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. 008How large is the hedge fund industry?Strategy taxonomyIntermediatephone / first roundMan GroupEquity Hedge · London · 2016

   Say this

   Around 4 to 4.5 trillion dollars of assets under management, across roughly ten thousand funds, with the largest twenty or thirty firms holding a very large share of it. If I had to build it from scratch I would get there from global institutional assets and an allocation percentage.

   Then walk it

   1. Build it up rather than guess. Global professionally managed assets are of the order of 100 trillion dollars. Institutions allocating to hedge funds put roughly 5 percent of portfolios there, which lands you in the right neighbourhood of a few trillion.
   2. Sanity-check from the other end. A top platform manages 60 to 70 billion of investor capital. Thirty firms of that scale is close to 2 trillion, and the long tail of small funds roughly doubles it.
   3. Then say the important caveat: AUM understates market footprint badly, because these funds run leverage. Gross market exposure across the industry is a large multiple of the equity, which is why hedge funds matter more to market plumbing than 4 trillion suggests.
   4. The concentration point is the real insight. Assets have been consolidating into the largest multi-strategy platforms for a decade, because institutional allocators want operational infrastructure they can underwrite.
   5. Compare it to what it is not: the global mutual fund and ETF complex is an order of magnitude larger. Hedge funds are a small slice of assets and a large slice of turnover.
   6. And flag the measurement problem: nobody counts it cleanly. Definitions differ on whether managed accounts, UCITS alternatives and private credit vehicles are included, so the published numbers vary by a trillion depending on the source.

   Where candidates lose it

   Either freezing because you do not know the number, or firing out a figure with no structure. This is an estimation question dressed as a fact question. Show the build-up, land in the right order of magnitude, and then add the leverage caveat, which is the part that shows industry awareness.

   Expect next

   • How much of that sits with the top twenty firms?
   • Has the industry grown or shrunk over the last five years?
   • How would leverage change your answer?

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

2. 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?
3. 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.

4. 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.

5. 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.

6. 098Should there be a tax on happiness?Career and fitHardsuperdayBridgewater AssociatesEquity Hedge · Westport · 2025

   Say this

   No, and the reason is measurement and incentives rather than fairness. Taxes need an observable, verifiable base; happiness is self-reported, so any tax on it would be gamed instantly and would punish exactly the behaviour a society wants more of. But the interesting question underneath is whether we should tax consumption that buys status rather than wellbeing, and there I would say yes.

   Then walk it

   1. Take the question seriously and state your reasoning structure before your conclusion. That is the whole test at a firm that asks this: they want to watch you think, not hear an opinion.
   2. Define terms first. A tax needs a base that is observable, measurable and hard to misreport. Happiness fails all three, so the practical objection precedes the philosophical one.
   3. Then the incentive argument. Taxing an outcome discourages producing it. If happiness is partly a product of effort, relationships and choices, taxing it penalises those. Compare with a Pigouvian tax, which we levy on things with negative externalities; happiness has positive ones.
   4. Then the steelman, because refusing to engage with it is the failure mode. There is a real argument that positional consumption imposes an externality: if my spending raises the bar for everyone's sense of adequacy, it makes others worse off, and that is a textbook case for a tax. Progressive consumption taxation is the serious version of this idea.
   5. Then the distributional point. The declining marginal utility of income already underpins progressive taxation, which is arguably a rough approximation of taxing the capacity for happiness that money buys. So a version of this already exists and is defensible.
   6. Then conclude with your view and the condition that would change it. I would not tax happiness; I would tax positional consumption. And if happiness became genuinely measurable and non-gameable, I would revisit the measurement objection but not the incentive one. Then invite the disagreement, because at a firm built on radical transparency, arguing back well matters more than being right first.

   Where candidates lose it

   Treating it as a joke, or giving a confident opinion with no reasoning structure. The firm asking this is explicitly testing how you handle an abstract question in a probing conversation. The other trap is refusing to commit: 'there are arguments on both sides' with no conclusion is the worst answer. Build the argument, take a side, and defend it while genuinely updating if the counterargument is better.

   Expect next

   • What if happiness could be measured perfectly?
   • So what should we tax instead, and why?
   • You have argued for one side. Now argue the other.

   Reported by candidates at Bridgewater Associates (Equity Hedge, Westport, 2025). Source: Wall Street Oasis.

7. 099Is television damaging to society?Career and fitIntermediatesuperdayBridgewater AssociatesGeneralist · Westport · 2024

   Say this

   On balance the medium is neutral and the business model is what does the damage. Television that competes for advertising attention optimises for engagement, which rewards outrage and simplification. The same technology used for education or shared information has been clearly beneficial. So I would say the incentive structure is the variable, not the screen.

   Then walk it

   1. Start by making the question answerable. Damaging compared with what, measured how, and over what period? Time displaced from other activities, effects on civic knowledge, effects on polarisation, effects on children. Naming the metric is the first move.
   2. Then the evidence in both directions, briefly. Broad access to news and education raised shared information enormously; there is also credible research on displacement of reading and social activity, and on attention effects in young children.
   3. Then the mechanism that explains the split. An advertising-funded model monetises attention, so content evolves towards whatever holds it. That selects for conflict and simplicity regardless of anyone's intent, which is a structural argument rather than a moral one.
   4. Then the natural experiment, which is where the answer gets interesting. Social media took the same incentive structure and made it faster, more personalised and algorithmically optimised. If the mechanism is right, the effects should be larger there, and broadly they appear to be. That is a testable implication of my claim and it is the kind of thing worth offering unprompted.
   5. Then the counterfactual test. If television were removed, would the attention go to reading or to something else with the same incentives? That question tells you whether you are indicting the medium or the underlying demand.
   6. Then commit: not damaging in itself, damaging as commercially structured, and the policy implication is about funding models and disclosure rather than about the technology. And then genuinely listen to the pushback, because at a firm that asks these questions the grade is on how you handle disagreement.

   Where candidates lose it

   Giving a cultural opinion rather than an analytical one. The test is whether you can define terms, weigh evidence on both sides, identify a mechanism and commit to a view you can defend. The other trap is being immovable. When the interviewer pushes back, update genuinely if the argument is better; that is the behaviour they are screening for.

   Expect next

   • How would you test your claim?
   • Does the same argument apply to social media?
   • I disagree. Convince me, or tell me why I am right.

   Reported by candidates at Bridgewater Associates (Generalist, Westport, 2024). 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.