therefore run offshore feeder structures in parallel to access foreign capital.

   Where candidates lose it

   Confusing the three AIF categories. Category I is social or infrastructure venture capital with incentives, Category II is private equity and debt funds with no leverage, Category III is the trading category. Get that wrong and an Indian interviewer stops listening. Also know the 1 crore minimum and the manager's continuing interest requirement.

   Expect next

   • How is a Category III AIF different from a PMS?
   • What are the leverage limits?
   • Why would a manager run an offshore feeder alongside it?
3. 086How are Category III AIF returns taxed in India, and why does that shape the strategy?India and Category III AIFsIntermediatetechnicalIndian hedge fundsCategory III AIFs

   Say this

   Category III AIFs do not get the pass-through treatment that Categories I and II enjoy, so tax is generally paid at the fund level rather than by the investor. Because business income for a trust can be taxed at the maximum marginal rate, the tax drag is material and it pushes managers towards holding periods and instruments that attract capital gains treatment rather than business income.

   Then walk it

   1. The structural point first: Categories I and II have explicit tax pass-through, so income other than business income is taxed in the investor's hands. Category III was left out, so the fund itself is generally the taxable entity and the character of its income determines the rate.
   2. That makes income characterisation the central question. Gains treated as capital gains attract the capital gains rates; gains treated as business income, which is where frequent trading and derivative activity often land, can be taxed at the maximum marginal rate applicable to the trust.
   3. Derivatives complicate it further, because exchange-traded derivative income is typically business income rather than capital gains. A strategy that expresses everything through futures and options can therefore carry a heavier tax profile than the same view held in cash equity.
   4. Then the transaction taxes layered on top: securities transaction tax on equity and derivative trades, stamp duty, and exchange charges. STT is small per trade and becomes significant for a high-turnover book, so it is a direct constraint on turnover-heavy strategies in India.
   5. The practical consequence, which is the part that answers the question: after-tax return dominates strategy design. Managers lengthen holding periods where they can, prefer cash-market expressions when the tax treatment is better, and often run an offshore vehicle for foreign investors where the treatment differs.
   6. The caveat to say plainly: this is an area where the treatment turns on facts, on how the fund is set up and on rules that have been amended repeatedly, so any specific number I give you should be checked against the current Finance Act. The framework point stands: Category III is not a pass-through, and that is the thing that drives behaviour.

   Where candidates lose it

   Stating confident tax rates. The regime has changed several times and the characterisation of income depends on the facts, so precise rates quoted with certainty read as bluffing. What you must get right is the structural asymmetry: Categories I and II are pass-through, Category III generally is not, and that drives turnover and instrument choice.

   Expect next

   • Why does STT matter more for some strategies than others?
   • How does an offshore feeder change the tax outcome?
   • Would that push you towards cash or derivatives?
4. 089What SEBI rules would you need to know before running a long-short book in India?India and Category III AIFsHardtechnicalIndian hedge fundsCategory III AIFs

   Say this

   Four bodies of rules: the AIF Regulations that govern the fund itself, the derivative and position limit framework that governs how you short, the insider trading regulations, and the disclosure thresholds on large positions. Plus the operational rules on valuation, reporting and custody.

   Then walk it

   1. The AIF Regulations of 2012 first: registration, the Category III leverage limit expressed as gross exposure not exceeding twice NAV, the 1 crore investor minimum, the manager's continuing interest, periodic reporting to SEBI, and the requirement to disclose the leverage and risk framework in the placement memorandum.
   2. Then the derivatives framework, because that is how you short. Which names are in the futures and options segment, market-wide and client-level position limits, margining including SPAN and exposure margin, and the periodic tightening of index option rules. Your short capacity is defined by these, not by your conviction.
   3. Then insider trading, which is SEBI's Prohibition of Insider Trading Regulations of 2015. Unpublished price sensitive information is the Indian formulation, and the regime requires a code of conduct, a structured digital database recording who received what information, trading windows and pre-clearance. The structured digital database requirement is a genuinely distinctive Indian feature worth naming.
   4. Then disclosure. Takeover Regulations require disclosure at 5 percent and on changes of 2 percent thereafter, which matters for a concentrated book. Short positions must also be disclosed to the exchanges under the framework that prohibits naked short selling; institutional investors cannot square off intraday.
   5. Then the operational layer: valuation policy and independent valuation of unlisted holdings, custodian requirements, benchmarking of AIF performance, and the compliance test report the manager files.
   6. The honest caveat: this is an actively changing rulebook, with amendments most years on derivative limits, disclosure and AIF structuring. So I would give you the framework and say that the specific thresholds need checking against the current circulars rather than quoting them from memory as though they were fixed.

   Where candidates lose it

   Bluffing specific numbers. Indian regulation changes frequently and an interviewer who works under it will know when a threshold is stale. Give the four buckets confidently, name the distinctive items such as the structured digital database and the no-naked-shorting rule, and flag that the exact limits need verification.

   Expect next

   • What is a structured digital database and who has to keep one?
   • Can an institutional investor square off a short intraday in India?
   • How does the 5 percent disclosure threshold affect a concentrated book?

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.