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. 050A target trades at 46, the cash offer is 50, and the deal is expected to close in six months. What is your return, and what are you being paid for?Event-driven and merger arbIntermediatetechnicalMerger arbitrageEvent-driven

   Say this

   The gross spread is 4 on 46, which is about 8.7 percent over six months, or roughly 17 to 18 percent annualised before costs. You are being paid for the risk the deal breaks, and given where rates are, roughly half of that annualised number is just compensation for tying up capital.

   Then walk it

   1. Arithmetic first: 50 minus 46 is 4, over 46 is 8.7 percent. Doubling for the six-month period gives about 17.4 percent annualised, or 18.1 percent if you compound it. Say the simple number, then note the compounding refinement.
   2. Net it down. Subtract the financing cost of the long, add back any target dividend you receive, and subtract the cost of any hedge. At a 5 percent financing rate, roughly half the annualised spread disappears.
   3. Then the risk question, which is the real question. What is the undisturbed price? If the target traded at 34 before announcement, a break costs you 12 while success pays 4. Three to one against, so you need a completion probability well above 75 percent to break even.
   4. Compute the implied probability: 4 divided by 16 is 25 percent implied break risk. Then ask whether that is right. A friendly, all-cash, fully financed strategic deal with no antitrust overlap should be well below that, which would make the spread attractive.
   5. A spread this wide is a message. Eight percent over six months usually means antitrust review, a financing condition, a shareholder who has objected, or a regulatory regime with a track record of blocking. Find out which before you take the other side.
   6. And the sizing conclusion: because the payoff is three to one against you, position size and deal diversification do more for the return than spread selection. Twenty deals at 2 percent each beats four at 10 percent, and that is the whole discipline of the strategy.

   Where candidates lose it

   Quoting 8.7 percent as the return and stopping. You must annualise, and you must net the financing. Then the bigger trap: giving a return with no reference to the downside. Without the undisturbed price the spread is meaningless, and an arb interviewer will judge you almost entirely on whether you asked for it.

   Expect next

   • What was the price before the deal was announced?
   • What implied break probability does that spread give you?
   • How many deals would you hold, and why?

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.