Risk Management interview preparation

Market, credit and operational risk, plus model validation, regulatory capital, liquidity and ALM, the statistical foundations and the Indian regulatory syllabus. Every question is either traced to a named firm from a public candidate report, or tagged at desk level when we could not trace it — and answers lead with the point, then the mechanism, then the limitation.

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100 questions, mapped to the firms that asked them

Questions
100
Traced to a firm
37
Firms
12
Updated
September 2026
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All firmsUBS14MSCI7BlackRock5Franklin Templeton3Oaktree Capital Management2Scotiabank2Jane Street1Moody's1Neuberger Berman1PIMCO1State Street1Truist Securities1
Topic
All topicsMarket risk and VaR14Tail risk and stress testing5Greeks and sensitivities5Credit risk11Counterparty risk and CVA6Operational risk5Model risk and validation6Regulatory capital7Liquidity risk and ALM6Statistics and quant foundations7Indian regulation7Risk governance and appetite4Markets and macro9Fit and career8
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  1. 089Explain the difference between actively and passively managed funds, and where you come out.Markets and macroIntermediatetechnicalFranklin TempletonRisk Management · San Mateo · 2017

    Say this

    Passive replicates an index at low cost with low tracking error. Active tries to beat it and charges for trying. The arithmetic is brutal for active in aggregate, because active managers collectively hold the market, so before costs they earn the market return and after costs they underperform by roughly their fees.

    Then walk it

    1. That's Sharpe's arithmetic of active management and it's the strongest argument against active in aggregate. It's not an empirical claim, it's an identity.
    2. The evidence supports it: SPIVA data has consistently shown the large majority of active large-cap funds underperforming their benchmark over ten and fifteen year horizons, in the US and in most other markets, and persistence among the winners is weak.
    3. Where active has a better case: less efficient segments with less analyst coverage, small caps, emerging markets, distressed credit, where information is genuinely costly to acquire. And in asset classes where the index itself is a poor construct, like fixed income, where a market-cap-weighted bond index gives you more of whoever borrowed most.
    4. The Indian nuance is worth making because it cuts the other way for once. Indian large-cap active funds have increasingly struggled against the Nifty, which is why passive assets have grown fast there, but mid and small cap active has had a better record. And SEBI's total expense ratio caps and the move to direct plans cut the fee gap significantly.
    5. The risk-management angle: for passive you're managing tracking error, replication method, securities lending, and index concentration risk, which is real when a handful of names dominate an index. For active you're managing factor exposure, style drift, capacity, and whether the manager's realised risk matches their stated process.
    6. Where I come out, and I'd give a view because they asked: default to passive for efficient, liquid, well-covered markets, and pay for active only where you can articulate the specific inefficiency being harvested and check that the manager's tracking error is actually being spent on that. Paying active fees for closet indexing is the worst outcome of the three.
    7. And the measure that settles it: active share alongside tracking error. Low active share with active fees is the thing to refuse.

    Where candidates lose it

    Sitting on the fence. The interviewer asked you to compare, so a view is expected, and 'it depends' without a decision rule is a non-answer. Cite the arithmetic argument and one piece of real evidence, then give a conditional view with the condition stated.

    Expect next

    • Where does active management genuinely add value?
    • What is closet indexing and how would you detect it?
    • Has passive investing made markets less efficient?

    Reported by candidates at Franklin Templeton (Risk Management, San Mateo, 2017). 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.