Portfolio Management interview preparation

Questions

100

Traced to a firm

40

Firms

24

Updated

September 2026

Asked at

All firmsBLBlackRock4Vanguard4WMWellington Management4Amundi3ACAQR Capital Management3Neuberger Berman3SCSchroders3Man Group2MSCI2Northern Trust2AllianceBernstein1Apollo Global Management1Blackstone1BMBNY Mellon1Carlyle Group1Fidelity Investments1Goldman Sachs1Invesco1Millennium Management1MSMorgan Stanley1NUNuveen1PIMCO1SSState Street1TPTPG1

Topic

All topicsPortfolio theory5Factor models8Asset allocation11Rebalancing3Portfolio construction7Benchmarks and tracking error5Performance measurement8Risk management6Fixed income and LDI5Currency and global3Implementation and costs5Active versus passive6India markets7Brainteasers5Career and fit16

Level

AnyCoreIntermediateHard

Type

AnyTechnicalCaseMarket viewFitBrainteaser

1. 045How would you assess a fund's performance?Performance measurementIntermediatetechnicalNeuberger BermanPrivate Equity · London · 2022

   Say this

   Against the right benchmark, net of everything, decomposed into exposures, and over a period long enough to mean something. Then check that the returns came from the process the manager claims, because that is the only part that tells you anything about the future.

   Then walk it

   1. First the mechanics: net of all fees and costs, time-weighted for a fund and money-weighted only if I am measuring my own experience of it, and against a benchmark matched to the opportunity set rather than a convenient one.
   2. Then decompose. Split excess return into market beta, factor exposures and residual. If a 4 percent excess return is 3 points of small cap and value tilt, I am buying cheap beta at active prices.
   3. Then look at risk-adjusted, not absolute: information ratio against the benchmark, maximum drawdown, and the worst rolling twelve months. And look at the shape of the return series, because a fund that made everything in two quarters is a different proposition from one that grinds.
   4. Then consistency with the stated process. Hit rate, average winner versus average loser, turnover, and whether attribution matches the story. A manager who claims bottom-up picking while the returns come from sector allocation has a process-outcome mismatch, which is the most useful red flag there is.
   5. Then the statistics honesty: five years of monthly returns cannot distinguish skill from luck at any sensible confidence level, so I would weight process, team stability and capacity at least as heavily as the numbers.
   6. For private funds the measures change: IRR is money-weighted and flattered by subscription lines and early exits, so I would look at TVPI and DPI, compare against a public market equivalent, and check the vintage-year cohort rather than the absolute number. Unrealised marks in a young fund are the manager's own opinion.

   Where candidates lose it

   Going straight to returns and Sharpe ratios. The two things that earn this question are decomposing the excess return into replicable factor exposures, and admitting the sample is too short to prove skill. Since the seat here touches private markets, say why IRR is flattered and that DPI and public market equivalent are the honest comparisons.

   Expect next

   • How is assessing a private fund different?
   • How long a record would you want?
   • What would make you redeem?

   Reported by candidates at Neuberger Berman (Private Equity, London, 2022). Source: Wall Street Oasis.

2. 047Time-weighted or money-weighted returns, which do you report and why?Performance measurementIntermediatetechnicalAsset managementWealth management

   Say this

   Report time-weighted for the manager and money-weighted for the client. Time-weighted strips out the effect of cash flows the manager did not control, which is the fair way to judge the manager. Money-weighted, the IRR, measures what the investor actually earned on the money they had invested.

   Then walk it

   1. Time-weighted chains together sub-period returns, breaking the series at every external cash flow, so a large contribution just before a bad quarter does not penalise the manager. That is why GIPS requires it for composite reporting.
   2. Money-weighted solves for the discount rate that sets the present value of all flows to zero. It is sensitive to timing and size, which is exactly right if you want to know whether the investor's own decisions helped or hurt.
   3. The gap between the two is the behaviour gap, and it is large. Dalbar and Morningstar studies repeatedly find investor returns trail fund returns by 1 to 2 percentage points a year, entirely from buying after good performance and selling after bad.
   4. So the two numbers answer different questions and both belong in a client report: here is what the strategy did, here is what you earned, and here is the difference your timing made. That conversation is far more useful than either number alone.
   5. Where money-weighted is mandatory: private equity, private credit, infrastructure, anything where the manager controls the drawdown schedule. If the manager decides when the capital comes in, they must be judged on the money-weighted outcome.
   6. And the standard caveats: IRR assumes interim distributions are reinvested at the IRR itself, which is rarely true, it can be undefined or multiple with irregular sign changes, and it can be flattered by early distributions or a credit facility that delays the first capital call.

   Where candidates lose it

   Picking one and treating the other as wrong. The useful answer allocates each to the right question and names the case where money-weighted is compulsory, private markets, because the manager controls the timing. Mentioning the behaviour gap with a number turns this from a definition into an insight.

   Expect next

   • Why is IRR the industry standard in private equity?
   • How does a subscription line flatter an IRR?
   • How would you explain the gap to a client who underperformed their own fund?
3. 048What is value at risk, and what are its weaknesses in a portfolio context?Risk managementIntermediatetechnicalBLBlackRockRisk and Quantitative Analysis · New York · 2026

   Say this

   VaR is the loss you would not expect to exceed over a given horizon at a given confidence level, say a 1 percent chance of losing more than 4 percent in a day. Its weaknesses are that it says nothing about how bad the tail is, it is not sub-additive, and it is estimated from a history that may not contain the event you care about.

   Then walk it

   1. Three ways to compute it. Parametric, assuming normality, which is fast and wrong in the tails. Historical simulation, replaying actual past returns on today's holdings, which is the industry default. Monte Carlo, which lets you model non-linear payoffs properly.
   2. Weakness one, it is a threshold not an expectation. A 99 percent VaR of 4 percent is consistent with a worst case of 5 percent or of 40 percent, and for options books the difference is everything. That is why regulators moved to expected shortfall.
   3. Weakness two, it is not sub-additive, so the VaR of a combined portfolio can exceed the sum of the parts. That makes it a mathematically improper risk measure and it breaks risk budgeting, because contributions do not add up.
   4. Weakness three, the history. Historical simulation over two calm years will not produce a stressed number, so VaR was lowest just before both 2008 and 2020. Volatility clustering means the model is most reassuring when it should be most alarming.
   5. Weakness four, it is blind to liquidity and to the path. A ten-day VaR assumes you can hold or exit at marked prices, and in a real stress the exit price is the problem, so I would pair it with a liquidity-adjusted measure and with time-to-liquidate estimates.
   6. So in a portfolio seat I would use VaR as one dial among several: expected shortfall for the tail, scenario and reverse stress tests for the events not in the sample, factor exposures for what the bet actually is, and drawdown limits for the thing clients actually experience. VaR's real virtue is that it aggregates across asset classes into one comparable number, and that is worth keeping.

   Where candidates lose it

   Defining VaR and stopping, or getting the direction of the confidence statement muddled. In a risk and quantitative seat the expected content is the tail blindness, the failure of sub-additivity, and procyclicality, that VaR is lowest right before the event. Also say what you would use alongside it, because 'VaR is bad' is not a risk framework.

   Expect next

   • So explain expected shortfall.
   • Why is VaR not sub-additive?
   • How would you stress test beyond the historical sample?

   Reported by candidates at BlackRock (Risk and Quantitative Analysis, New York, 2026). Source: Wall Street Oasis.

4. 049Why did regulators move from VaR to expected shortfall?Risk managementIntermediatetechnicalRisk managementRisk and quantitative analysis

   Say this

   Because expected shortfall measures the average loss in the tail rather than the entry point to it, and because it is sub-additive so it behaves like a proper risk measure. That makes it harder to game and it makes risk contributions add up.

   Then walk it

   1. Definition: expected shortfall, also called conditional VaR, is the expected loss given that you are beyond the VaR threshold. If 97.5 percent VaR is 3 percent and the average loss in the worst 2.5 percent of cases is 5 percent, expected shortfall is 5 percent.
   2. Reason one, tail sensitivity. VaR is indifferent to what happens past the threshold, so a book can be restructured to look identical on VaR while having a far worse tail. Selling deep out-of-the-money options is the textbook way to do exactly that.
   3. Reason two, coherence. Expected shortfall is sub-additive, so combining two portfolios never increases measured risk. That matters practically because it means you can decompose total risk into additive contributions per position or per desk, which is how a risk budget is actually run.
   4. Basel's Fundamental Review of the Trading Book replaced 99 percent VaR with 97.5 percent expected shortfall, calibrated to a period of stress, which was deliberately chosen so the capital number does not collapse in calm markets.
   5. The trade-off, which I would name: expected shortfall is harder to backtest. You can count VaR exceptions against an expected frequency, but testing the average size of tail losses needs far more data, so validation is weaker exactly where the measure is most demanding.
   6. For an asset manager rather than a bank, the practical consequence is that I would report both, plus named scenarios. Expected shortfall for the tail, VaR for comparability and history, and scenarios because no statistical measure covers an event outside its sample.

   Where candidates lose it

   Describing expected shortfall as just a bigger VaR. The two substantive reasons are that it looks inside the tail and that it is sub-additive so risk contributions add. Concede the backtesting weakness; candidates who present it as strictly superior have not thought about validation.

   Expect next

   • How would you backtest expected shortfall?
   • How do you use sub-additivity in a risk budget?
   • What confidence level would you run for an equity fund?
5. 050If you already measure volatility, why do you care about maximum drawdown?Risk managementIntermediatetechnicalAsset managementHedge funds

   Say this

   Because drawdown is what clients experience and what triggers redemptions, while volatility is a statistical average that has no memory of the path. Two funds with identical volatility and identical annual returns can have drawdowns of 12 percent and 40 percent, and only one of them still has a business.

   Then walk it

   1. Volatility is a dispersion measure with no ordering. Reshuffle the same monthly returns and volatility is unchanged while maximum drawdown changes completely, because drawdown depends on the sequence.
   2. Drawdown is where autocorrelation shows up. A trend-following or momentum strategy has long strings of same-sign returns, so it produces deeper drawdowns than its volatility implies. A mean-reverting strategy produces shallower ones.
   3. The business consequence is the real answer. Redemptions cluster after drawdowns, so a manager in a 35 percent hole faces outflows precisely when the opportunity is best, and is forced to sell to fund them. Drawdown risk becomes forced-seller risk.
   4. The arithmetic of recovery is the other half. A 50 percent drawdown needs a 100 percent gain to get back, so the compounding cost of a deep hole is not symmetric with the gain that preceded it.
   5. The statistical caveat I would volunteer: maximum drawdown is a single realised event from one path, so it is a very noisy statistic. A longer track record mechanically shows a deeper maximum drawdown, which makes cross-manager comparison unfair unless you standardise the window.
   6. So I would use both, and add expected drawdown or the distribution of drawdowns from a simulation rather than relying on the one realised maximum. And I would set client-facing limits in drawdown terms, because that is the number that actually governs behaviour.

   Where candidates lose it

   Saying drawdown is just another way of measuring risk. The specific insight is path dependency: volatility is order-independent and drawdown is not, so autocorrelation in returns drives the difference. And do not quote maximum drawdown across managers with different history lengths without saying that longer records mechanically show deeper drawdowns.

   Expect next

   • Which strategies have drawdowns worse than their volatility implies?
   • How would you set a drawdown limit?
   • What is the Calmar ratio?
6. 053You inherit a portfolio with thirty positions and you suspect they express the same underlying bet. How do you find out?Risk managementIntermediatecase studyRisk managementMulti-asset

   Say this

   Decompose the portfolio rather than reading the position list. Run it through a factor model, look at the risk contributions instead of the weights, and do a principal component analysis of the holdings' returns. If one component explains most of the variance, you have one position in thirty wrappers.

   Then walk it

   1. Step one, risk contribution not capital weight. Marginal contribution to risk will often show that four names out of thirty account for 60 percent of the risk, which is the first thing the weights hide.
   2. Step two, factor decomposition. Run active exposures against a standard model: market, size, value, momentum, quality, plus rates, credit spread, dollar and oil. Thirty stocks that are really one duration bet will show it immediately as a single dominant factor exposure.
   3. Step three, principal components on the return series. If PC1 explains 70 percent of the portfolio's variance and loads on everything with the same sign, the diversification is cosmetic. Then interpret what PC1 is by correlating it with observable macro series.
   4. Step four, stress and scenario. Apply specific shocks: 100 basis points on real yields, 20 percent oil, a 10 percent dollar move, a credit spread doubling. A portfolio whose entire loss in every scenario comes from the same channel has one bet.
   5. Step five, the qualitative overlay the models miss. Shared supply chain, shared customer, shared regulator, shared funding source. In 2023 a portfolio of regional bank stocks looked diversified across thirty names and was actually one bet on deposit behaviour and held-to-maturity marks.
   6. Then the action: cut the aggregate exposure rather than trimming every name a little, or hedge the common factor with a liquid instrument and keep the idiosyncratic residual, which is presumably what the manager is actually paid for.

   Where candidates lose it

   Answering 'look at the correlation matrix'. A pairwise matrix on thirty names is 435 numbers and will not tell you what the common bet is. The expected answer names risk contribution, a factor decomposition, and principal components, and it finishes with an action, hedge the common factor and keep the residual.

   Expect next

   • How would you interpret the first principal component?
   • Would you cut positions or hedge the factor?
   • What common exposures would a factor model miss?
7. 054What is duration, and what is effective duration?Fixed income and LDIIntermediatetechnicalAmundiRates · London · 2018

   Say this

   Macaulay duration is the weighted average time to receive the cash flows. Modified duration converts that into a price sensitivity, roughly the percentage price change for a 1 percent yield move. Effective duration is the empirical version for bonds whose cash flows change with rates, so it is the only one that works for callables, mortgages and anything with an option.

   Then walk it

   1. Modified duration equals Macaulay divided by one plus the yield per period. A modified duration of 7 means about a 7 percent price fall for a 100 basis point rise in yield, before convexity.
   2. Effective duration, sometimes called option-adjusted duration, is computed numerically: shift the whole yield curve up and down by a small amount, revalue the bond with its options repriced, and take the price difference over twice the shift.
   3. Why you need it: a callable bond's cash flows are not fixed. When yields fall, the issuer calls, so the bond does not rally as a straight bond would. Its effective duration shortens as yields fall, which is negative convexity.
   4. Mortgage-backed securities are the extreme case. Prepayments accelerate when rates fall and slow when rates rise, so effective duration extends exactly when you do not want it to. That extension risk is what made MBS books painful in 2022.
   5. Portfolio duration is the market-value weighted average of the components' durations, which is how you manage a book to a target. But a single duration number assumes a parallel shift, so I would hold key-rate durations alongside it to see curve exposure, because a barbell and a bullet with the same duration behave differently when the curve twists.
   6. The practical limitation: duration is a first-order local approximation. For a 25 basis point move it is fine, for 200 basis points you need the convexity term as well, and for anything with embedded optionality the full revaluation is the only honest answer.

   Where candidates lose it

   Defining duration as 'the time to maturity' or conflating Macaulay and modified. And if you are asked for effective duration specifically, the interviewer is testing whether you know that cash flows can change with rates. Mention callables or mortgages and negative convexity, or the answer is incomplete.

   Expect next

   • What is negative convexity and who has it?
   • Why is a single duration number not enough?
   • What is the duration of a floating rate note?

   Reported by candidates at Amundi (Rates, London, 2018). Source: Wall Street Oasis.

8. 055What is liability-driven investment, and why do pension schemes do it?Fixed income and LDIIntermediatetechnicalPension and endowment investingFixed income

   Say this

   LDI defines risk as the mismatch between assets and liabilities rather than as asset volatility, and builds the portfolio to hedge the liability's sensitivity to rates and inflation. Schemes do it because the liability is a long, inflation-linked bond, so an unhedged scheme is running a huge implicit rates position.

   Then walk it

   1. Start with the liability. Pension promises are a stream of payments stretching decades out, often indexed, discounted at a market rate. So liability value has a duration of maybe 15 to 25 years and significant inflation sensitivity.
   2. That means a scheme holding equities and short bonds is short a long-duration inflation-linked bond. A 100 basis point fall in real yields can add 20 percent to the liability value while the assets barely move, and the deficit widens even though nothing went wrong with the investments.
   3. So LDI matches the sensitivities: hold long-dated and index-linked government bonds, and top up the hedge synthetically with interest rate and inflation swaps, or with repo on gilts, so you can achieve the required duration without putting all the capital in bonds.
   4. That capital efficiency is the point and also the danger. Leverage via repo and swaps means collateral calls when yields rise. The UK in September 2022 is the case study: yields spiked, schemes faced collateral calls, gilts were sold to meet them, which pushed yields higher again. A hedging programme became a forced-selling spiral.
   5. So the design questions are the hedge ratio, usually set as a percentage of liability duration hedged and often stepped up as funding improves, the collateral waterfall, and how much liquid headroom sits behind the leverage. After 2022 schemes hold far more collateral buffer.
   6. The honest tension: hedging locks in the funding position, so a scheme that hedges fully gives up the chance of closing a deficit through market returns. That is why the hedge ratio is a governance decision about deficit tolerance, not a purely technical one.

   Where candidates lose it

   Describing LDI as 'buying long bonds'. The mechanism that matters is hedging the liability's rate and inflation sensitivity, usually synthetically with leverage, and the risk that matters is collateral. If you cannot explain the September 2022 gilt episode, you do not understand LDI as it is actually practised.

   Expect next

   • What happened to UK schemes in September 2022?
   • How would you set the hedge ratio?
   • What collateral buffer would you hold?
9. 057What is convexity, and why does a duration-matched portfolio still carry risk?Fixed income and LDIIntermediatetechnicalFixed incomeMulti-asset

   Say this

   Convexity is the curvature of the price-yield relationship, the second-order term. Duration alone understates the gain when yields fall and overstates the loss when they rise. A duration match still carries risk because duration is local and linear, and because the curve does not move in parallel.

   Then walk it

   1. The price change is approximately minus duration times the yield change plus half the convexity times the yield change squared. For a 25 basis point move the second term is negligible; for 200 basis points it is material and it works in your favour on a long bond.
   2. Positive convexity is a good thing you pay for through a lower yield. Low coupon, long maturity bonds have the most, which is why a 30 year zero is the most convex instrument in the government curve.
   3. Negative convexity is the interesting case. Callable bonds and mortgage-backed securities lose duration as yields fall, because the borrower refinances, so you get less of the rally and all of the sell-off. Holders are compensated with extra spread, and in 2022 that compensation turned out to be inadequate.
   4. Risk one after a duration match: the second-order term. If liability convexity exceeds asset convexity, a large move in either direction widens the deficit. So immunisation requires matching convexity as well, or at least holding more of it than the liability.
   5. Risk two, curve shape. Duration assumes a parallel shift. A barbell and a bullet with equal duration diverge when the curve steepens or flattens, which is why key-rate durations matter.
   6. Risk three, the things duration does not see at all: spread risk if you used credit rather than governments, inflation basis if the liability is indexed and the assets are nominal, and the drift in both durations as time passes, which forces periodic rebalancing.

   Where candidates lose it

   Defining convexity as a formula without saying who is short it and why. The sharp answer names negative convexity in callables and mortgages, and it says that a duration match still leaves convexity, curve shape and spread risk. Saying convexity is 'always good' is wrong: you pay for it in yield.

   Expect next

   • Who is naturally short convexity?
   • How would you hedge curve risk rather than level risk?
   • Why did mortgage portfolios suffer in 2022?
10. 059Do you hedge currency in a global equity portfolio?Currency and globalIntermediatetechnicalMulti-assetGlobal equity

    Say this

    For equities, usually only partially or not at all. For bonds, almost always. The reason is the ratio of currency volatility to asset volatility: currency is a large share of the risk in a bond portfolio and a small share in an equity one, and it has no expected return to compensate you.

    Then walk it

    1. Run the numbers. Global equities have roughly 15 to 17 percent volatility and a major currency pair maybe 8 to 10 percent, and they are imperfectly correlated, so hedging changes total risk modestly. A global bond portfolio has 4 to 6 percent volatility, so unhedged currency is the dominant risk and hedging is close to compulsory.
    2. Currency has no long-run risk premium to speak of, so unhedged exposure is uncompensated volatility. That is the theoretical argument for hedging everything.
    3. The argument against hedging equities: some currencies are natural diversifiers. The dollar and the yen strengthen in risk-off episodes, so for a non-dollar investor, unhedged US equity exposure has a built-in stabiliser. Hedging removes it and can raise the drawdown.
    4. There is also a partial natural hedge inside the companies. A Swiss pharmaceutical or a Korean exporter has earnings in other currencies, so the listing currency overstates the true exposure. That argues against precision hedging at the index level.
    5. Then the practical costs: forward roll every one to three months, operational burden, and the cash flow risk. Hedging losses are settled in cash while the equity gain is unrealised, so a hedged programme can force you to fund large margin payments in a rally. That funding mismatch caught European investors hedged into US equities in 2014 and 2022.
    6. So my policy would be a strategic hedge ratio rather than a binary choice: fully hedge developed market bonds, hedge perhaps 50 percent of developed market equities as a regret-minimising middle, leave emerging market currency unhedged because the cost of carry is high and the currency is part of the asset, and size the liquidity buffer for hedge settlement.

    Where candidates lose it

    Answering 'hedge everything, currency is uncompensated risk' with no mention of the equity-versus-bond asymmetry or the cash flow consequences. Interviewers in global mandates want the volatility ratio argument, the safe-haven diversification point, and the awareness that hedges create funding calls. A 50 percent ratio as a stated regret-minimising policy is a strong answer.

    Expect next

    • Why hedge bonds but not equities?
    • What is the cash flow risk in a hedging programme?
    • Would you hedge emerging market currency exposure?

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.