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. 068What makes up a NAV?Financing, NAV and operationsIntermediatetechnicalMan GroupEquity Hedge · Boston · 2019

   Say this

   Total assets at fair value, minus total liabilities, divided by units outstanding. On a hedge fund the interesting parts are all in the details: how positions are priced, and everything that sits in liabilities, which includes the short book, the financing and the accrued fees.

   Then walk it

   1. Assets: long positions at fair value, cash and cash equivalents, margin and collateral posted at the prime broker, receivables from unsettled trades, dividends and interest receivable, and the positive mark-to-market on derivatives.
   2. Liabilities, which is where hedge funds differ from a mutual fund: the market value of short positions, margin loans and repo borrowings, negative derivative marks, payables on unsettled trades, dividends payable on shorts, accrued borrow fees, plus accrued management and performance fees and fund expenses.
   3. So the accruals are a real part of the number. An accrued performance fee is a liability that reduces NAV even though it has not been paid, which is why NAV can be quoted gross and net of fees and the difference matters.
   4. Pricing policy is the substance of the answer. Exchange-traded positions at the official close, over-the-counter instruments from broker quotes or a model, and illiquid positions by a documented valuation policy. The hierarchy is level one, two and three, and the percentage in each tells you how much of the NAV is opinion.
   5. Governance is the other half. An independent administrator strikes the NAV, the prime broker's records are reconciled against it, a pricing committee approves level three marks, and the auditor tests them annually. The manager should not be the sole source of a price.
   6. One practical detail worth having: NAV is usually struck monthly for subscriptions and redemptions but estimated daily for risk, and the two can differ. Investors transact on the official NAV, so the gap between the daily estimate and the final struck number is itself a control worth monitoring.

   Where candidates lose it

   Giving the mutual fund answer, assets minus liabilities, and missing that the short book and the financing sit in liabilities. Also missing the accrued performance fee. The question in a hedge fund interview is really about pricing policy and who strikes the number, so say level one, two and three, and say the administrator's role.

   Expect next

   • Who should strike the NAV and why not the manager?
   • How would you value a level three position?
   • What is the difference between gross and net NAV?

   Reported by candidates at Man Group (Equity Hedge, Boston, 2019). Source: Wall Street Oasis.

2. 069What does a prime broker actually do for a hedge fund?Financing, NAV and operationsIntermediatetechnicalPrime brokerageLong-short equity

   Say this

   It is the fund's financing and operations counterparty. It lends against the long book, sources stock to borrow for the shorts, clears and settles trades, holds custody, provides consolidated reporting and margin calculation, and often introduces the fund to investors. Without a prime broker a long-short fund cannot function.

   Then walk it

   1. Financing first, because that is the core service. The PB extends margin against the long portfolio and rehypothecates the collateral, which is how a fund gets to 3 or 4 times gross on its equity.
   2. Securities lending second. The PB locates borrow for shorts and sets the fee, and that pricing power is a real cost line for the fund. Access to hard-to-borrow names is one of the main reasons funds pay up for a top-tier prime.
   3. Then operations: clearing, settlement, custody, corporate actions, stock loan administration, portfolio reporting, and the risk and margin system the fund reconciles to daily.
   4. Then the relationship services: capital introduction to allocators, research access, and sometimes seed or working capital. Cap intro is a genuine reason emerging managers choose a particular prime.
   5. Multi-priming is standard for anything of size, and the reason is the lesson of 2008. Lehman's prime brokerage clients found their assets frozen in administration and their rehypothecated collateral entangled in the estate. So funds now split balances across two or three primes and negotiate asset protection and segregation terms.
   6. The dependency to name honestly: the PB sets your margin terms and can change them. A prime that raises haircuts in a stress event forces you to delever exactly when you least want to, which is how a financing relationship becomes the real source of risk. Archegos is the recent illustration from the other side of the same relationship.

   Where candidates lose it

   Listing services without naming the dependency. The interesting part of prime brokerage is that the fund's leverage, borrow and continued operation all sit with a counterparty whose terms can change. Mention multi-priming and the Lehman lesson; that is what separates an operational answer from a brochure.

   Expect next

   • Why would a fund use more than one prime broker?
   • What is rehypothecation and why did it matter in 2008?
   • What happens if your prime raises your haircuts overnight?
3. 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?
4. 072What is the difference between holding a position in cash equity and through a swap?Financing, NAV and operationsIntermediatetechnicalLong-short equityPrime brokerage

   Say this

   Cash equity means you own the shares. A total return swap gives you the same economic exposure without owning them: the counterparty holds the stock and pays you the return, you pay a financing spread. The economics are similar, the ownership, disclosure, financing and counterparty risk are not.

   Then walk it

   1. Mechanically, the swap pays you price return plus dividends and you pay a floating rate plus a spread, against posted collateral. Your exposure is the full notional while your outlay is the margin, which is where the leverage comes from.
   2. Reasons funds use swaps: access to markets where direct ownership is restricted or operationally painful, notably parts of Asia and specifically the foreign investor route into some Indian instruments; simpler shorting because the borrow is embedded in the counterparty's book; and a single financing relationship across many positions.
   3. Disclosure is the big structural difference and the one interviewers probe. Economic exposure through a swap has historically not triggered the same beneficial ownership disclosure as shares, which is how large positions can be built quietly. Rules have tightened after several incidents, but the asymmetry is the reason the instrument is popular for stake-building.
   4. You also give up the shareholder rights. No vote, no ability to engage, no standing in a restructuring. For an activist or an event-driven investor that can matter more than the financing saving.
   5. Counterparty risk replaces settlement simplicity. If the dealer fails you are an unsecured creditor for the mark-to-market above your collateral, so you care about the dealer's credit and about netting agreements.
   6. Archegos is the case study that ties it together: enormous swap-based exposure spread across several dealers, each of whom could not see the whole position, with margin that proved thin. The lesson is that swap leverage plus fragmented dealer visibility hides concentration from everyone including the dealers.

   Where candidates lose it

   Saying they are economically identical and stopping. The differences that matter in practice are disclosure, voting rights, counterparty exposure and how the margin is set. Naming the Archegos dynamic shows you understand why regulators now care, rather than just how the instrument is priced.

   Expect next

   • Why would you use a swap rather than buying the stock?
   • What is the counterparty risk on a swap, exactly?
   • Why do swaps matter for stake-building disclosure?

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.