It's an investment strategy that seeks to exploit pricing inefficiencies between a convertible bond and the underlying stock. Managers will typically long the convertible bond and short the underlying stock.
What does it mean when a manager says that he is event-driven? That's an investment strategy seeking to identify and exploit pricing inefficiencies that have been caused by some sort of corporate event, such as a merger, spin-off, distressed situation, or recapitalization. This is also specific to the firm you are interviewing with, and will be partly based on your answer to No.
Once you've found the strategy that the fund is pursuing, research the current environment of the fund. For example, if it is a merger arbitrage strategy, look to find any recent announcement mergers and be prepared to discuss your opinions on it.
Current news events, market trends, and new financial regulations can also affect a fund's strategy. Fred purchases shares of MSFT because MSFT is undervalued relative to the theoretical price fair value and the market is expected to correct the price.
Fred predicted that the price of Microsoft would rise and the price of Oracle would fall. More SEC regulation, continued growth in institutional investing, and the potential of offering hedge funds to average retail investors are all key issues. Follow us on Twitter. By: Vault Careers. Published: Aug 31, What is a hedge fund? This question varies by individual, but think about examples like the following: You have a specific interest in the fund manager's strategy.
What makes hedge funds different? What is convertible arbitrage? What is the strategy of our fund? Finally, you'll need to know everything that's humanly possible about the fund you're interviewing with. Hedge funds can be very secretive, but you can usually find information on sites like Hedge Fund Intelligence or Opalesque. At the very least, you should have an idea of the hedge fund's assets under management, sector focus and strategy.
It will help if you also know the names of its top trader s and the nature of its investor base. Try talking to some other employees or past employees before the interview. Ask them what made it a good place to work. Contact: pclarke efinancialcareers. Get the latest career advice and insight from eFinancialCareers straight to your inbox. Please click the verification link in your email to activate your newsletter subscription. Click here to manage your subscriptions.
Sign In. Don't have an account? Register Now! Search Jobs. Graduate Guide. Questions you will always be asked in a hedge fund interview and how to answer them by Paul Clarke and Sarah Butcher 15 March The five things recruiters look for on your hedge fund resume. Also, many hedge funds are not interested in broadly marketing themselves to candidates. A hedge fund is an investment fund that raises capital from institutional investors and accredited investors and then invests it in financial assets — usually liquid, publicly traded assets.
Most hedge funds target absolute returns rather than relative returns, and they use a wide variety of strategies and securities to achieve those returns. For example, they may short-sell securities, use derivatives, bet on mergers going through or failing, and they may become directly involved in events like spin-offs and restructurings. Hedge funds differ from mutual funds and asset management firms because those firms tend to target relative returns e.
Hedge funds differ from private equity firms because PE firms usually buy and sell entire companies or large stakes in companies, and most of their holdings are illiquid. Also, many people are pessimistic about the future of the hedge fund industry because of the rise of index funds, passive and automated investing, and AI. For more about the advantages and disadvantages, please see our article on the hedge fund career path as well as our hedge fund overview.
There are three main roles at most funds, and the hedge fund recruiting process differs for each one:. At some funds, the Investment Analyst and Execution Trader roles are blended — for example, Structured Product and Investment Grade Credit investors usually do their own trading as well.
In addition to these front-office roles, there are also middle and back-office roles for trade settlement, compliance, IT, HR, and more. The following professionals have the best chance of winning Investment Analyst roles at hedge funds:.
Of these categories, many U. Funds that use strategies such as global macro i. And if the fund is even more specialized, such as one that invests in distressed credit, you should be on the distressed debt desk so your skills match up perfectly.
In terms of academic credentials , the quality of your undergraduate university, your GPA, and even your SAT or other standardized test scores, such as the A-Levels in the U.
And the funds that do hire post-MBA often want to see pre-MBA buy-side experience, such as in private equity, asset management, or hedge funds. Both the CFA and MBA tend to be more helpful for traditional asset management roles, especially since AM firms conduct on-campus recruiting at a wider variety of business schools.
Your best bet is to win an offer at a legitimate prop trading firm , build up a track record there, show that you can work in an institutional setting, and then use that experience to move over.
If you have your heart set on a mega-fund or even a mid-sized one, you should make a lateral move to a bulge bracket or elite boutique to boost your chances. These funds have internal recruiting teams or are represented by specific headhunters, such as Glocap, and they aim to fill a certain number of openings for the next year.
This process has been moving earlier each year, and it now happens several months! You can certainly network with professionals at these large funds, but headhunters dominate the process, and opportunities often depend on factors outside your near-term control, such as your bank, your undergraduate institution, and your GPA.
Interviews at the mega-funds typically go for rounds, with several individual interviews in each round, and a modeling test or investment pitch near the end. Often, these departures happen in the first quarter of the calendar year because bonuses are awarded then — but spots also open up throughout the year.
With these funds, networking is far more important and is one of the best ways to win interviews. Once you win interviews, the process might not be that much different — especially if someone has just left and they need a replacement ASAP.
However, the process could be a lot more extended e. The mega-funds, multi-manager funds , and some single-manager funds all tend to use headhunters. So, if you graduated from Yale with a 3. Local CFA Societies can also offer a path into hedge funds right out of undergrad, and few students use them at all. The rest of this article will assume that you have full-time finance experience and you now want to network to win hedge fund roles. Before you begin searching for anyone, you need to figure out the type of fund you want to work at.
Win investment banking interviews with dozens of templates, examples, and guides for informational interviews, cold emails, cold calls, and more. Once you have a preliminary list of funds — perhaps to start with — go on LinkedIn and your alumni database and start searching for professionals at these funds. Once you find the names of professionals at these funds, you can contact them via email using a template similar to the one in our article on equity research recruiting :.
I have become increasingly interested in hedge funds that invest in [Industry Name] companies and use [Strategy Name] strategies, particularly in the [XX — YY] AUM range, so your fund immediately caught my attention. Before my role in investment banking, I completed internships in asset management at [Company Name 1] and [Company Name 2], both times focusing on the [Industry Name] sector.
I know you are extremely busy, but if you have a few minutes to speak so I could learn more about opportunities at [Hedge Fund Name], it would be greatly appreciated. They will ask you for an investment pitch as part of the interview process anyway, so you might as well send it upfront to show that you have the required skills.
Your goal is to set up brief phone calls with professionals, follow up, and contact other funds with the same approach until you get positive responses. Hedge fund interviews are mostly about one thing: your stock or other investment pitches. But unlike in investment banking interviews and private equity interviews , where no topic is overwhelmingly the most important one, your success in HF interviews will depend largely on your pitches. Please see our tutorial to buy-side resume walkthroughs as well.
The most likely topics for standalone technical questions are accounting, 3-statement modeling , and valuation. Merger models and LBO models are not that relevant for most hedge funds unless the fund happens to use a strategy that is linked to transactions. If the fund is more specialized convertible arbitrage, distressed debt, etc. For example, you could easily get questions about how to quickly approximate the Yield to Maturity YTM on a specific bond if you interview with a distressed fund.
As with your deal experience in private equity interviews, you need to demonstrate a strong view of each of your deals and clients. For example, if you advised a client on a sale of its company, put yourself on the other side and think about it as an investor: Would you have invested in that company? Why or why not?
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