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. 081Two series can be negatively correlated within each month but positively correlated over a full year. How?Quant and systematicHardtechnicalSCSquarepoint CapitalHedge Fund · Montreal · 2024

   Say this

   Because correlation measured within groups and correlation measured across the pooled data answer different questions. If both series share a common upward trend across months, the between-month variation is positive and can dominate the negative within-month relationship. It is Simpson's paradox in a time series.

   Then walk it

   1. Decompose the covariance into within-group and between-group parts. Total covariance equals the average within-month covariance plus the covariance of the monthly means. Those two terms can have opposite signs, and whichever has more variance wins the pooled number.
   2. Concrete picture: every month, A and B move in opposite directions day to day, so within-month correlation is negative. But each month both drift higher, so the monthly averages rise together. Pool the daily data over a year and the shared drift dominates.
   3. The generic driver is a common slow-moving factor. Both series load positively on something persistent, such as inflation, liquidity or a market trend, while their high-frequency innovations offset. Long-horizon correlation is dominated by the common factor and short-horizon correlation by the idiosyncratic part.
   4. There is also a pure measurement version of this: correlation of returns is horizon dependent when returns are autocorrelated. Compute correlation on daily returns and on annual returns for the same pair and you generally get different numbers, and neither is wrong.
   5. Why it matters practically, which is what the interviewer is really testing: hedge ratios and diversification estimated at one horizon do not hold at another. A pair that looks hedged on daily data can be a directional bet over a year, which is exactly how a relative value book acquires an unintended factor exposure.
   6. So the answer to 'which correlation is right' is neither. You choose the horizon that matches your holding period and your rebalancing frequency, and you look at both to know which part of the relationship you are actually trading.

   Where candidates lose it

   Treating it as a paradox to be resolved rather than a decomposition to be stated. Write down the within-plus-between covariance split and the answer is immediate. And do not stop at the maths: the reason they ask is the practical consequence for hedge ratios at different horizons.

   Expect next

   • Which correlation would you use to set a hedge ratio?
   • How does return autocorrelation affect measured correlation?
   • Give me another example of Simpson's paradox in markets.

   Reported by candidates at Squarepoint Capital (Hedge Fund, Montreal, 2024). Source: Wall Street Oasis.

2. 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.

3. 083What is the angle between the hands of a clock at 3:15?Quant and systematicCorephone / first roundMan GroupEquity Hedge · London · 2016

   Say this

   7.5 degrees. The minute hand is exactly at 90 degrees, but the hour hand has moved a quarter of the way from 3 towards 4, which is a quarter of 30 degrees, so it sits at 97.5. The difference is 7.5.

   Then walk it

   1. Set up the units once and the whole family of these questions becomes trivial. The hour hand moves 360 degrees in 12 hours, so 0.5 degrees per minute. The minute hand moves 360 in 60 minutes, so 6 degrees per minute.
   2. Positions from 12 o'clock: minute hand is 15 times 6, which is 90. Hour hand is 3 times 30 plus 15 times 0.5, which is 90 plus 7.5, so 97.5.
   3. Difference is 7.5 degrees, and it is the smaller of the two angles, which is what the question means unless it says otherwise.
   4. The general formula worth memorising: the angle equals the absolute value of 30 times hours minus 5.5 times minutes. At 3:15 that is 90 minus 82.5, which is 7.5.
   5. The whole trap is the hour hand. Candidates say zero because they picture the hour hand parked on the 3. It is not; it moves continuously, and that is the entire point of the question.
   6. Say the answer, then say the setup in one line. In a phone screen this question is testing whether you can be quick and precise about a small thing, so do not over-narrate.

   Where candidates lose it

   Answering zero. It is by far the most common response and it comes from forgetting that the hour hand moves continuously. Also, say which angle you are giving, the smaller one, and do not spend ninety seconds deriving a formula the interviewer already knows.

   Expect next

   • When is the next time the hands overlap exactly?
   • How many times a day do the hands form a right angle?
   • What is the angle at 9:45?

   Reported by candidates at Man Group (Equity Hedge, London, 2016). Source: Wall Street Oasis.

4. 084I roll two fair dice. What is the probability the sum is 7, and what is the probability of at least one six?Quant and systematicCorephone / first roundWolverine TradingEquity Hedge · Chicago · 2025

   Say this

   A sum of 7 is 6 out of 36, so one in six. At least one six is 1 minus the probability of no sixes, which is 1 minus 25 over 36, so 11 out of 36, a bit under a third.

   Then walk it

   1. Count the sample space first: 36 equally likely ordered outcomes. Ordered matters, and treating the dice as indistinguishable is the classic way to get these wrong.
   2. Sum of 7 has six combinations: 1-6, 2-5, 3-4, 4-3, 5-2, 6-1. So 6 over 36, which is one in six. Worth knowing that 7 is the most likely sum, and the distribution of sums is a triangle peaking at 7.
   3. For at least one six, use the complement. No six on either die is 5 over 6 times 5 over 6, which is 25 over 36. So at least one six is 11 over 36, about 30.6 percent.
   4. Note why it is not 2 over 6. Adding the two individual probabilities double counts the double six, so you subtract it: 6 over 36 plus 6 over 36 minus 1 over 36 equals 11 over 36. Inclusion-exclusion gives the same answer and it is worth saying both ways.
   5. The general rule that follows: for at least one of anything, go to the complement. It converts a messy union into a product, and it is the single most useful reflex in dice and coin questions.
   6. Then the standard follow-up they are setting up: given the sum is 7, the probability that one die is a 6 is 2 out of 6, so one third, because conditioning restricts the sample space to the six ordered pairs. Answer these fast and cleanly, and say the fraction before the decimal.

   Where candidates lose it

   Saying 2 over 6 for at least one six, which double counts the double six. And treating the dice as unordered, which wrecks the sample space. Say 'complement' out loud and do the arithmetic in fractions. At a prop shop these are timed, so speed and a clean statement of the sample space matter as much as the answer.

   Expect next

   • Given the sum is 7, what is the probability one die shows a 6?
   • What is the expected number of rolls until you see a six?
   • I pay you the sum of the dice. What would you pay to play?

   Reported by candidates at Wolverine Trading (Equity Hedge, Chicago, 2025). Source: Wall Street Oasis.

5. 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?
6. 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?
7. 087Why is long-short so much harder to run in India than in the US?India and Category III AIFsHardtechnicalIndian hedge fundsCategory III AIFs

   Say this

   Because the short side barely exists in the cash market. There is no developed stock lending market, so almost all shorting happens through single stock futures, which restricts you to the names in the derivatives segment and imposes roll costs and position limits. The short book is therefore structurally narrower than the long book.

   Then walk it

   1. Start with the mechanics. India has no meaningful securities lending and borrowing depth. The SLB platform exists but volumes are thin, so a practical short is a single stock future, and only a limited set of names, roughly 200 or so, are in the futures segment at any time.
   2. That is the binding constraint. You can be long any of the two thousand tradable names and short only the large and liquid ones, so a classic pair trade in mid caps is frequently not expressible.
   3. Then the cost. Futures roll every month, and the basis moves with borrow demand and positioning, so the cost of a short is not a quoted borrow fee but a roll cost that can widen exactly when you most want the position. There is no term certainty.
   4. Then the position limits and margins. Exchange-level and client-level open interest limits, mark-to-market margin on the futures leg, and periodic regulatory tightening of derivative rules mean the short book has an operational overhead the long book does not.
   5. Then market structure. Retail and derivatives volumes dominate, index options turnover is enormous relative to cash equity, and domestic institutional flows into equity funds are steady and large, so the market has a persistent upward bias that penalises short books.
   6. So what actually works in India looks different: long-biased funds with an index hedge, cash-futures arbitrage, merger and event situations, and long-short expressed within the futures universe. Honest framing: India is a great market for long-biased alpha and a hard market for a market-neutral book, and most successful domestic Category III strategies reflect that rather than fight it.

   Where candidates lose it

   Answering with generic emerging market caveats about liquidity and governance. The specific, correct answer is the absence of a cash stock lending market and the resulting dependence on single stock futures, with all the universe, roll and limit consequences that follow. Naming the futures universe constraint is what shows you know the market rather than the idea of it.

   Expect next

   • How would you hedge a mid-cap long that has no future?
   • What is cash-futures arbitrage and why is it popular in India?
   • What would change if SLB volumes grew?
8. 088What does the Indian hedge fund landscape actually look like?India and Category III AIFsCoretechnicalIndian hedge fundsIndian asset management

   Say this

   Small but growing fast, and dominated by long-biased and arbitrage strategies rather than market neutral. The domestic vehicle is the Category III AIF, the capital comes largely from high net worth individuals and family offices, and separately there is a large offshore community of foreign funds trading India through the FPI route.

   Then walk it

   1. Two distinct populations, and it helps to separate them. Domestic managers running Category III AIFs and PMS mandates for Indian HNI money, and offshore funds accessing India as foreign portfolio investors or through participatory notes and swaps.
   2. The domestic side has grown quickly off a small base, with AIF commitments across all categories running into several lakh crore rupees, though Category III is a minority of that and far smaller than the mutual fund industry, which manages tens of lakh crore.
   3. Strategy mix reflects the market's constraints: long-biased equity with index hedging, cash-futures and index arbitrage, event-driven and merger situations, some quant and factor products, and a growing set of credit and structured strategies in Category II.
   4. The talent pool comes from domestic brokerages, mutual fund and insurance research desks, the global banks' and asset managers' India research centres, and increasingly from analysts returning from Singapore, Hong Kong, London and New York.
   5. The structural tailwinds are real: domestic financialisation, systematic investment plan flows creating a deep and steady buyer base, rising HNI wealth, and a deepening derivatives market. The constraints are also real: the short side, the 1 crore minimum, the tax treatment, and a retail-dominated flow environment.
   6. Say the honest strategic conclusion, because that is what an interviewer wants. India rewards fundamental long-biased stock picking in mid and small caps where coverage is thin, and it punishes strategies that need cheap and reliable shorting. Anyone claiming to run a US-style market-neutral book in India should be asked how they source their shorts.

   Where candidates lose it

   Answering as though the Indian market were a smaller copy of the US one. The structure is genuinely different: retail and derivative dominated, steady domestic inflows, weak stock lending. Also be able to name the two populations, domestic AIFs and offshore FPIs, because candidates often only know one of them exists.

   Expect next

   • Where is the best alpha opportunity in India right now?
   • What is the FPI route and how does an offshore fund use it?
   • Why has the mutual fund industry grown faster than AIFs?
9. 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?
10. 090Why do you want to work at a hedge fund?Career and fitCorephone / first roundMan GroupEquity Hedge · Boston · 2019

    Say this

    Because I want the scoreboard. A hedge fund tells you whether you were right, in money, quickly, and the whole organisation is built around that feedback loop. I also want the freedom of the mandate: if I can find the mispricing, I can express it, long or short, rather than being limited to what a benchmark allows.

    Then walk it

    1. Lead with accountability, not with markets. Everyone in the room likes markets. What distinguishes a hedge fund seat is that your work becomes a position and the position becomes a number, and I want to be measured that way.
    2. Then the breadth of expression. The ability to be short, to size by conviction, to hedge out what you do not have a view on. That is intellectually satisfying in a way a long-only relative-return mandate is not.
    3. Then give one piece of evidence from your own behaviour. A personal book you have run for three years with a written thesis per position, a case competition, a published pitch, something you did without being asked. Evidence beats enthusiasm every time.
    4. Then say something specific about this firm, and make it about the process rather than the brand. A systematic and discretionary house, a pod platform, a concentrated fundamental fund and a distressed shop are four different jobs, and knowing which one you are applying to is most of the answer.
    5. Then acknowledge the hard parts without flinching. Short-horizon measurement, drawdown limits, the fact that a large part of the year's P&L can arrive in a few weeks, and the possibility of losing the seat. Saying that you have thought about it reads as maturity, not doubt.
    6. Keep it to about sixty seconds. This is a screening question, not the main event, and a four-minute answer signals you cannot prioritise.

    Where candidates lose it

    Saying 'I am passionate about markets' or citing compensation. Both are non-answers. Also, giving a generic hedge fund answer to a firm with a distinctive philosophy. If they run systematic and discretionary strategies side by side and you talk only about stock picking, you have told them you did not look them up.

    Expect next

    • Why this firm rather than a long-only manager?
    • What would you do if you did not get an offer anywhere in the industry?
    • Which of our strategies interests you and why?

    Reported by candidates at Man Group (Equity Hedge, Boston, 2019). 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.