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. 019Pitch me a short.Short sellingIntermediatesuperdayLong-short equityShort-biased funds

   Say this

   Same structure as a long, but three extra things have to be in the pitch: why the market is wrong in a way that resolves on a clock, what the borrow costs, and what blows you up. Shorts are timing trades, not valuation trades, so name the catalyst before the valuation.

   Then walk it

   1. Lead with the trade and the constraint. 'Short X at 40, target 25, borrow is 3 percent annualised and there is ample availability, and I would cap it at 2 percent of the book because short interest is already 9 percent of float.'
   2. Then the thesis, and pick a category. The good short buckets are structural decline being extrapolated as cyclical, accounting that overstates earnings quality, a broken unit economic that growth is masking, and a balance sheet that needs to refinance into a worse market.
   3. Then the catalyst with a date, because time works against a short. A refinancing, a covenant test, a lock-up expiry, a competitor's capacity coming online, a guidance reset. Valuation alone does not close a short.
   4. Then the carry. Borrow cost, dividends you owe, and the interest you earn on the proceeds. A 12 percent borrow means you need the thesis to work within months, not years, and saying that shows you have actually shorted something.
   5. Then the blow-up risk, explicitly. Float, short interest as a percent of float and days to cover, retail interest, index events, and whether the company could do something reflexive like a buyback, a raise or getting acquired. A takeout is the classic way a good short thesis loses 40 percent overnight.
   6. Close with sizing and stop. Shorts get smaller as they go against you in risk terms because the position grows, so I would run a hard stop and a smaller starting size than an equivalent-conviction long.

   Where candidates lose it

   Pitching an expensive stock. 'It trades at 60 times earnings' is not a short thesis, it is an observation, and the last decade has been brutal to people who thought otherwise. Also, candidates forget the borrow and the squeeze risk entirely, which tells a PM you have never actually been short anything.

   Expect next

   • What is the borrow on that name?
   • What is short interest as a percentage of float?
   • What would make you cover?
2. 020How is a short thesis different from a long thesis?Short sellingIntermediatetechnicalLong-short equity

   Say this

   The payoff is inverted and the clock runs the other way. A long can compound while you wait and your loss is capped at 100 percent; a short bleeds carry while you wait, your loss is unbounded, and the position grows as it moves against you. So a short thesis needs a catalyst where a long thesis can survive on patience.

   Then walk it

   1. Asymmetry first. A short that halves makes you 50 and the position shrinks. A short that triples loses you 200 and the position has tripled in size. Risk management is therefore built into the thesis, not bolted on.
   2. Time is a cost. You pay borrow, you owe the dividends, and equity markets drift upwards, so a short has a negative expected return from the market factor alone. That is why the market drift is roughly a 7 to 9 percent annual headwind you have to beat.
   3. Reflexivity is against you. A falling stock can be rescued by a buyback, an equity raise, an activist, a takeout or a short squeeze. A rising stock has no equivalent mechanism working against a long.
   4. Information dynamics differ. Company access is worse, management will not help you, sell-side coverage is almost uniformly positive, and you are arguing against the promotional side of the market.
   5. So the thesis has to be harder edged: fraud or accounting distortion, a genuine structural decline, a funding wall, or a specific dated event. Vague overvaluation is a long thesis in reverse and it does not survive.
   6. And sizing discipline is different in kind. Most disciplined books cap single-name shorts well below the maximum long, and many will not short a name with heavy retail ownership at all regardless of the thesis.

   Where candidates lose it

   Treating a short as 'the opposite of a long'. It is not symmetric in payoff, in carry, in information access or in position growth. If you can only describe it as a mirror image, a PM will assume you have never run one and will not trust you with the short book.

   Expect next

   • How much smaller would you size a short than a long of the same conviction?
   • Would you ever short a name with 20 percent of the float short?
   • How do you deal with the market drift working against you?
3. 021Walk me through the mechanics of borrowing a stock to short it.Short sellingCoretechnicalLong-short equityPrime brokerage

   Say this

   You locate the stock through your prime broker, borrow it against collateral, sell it in the market and hold the proceeds. You owe a borrow fee and any dividends the lender would have received, and you must return the same shares when you cover or when the lender recalls them.

   Then walk it

   1. Step one is the locate. The prime broker finds shares, usually from custody accounts of long-only holders, index funds or other clients, and confirms availability before you can legally sell short in most jurisdictions.
   2. Step two: the loan is collateralised, typically at 102 to 105 percent of market value, marked daily. The lender holds your cash or securities collateral, so they carry little risk.
   3. Step three: you sell the borrowed shares. The proceeds sit with the prime broker and earn a short rebate, which is a rate below the risk-free rate. The gap between the rebate and the market rate is the broker's cut plus the borrow fee.
   4. Step four: economic obligations while short. You pay the borrow fee, daily accrued, and you reimburse the lender for any dividend. Both are real costs against the thesis.
   5. Step five: the borrow is not term. It is recallable at will in most equity markets, so if the lender sells the underlying or wants the shares for a vote, you can be bought in at the worst possible moment.
   6. Also worth naming: the lender keeps the economic exposure and loses the vote, which is why voting-record dates cause borrow to tighten and why hard-to-borrow names can see fees spike from 50 basis points to double digits in a week.

   Where candidates lose it

   Describing a short as simply 'selling something you do not own' and stopping. Every practical constraint on a short book is in the mechanics: locate, recall, collateral, rebate and dividend obligation. Get the rebate direction right too. You do not earn the full risk-free rate on the proceeds.

   Expect next

   • What happens if the lender recalls the shares?
   • Who is lending the stock, and why?
   • What is naked shorting and why is it restricted?
4. 022What is the borrow cost, and how does it change the hurdle on a short?Short sellingIntermediatetechnicalLong-short equityPrime brokerage

   Say this

   Borrow cost is the annualised fee you pay to keep a stock on loan, and it is the carry on the trade. It tells you how fast the thesis has to work: a general-collateral name at 40 basis points is essentially free to hold, while a 20 percent borrow means you lose the argument if you are right in eighteen months instead of six.

   Then walk it

   1. The range in practice is wide. Easy-to-borrow large caps are 25 to 75 basis points a year. Crowded shorts run 5 to 20 percent. Genuinely restricted names, small floats, recent IPOs, situations in a squeeze, can go past 50 percent and occasionally past 100.
   2. Do the hurdle arithmetic out loud. At a 15 percent borrow, a short that takes two years to work has cost you roughly 30 points of carry. If your target is 40 percent downside you have given away most of the trade to financing.
   3. Add the dividend. You owe it, so a 4 percent yielder at a 3 percent borrow is a 7 percent annual drag before the stock moves at all.
   4. Borrow is also information. A fee that is rising fast tells you the crowd is arriving, which raises squeeze risk exactly when your thesis feels most obvious. I would check the fee trend and days-to-cover before adding, not just the level.
   5. It also changes how you express the trade. Above a certain borrow it is cheaper to buy puts or use a swap, because the borrow is embedded in the derivative price and at least the loss is capped and the position cannot be recalled.
   6. The limitation: borrow is not contractual term funding. A cheap borrow today can reprice or disappear tomorrow, so a thesis that requires a specific borrow cost to work is a fragile thesis.

   Where candidates lose it

   Quoting a borrow cost with no view on how it changes the trade. The number is not the answer; the hurdle is. Multiply the fee by the expected holding period, add the dividend, and compare it to your target return. Candidates who skip that step are pitching shorts they could not actually hold.

   Expect next

   • At what borrow level would you use puts instead?
   • What does a rapidly rising borrow fee tell you?
   • How do you think about the short rebate on the proceeds?
5. 023What is a short squeeze, and how do you manage the risk of one?Short sellingIntermediatetechnicalLong-short equityMulti-manager platforms

   Say this

   A squeeze is a self-reinforcing rally driven by shorts being forced to buy. Price rises, margin and risk limits bite, shorts cover, that buying pushes the price higher, which forces the next cohort out. The defence is almost entirely position sizing and instrument choice, because once it starts you cannot argue with it.

   Then walk it

   1. The mechanics need two ingredients: crowded short interest and constrained supply of stock. Small float, high short interest as a percent of float, and high days to cover are the measurable warning signs.
   2. Then the accelerants. Borrow recalls that force buy-ins, option market makers hedging calls by buying stock, which is the gamma squeeze layer, and index or passive holders who cannot lend more.
   3. Numbers I would actually look at before shorting: short interest above roughly 15 percent of float, days to cover above five, borrow fee rising week on week, and whether retail and options volume are unusually high relative to the market cap.
   4. Management during the event is mostly pre-committed. Size the position so a 50 percent adverse move is survivable, set the stop before you enter, and never average into a squeeze on the argument that the thesis is now better.
   5. Instrument choice is the cleanest structural defence. A put caps your loss, cannot be recalled, and lets you keep the view through the violence, at the cost of paying premium and needing to be right on timing.
   6. GameStop in 2021 is the reference case and the lesson is not 'retail beat hedge funds'. It is that a correct fundamental view on a business can be irrelevant to the outcome of a position when the funding and float mechanics turn against you.

   Where candidates lose it

   Answering with 'I would cover'. Everybody covers; the question is what you did before the squeeze started. The content of a good answer is the pre-trade checks, the size cap, and the choice to use options in crowded names. Also do not cite GameStop without saying what it actually taught you about position sizing.

   Expect next

   • What short interest level would stop you putting the trade on?
   • How does option market maker hedging contribute?
   • Would you rather be short the stock or long a put in a crowded name?
6. 024Would you ever short on valuation alone?Short sellingIntermediatetechnicalLong-short equity

   Say this

   Almost never as a standalone position. Expensive can stay expensive for years while you pay borrow and the market drifts up, and multiples are the slowest thing in the market to mean-revert. Valuation is the size of the prize, not the reason the trade works.

   Then walk it

   1. The structural problem is that a high multiple is usually a statement about expected growth, and the way to make money short is for the growth to disappoint, not for the multiple to be high. So the thesis has to be about the numerator.
   2. Carry makes the timing problem expensive. At a 5 percent borrow and a 7 percent market drift, you need roughly 12 percent of downside a year just to break even on a valuation short.
   3. Expensive names are also the most reflexive. They can raise equity cheaply, buy growth, get taken out, or get repriced higher by one more year of delivery. Every one of those is a loss for a valuation short.
   4. Where valuation does earn its place is as a multiplier on a real thesis. If you already believe the unit economics break, a 40 times multiple means the derating on top of the earnings miss gives you a much larger move. That is a valuation-assisted short, not a valuation short.
   5. It also works better in relative form. Long the cheap compounder, short the expensive peer with the same end market, sized to be sector neutral. Now you are trading the spread rather than betting on the market's willingness to pay.
   6. The honest exception: in a clear liquidity-driven bubble with a dated funding event, valuation shorts do work. But you need the funding wall or the lock-up expiry, and that is a catalyst, which means you were not shorting valuation alone after all.

   Where candidates lose it

   Saying yes with enthusiasm. It is the most common way junior candidates reveal they have never held a short through a rally. The credible answer names the carry, the drift and the reflexivity, and then explains how valuation is used as a multiplier on a fundamental thesis rather than as the thesis.

   Expect next

   • So what does make a good short?
   • How would you express it in relative form?
   • When has a valuation short actually worked?

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.