Hedge Fund Case Studies 101, Part 1: What They Are, Why You Should Care About Them, and How to Dominate Your Own Case Studies and Land $500K+ Job Offers

Numi Advisory has advised over 400 clients by providing career coaching, mock interviews, and resume reviews for people seeking jobs in equity research and investment management (full bio at the bottom of this article).

Few things in this world strike as much terror into the hearts of eager bankers looking to move to the buy-side as the infamous hedge fund case study.

Protesters from the Occupy movement failing to shower for months at a time, or Peter Jackson deciding to split the remaining two Hobbit movies into 19 movies might also be scary – but even they pale in comparison.

But that’s why you read this site: to learn how to swat away your competition like flies, overcome the biggest challenges, and win offers (you’ll have to look elsewhere for help with Peter Jackson).

Today we’re starting a multi-part series on hedge fund case studies, and I’m going to give away for free more actionable information, tips, and real examples than what other training providers would charge you $10,000+ for.

As The Joker might say, “It’s not about money… it’s about sending a message.”

We’ll leave out the second part of that quote about everything burning, at least until we reach the end of this series.

Our interviewee has had a ton of experience in the finance industry, ranging from equity research to private equity to hedge funds – and I convinced him to share all his best tips with you.

He contributed the interviews on equity research over a year ago, and this series will be even better.

Let’s jump right into it:

Assumptions & Background Information

Q: So we haven’t sat down for an interview since that series on equity research. What’s new?

A: Sure – since the last time we chatted, I’ve graduated from business school and have been through the recruiting process at hedge funds. I am currently an analyst at a long/short equity fund.

In the past, I’ve worked in private equity, equity research, and hedge funds (both internships and full-time), and I’ve completed case studies at every step along the way – so I wanted to sit down with you and explain the process, why it’s so important for buy-side recruiting, and how to make your own case studies successful.

Why Do Case Studies Matter So Much in Hedge Fund Interviews?

Q: Well, sounds like you’ve been quite busy (to say the least).

Let’s start from the beginning: why do case studies matter so much in hedge fund interviews?

A: Here are the top 3 reasons:

1. Case studies are what you really do on the job – you generate investment ideas, present them to the PM, and aim to profit from your ideas while mitigating risk. Often, you’re tasked with analyzing an investment opportunity with minimal guidance and hand-holding; therefore, it’s up to you to use your intellectual horsepower and investment acumen to figure out whether a particular asset is a good investment.
2. They’re a way to level the playing field and stand out against everyone else with high grades from Harvard/Wharton/Stanford. Lots of people have great pedigrees, but few can invest successfully.
3. You will get them as part of the recruiting process at every single hedge fund, guaranteed.

Also, very, very few candidates actually customize their stock pitch and/or case study to the specific strategy that a fund uses… so even by using relatively simple strategies, you can stand out.

Q: So it seems like these case studies could also be a way to break in if you’re coming from a very different or unconventional background?

A: Yes. Unlike large banks that run very standardized recruiting processes and look for very standard types of candidates, many hedge funds are more open about who they’ll speak to… IF you can prove that you have solid investment ideas and that you’re passionate about investing.

The industry has gotten super-competitive over the past 10-15 years, and it is generally getting smaller – but if you can make a lot of money for a potential employer, there will always be room for you.

In practice, of course, most people at hedge funds still come from investment banking, equity research, or trading backgrounds – but especially at smaller funds, they care more about your P&L than your pedigree.

What Are Hedge Fund Case Studies?

Q: Yeah, that matches what I’ve seen from clients going through the HF recruiting process.

Before we move on, can you tell us what exactly a “case study” is?

A: Sure, I should probably define that one at some point…

In hedge fund interviews, “case studies” are very informal. 90% of the time they will tell you:

• Come up with an investment idea you think is interesting, present it to us, and back it up with quantitative and qualitative support.

It’s up to you to come up with the structure, pick the industry and find the company, and anticipate their key questions in advance.

Unlike private equity case studies, these case studies are far less structured and they want to see how well you can function without much direction.

Occasionally, you will get case studies where they give you a specific company and then give you a few hours to look at its financial statements, filings, and industry research and form your own opinion – but “open-ended” case studies tend to dominate.

Q: So unlike PE case studies, where you’re focused on IRR and determining whether or not buying out a company could generate your targeted return, with HF case studies it sounds like it’s more about valuation.

A: Partially, yes.

Valuation is more important in these open-ended case studies because you can pick pretty much any company – it’s not like a leveraged buyout case study where they’ll give you a company or deal and you’re constrained by that.

But the main difference is that HF case studies and public markets investing in general are all about asymmetric risk profiles: cases where the upside potential is significantly greater than the downside potential.

So you’re not necessarily targeting a certain IRR – instead, you’re thinking: “This stock is currently at $25.00 per share. I think there’s a 75% chance it could increase to $30.00, and only a 25% chance that it will fall to $20.00, so I recommend investing because…”

The other big difference is that catalysts are much more important in these case studies – it’s not enough to estimate the probabilities and argue what a stock’s “expected value” is.

You need to say, “I think it will change because of Event X,” where Event X is something like a new customer, a new product, regulatory changes, a competitor’s strategy, a refinancing or change in capital structure, or anything else you could think of.

Finally, risk factors and mitigating risk are essential for hedge fund case studies: you still consider them in PE case studies, but often you can’t make extremely specific recommendations to mitigate the risk when you’re acquiring an entire company.

Q: Awesome. We’re going to delve into the structure of these stock pitches and case studies in Part 2.

But just to get everyone thinking about it, can you explain how you’d usually structure your recommendations?

A: Sure… we’ll go into this in more detail in the next part of the series, but here’s what I usually use:

1) Recommendation: “Neutral” recommendations are not ideal, so are you long or short this stock? What do you think it’s worth and how much would you pay for it?

2) Company Background: Introduce what the company does and state what its current market cap and valuation multiples are.

3) Your Investment Thesis: Give 2-3 points about why you think the stock is price imperfectly – these can be both quantitative and qualitative factors, but they must be specific to the company (i.e. don’t say, “Well, the economy could crash…”). This will be the bulk of your presentation or write-up.

4) Catalysts: So you think the stock is priced imperfectly and is worth $X when its current share price is $Y… but what will push it to $X? Many people miss this part completely, which can sink your chances.

5) Valuation: Support your view of what the company is worth by using the standard methodologies: public comps, precedent transactions, DCF or other intrinsic value analyses, and so on.

6) Risk Factors and How to Mitigate Them: Remember that hedge funds are always looking for investments with asymmetric risk profiles. All investments have potential downsides as well, and in this section you discuss those and explain that, while they exist, there’s still a greater chance of your own thesis being true.

In that last part on Risk Factors, you also explain how to hedge against the possibility that you’re wrong. Much of the Q&A that takes place after you make your pitch will revolve around understanding potential sources of downside.

Q: Awesome… we’ll go into those points in more detail later, but any more thoughts before we move on?

A: Not really – the 2 most overlooked points are the catalysts and risk factors you select, so if you’re preparing to pitch stocks or you’re getting ready for hedge fund interviews right now, you need to think about those in advance for any idea you come up with.

My only other point is that you must be very confident in your recommendation and explanation.

Many candidates go into interviews without a clear conviction behind their ideas – which is the fastest way to fail. Your analysis can be spot on, but if you can’t convince your portfolio manager to put money behind your idea, you won’t have a long-lasting career in this industry.

When and Where Will You Get Them?

Q: OK, so where do these case studies usually come up in the recruiting process?

A: It’s not standardized – sometimes they’ll give you case studies in advance, and sometimes they’ll be in later rounds of the recruiting process.

Often the bigger funds will ask you to complete them upfront as an initial screen, but they could still ask you to complete similar case studies later on as you’ve advanced through a few rounds of recruiting.

Also at bigger funds, you’ll meet more people and they may mix it up by giving you both the “open-ended case studies” and the ones where they ask you to look at a specific company and make an investment recommendation.

I’ve heard some people having to complete as many as 6 or 8 case studies during the recruiting process, but I personally think that is excessive. Unless you really want to work at that fund or don’t have other options, you should consider pushing back if this happens.

The process and structure are the same regardless of whether you get an “open-ended case study” or one with a specific company, but you save a lot of time with the latter type of case study.

Q: Speaking of time, how much time do you have to complete these case studies?

A: You need to ask them for an explicit time limit. Many people hear something like, “Take your time!” because hedge funds tend to be informal, and then they make the mistake of thinking they really can “take their time.”

But that’s the wrong approach – when they say something like that, your next question has to be: “When do you need it by? Do you have any formatting and presentation requirements?”

Generally it’s in your best interest to respond to them within a few days at the most – and yes, you will be working like a madman during those few days, especially if you’re also working full-time.

It takes time to comb through filings, research competitors, call suppliers and customers, and so on – so it’s almost impossible to do a thorough job with all of those in a day or less.

Differences at Different Funds?

Q: So far we’ve been focused on pitching “companies” and making long/short recommendations, but what if it’s not a long/short equity fund?

What types of case studies would you encounter at a global macro, credit, merger arbitrage, or distressed fund?

A: You’ll still get case studies there, but you’ll analyze different assets: currencies, debt, or distressed companies rather than healthy ones.

With something like merger arbitrage (or anything else that’s event-driven), you can still apply the same framework but the catalyst becomes a much more central part of your recommendation.

The risk factors and mitigants will also differ: at long/short equity funds, the main risk is the stock price moving in the opposite direction, but at an event-driven fund the main risk might be the event not happening or not happening in the way you expected.

At a distressed fund, the main risk might be the company going bankrupt and not being able to sell off its assets for the expected price.

You could still mitigate some of these risks with stop losses or protective options, but you need to think through how the investment strategy of the fund will result in different types of risks.

Q: Great! Thanks for explaining that. Anything else to add in terms of different types of case studies at different fund types?

A: Let’s see… I focused on long/short equity funds and long-only funds in my recruiting, and I generally found that long/short equity funds asked for case study write-ups more often.

The long-only funds still asked for stock pitches, but sometimes it was more informal and just consisted of a brief presentation.

Also, make yourself aware of the firm’s specific strategy within the overall category… for example, if it’s a fund that runs a pair trade, market-neutral strategy, you should come up with trades that have a well-thought-out long and short idea.

They won’t tell you that, of course, but you significantly improve your chances if you match your recommendations to the specifics of their strategy.

What (Else) Hedge Funds Really Want to See

Q: Yeah, those are all great points.

Previous interviewees have mentioned that hedge funds still care about your story, knowledge of the markets, passion for investing, and so on – anything you want to add to that list?

A: Two things I’ll add:

1. Many sell-siders (investment bankers, more specifically) moving over to hedge funds have a very difficult time explaining how their past experience is relevant… you can’t just “state the facts,” you need to be explicit about how your skill set will be useful at the fund. Developing a career at a hedge fund is about being an investor, not just someone who’s quick with building models and fancy PowerPoint presentations.
2. Also, many sell-siders have very weak or nonexistent opinions on their previous clients and deals – this is a big stumbling block because you can’t just “lay out the facts” of what you did. Effectively, you need to make investment recommendationson your previous clients and deals.

Q: Those are both great points. I see #2 with our coaching clients all the time – they just describe the process behind a deal instead of saying whether or not they think it was a good idea in the first place.

Can you explain more about what you mean for #1?

A: Sure… let’s say you’re in an interview and say, “In investment banking, I’ve learned how to run comps and build M&A models. I think those are going to be very useful wherever else I go.”

That’s one way to say it, but you’re not explaining how your skills would help the PM make money. It’s all features and no benefits.

Instead of that description above, you could say, “After a few years in investment banking, I feel very confident in my valuation and M&A modeling skills, and I’ve used them to think about event-driven investing after being exposed to a few M&A deals that almost closed but then fell apart, and vice versa. I’m confident I could use these same skills to analyze pending M&A deals for your firm and help you make money by finding the right opportunities to bet on or bet against.”

You need to get yourself in the “What’s in it for them?” mindset. You can’t go into an interview without considering how you’ll help the interviewer make money and what kind of ROI he’ll get by hiring you.

Getting Into the Case Study Mindset

Q: Agreed – that’s why it’s one of my favorite topics to cover on the site. I don’t think I’ll ever get tired of repeating those points.

Before we jump into structuring your case study and the technical side in more detail, any more thoughts on how to get into the right mindset for interviews?

A: Your biggest obstacle moving over from the sell-side will be the failure to consider the potential downside and the risk factors.

So before you even start writing your recommendation, check the most bullish equity research report if you’re making a short recommendation.

And check the most bearish equity research report if you’re making a long recommendation, just to verify that you’ve considered the most obvious points already.

NOTE ABOUT EQUITY RESEARCH:

Just to clarify this comment above: do NOT rely on equity research to form your investment thesis. Instead, you want to use it as a “sanity check” and possibly as a way to find some of your data.

But as you’ll see in Part 2, you should NOT get your actual investment ideas directly from the research, and you shouldn’t rely on it to back up your thesis.

It seems like it’s an endangered species sometimes.

A: Yeah. Maybe someday it will go the way of the blue whale.

But until that happens, it’s worth considering a wide range of views on the company. In banking and even many research teams, you’re always focused on “robust growth expectations” and showing off how great the client is.

You need to take completely the opposite view at hedge funds, so you should get yourself into the mindset long before you start writing your own case study.

I can’t overstate the importance of having a clear view about margin of safety for a particular investment, and to get there, you need to figure out what the risks are and why you still think the risk/reward profile is favorable toward the “reward” side.

Also, to go back to your point, you don’t actually need to find a report with a “sell” rating – even a less optimistic “hold” or “buy” report could work.

Q: Great tips. So, let’s move into the structure in more detail, how to find ideas, and the technical side of case studies…

A: Wait, isn’t that coming up next time?

Q: Good point – stay tuned and keep reading! And thanks for your time.

Complete Hedge Fund Case Study Series:

Let the fun begin.

Numi Advisory has advised over 400 clients by providing career coaching, mock interviews, and resume reviews for people seeking jobs in equity research and investment management. With extensive investment experience in equity research and private equity and now working as an analyst at a long/short equity hedge fund, Numi has unparalleled insights into the recruiting process and advancing on the job.

Numi customizes solutions to each client’s unique background and career aspirations, and teaches clients the most efficient and impactful methods to achieve successful results on their career search. He has helped place over 50 candidates in leading buy-side and sell-side jobs. For more information on career services and client testimonials, please contact numi.advisory@gmail.com, or visit Numi’s LinkedIn page.

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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Comments

I have recently graduated with my Masters in Finance from the Johns Hopkins University. I have done my bachelors in Comp Sci. and am looking forward to put my educational experience to goo use by breaking into the Hedge Fund Industry.

Currently I am working as a Due Diligence Analyst and would really appreciate any advice.

Well… start networking, attend CFA events, prepare your own stock pitches/investment ideas. We’ve covered a lot of this process here:

Hi, I graduated in 2009 with a medical degree and have done some postgraduate medical exams. I have always considered finance/PE as a career and working as a General Practitioner makes things more flexible and I am able to works 2 days a week as a GP and concentrate on the financial side of things. I was wondering what the best next step would be to get into PE/hedge funds in the longer term. Some friends have told me to do Masters in finance, some said MBA, some said CFA, some said impossible. Was wondering if someone could guide me in the right route

I have a interest in hedge funds, sales & trading, and prop trading. I would love to work at a firm where I could generate my own ideas as well as execute those trades.

What is the best way to learn about the technicalities of trading (i.e., all the strategies associated with trading fixed income, derivatives, forex and the small details/actual mechanics of trading)?

Thanks for your time.

Hi. How hard is it to get into hedge fund straight from undergrad? Assuming I have good grades, attend target such and have a few decent internship

It depends. I’d say it can be challenging since many funds do prefer people with IB/ER experience, but if you can think fast on your feet, can demonstrate your passion for the markets, team fit, and ability to understand various trading strategies etc I think it can be relatively straight forward. http://mergersandinquisitions.com/hedge-fund-recruiting

The article talks about using write ups to target smaller hedge funds if one does not have IB experience because bigger funds have more standardized hiring processes like PEs.

I’m only interested in either distressed debt, merger arbitrage or value investing, do small hedge funds ( Sarah

For a Wharton MBA with 4.0 GPA, is that true job offers will come to the person without any hard work? If so, I need to think seriously reapply for business school….

Yes if you’re very lucky and/or you have connections. Most of us did work quite hard (and smart) to get the role.

Does BB firm has a hedge fund team? Say for Goldman.

If it does, what strategy does a BB nornally adopt? Long Short?

I graduated from a top 10 MS program in Applied Math & am currently working in as a software developer in a big buyside firm. I’m trying to break into hedge funds as an investment analyst, and have applied to a lot of job postings online. Prior to my current job, I did have some internships in front office roles. I’m also spinning my resume & talking about the business impact of my current work, instead of the technical details. However, inspite of sending a LOT of applications, I am hardly getting any responses at all. I understand that I’m trying to make a big jump (backoffice -> HF front-office), but with my education & past experiences, I would have expected to get atleast 10-20% responses for the number of applications I have submitted. Somehow, this is not happening, and I’m feeling very low on confidence. Can you suggest what could be going wrong with my current strategy & perhaps suggest a better strategy to apply for HF jobs?

Greatly appreciate your work M&I.. Many thanks!

Perhaps you may want to look at roles with a more quantitative focus. You may also want to network a lot more and build relationships with people first. You can do so by coldcalling/emailing and attending industry events. Its easier to apply through contacts than via online applications. I’d also suggest you to target perhaps 10 firms first and build such contacts. If the results aren’t good, then move onto other funds. But once you start networking, doors should open up.

It’s somewhat easier to network with an alumni, but if I dont have an alumnus at a firm, I’m not sure how useful it will be to call the firm & try to develop a connection with an absolute stranger. I mean, why would someone even be willing to speak with a complete stranger who they dont know & have nothing in common with…

You have a point. However, if you make your voice and pitch appealing enough, you may be surprised.

Thanks Nicole. I’ll give it a shot & let you know how it goes. You are truly awesome :)

I am interested in getting a job at a hedge fund, and have sent my resume to a few HF recruiters. Is this a standard way of getting a hedge fund job? Or would you say that I should directly send my resume to the hedge fund manager itself (problem is that most HF don’t advertise job openings)

Also, I got a call from 1 recruiter yesterday, and he asked me my current salary. I was not sure whether to answer this Qn or not.

a. Do we need to tell recruiters our current pay? b. If not, how can we avoid answering that Qn without offending the recruiter (and thus ending our chances)? c. If I say that my current pay = 60K, would that bring down the money I can expect to make at a HF if I get the job through the recruiter?

Going through recruiters help, though it would be best if you could network amongst the community and send your resume to contacts in the industry directly.

a. Most recruiters want this info. However I may postpone giving out this information until you have met the recruiter at least once and that you trust him/her b. You can just say that I am not comfortable disclosing this information now because we are still in the initial stages of discussion. Lets talk about it further as we progress down the line. c. It may do, though recruiters would want to help people with higher pay so they get a bigger cut.

What is the difference between “stock pitch” and “case study” in the context of hedge fund interviews?

Case study is more of an extended exercise where you have to make a presentation and/or Word doc to present your views

When will you be publishing part 3 & part 4 of this series ? Eagerly awaited.

Part 3 – next few weeks. Part 4 – sometime in May.

I have a few Qs. about hedge fund recruitment.

A lot of HF jobs are posted on online job portals, and they do not mention the name of a contact person. A lot of these positions also ask for a cover letter in addition to the resume.

1. In cases where the cover letter is optional, would you suggest submitting one or not ?

2. Do you have any templates for HF cover letters ?

3. Most of the online articles about HF cover letters say that we should address the letter to a specific person instead of saying “to whom it may concern” / “Recruiting manager”

But if the job posting does not include the name of a person, how do we find out who to address the letter to ? [[ Online articles say that for small firms, these letters are read by the CEO, so we should look on linkedin to find the owner of the fund & address the letter to him. But I dont think this is alwasy true, so if someone ELSE is readiig my letter & it is addressed to the CEO, will it not look ackward? ]]

4. Again, online it says that we should say “I will call next week to follow up”, but the job posting does not give a phone number, and most small funds dont even maintain a website

a. How do you find the number to call ? b. Even if you somehow find the number & call them, who should you ask to speak with ?? (you dont know who, IF ANYONE, read your application)

1. Yes 2. No, but you can refer to https://www.mergersandinquisitions.com/investment-banking-cover-letter-template/, make some minor adjustment and explain why you want to work for a HF 3. If you have the specific contact, address him/her. Otherwise, recruiting manager will do. I’d use LinkedIn or publications such as http://www.eurekahedge.com/news/ though this may be more applicable if you were to look for information of traders/PMs 4. Leave this line out if you don’t have the fund’s phone number. a. Website, contacts b. If you can’t find the contact information of HR or better yet, the person running the fund (you better have a good pitch if you want to speak to him/her), just introduce yourself very briefly when someone picks up your call and use our cold call technique https://www.mergersandinquisitions.com/cold-calling-investment-banking/

Thanks Nicole!! You’re awesome :)

Do you have a template for a hedge fund resume? Thanx again..

We don’t have one specifically for hedge funds, but this one is close enough https://www.mergersandinquisitions.com/sales-trading-resumes/

1. Within investment banking (and in most fields even outside finance), it is considered more prestigious to work at a well-known firm than a small unknown firm for a number of reasons, one of them being the exit opportunities available to you if you have a big brand (say Goldman) on your resume. How true is this within the Hedge Fund industry, ie. How important is the name of the fund you work at? I mean, if I work at XYZ capital, which is not known to a lot of ppl within finance, and after 3-4 years I try to move to a more well known fund (say a hedge fund at Goldman), will the transition be possible?

2. How often & for what reasons do people move from one fund to another?

3. Is it common for people to move from 1 fund to another, if the 2 funds use very different strategies ? If not, then I would need to be more careful in choosing the funds I apply to.

Just checking if someone can answer my Qs. Thanks!

1. Less true in the HF industry because most funds are small and relatively unknown. Exceptions apply for some bigger names like Citadel, Renaissance, etc. but even with those, your work experience and track record carry more weight than the name. Transitioning is highly dependent on your specific experience and HFs are extremely specific with what they’re looking for (e.g. if you don’t have experience investing in European cross-border telecom M&A arbitrage situations, good luck if the fund wants that).

2. https://statistics-essay.com , better pay, switching strategies, sometimes due to internal politics.

3. People hop around sometimes, but the strategy you use tends to be the same… gets very hard to move into something completely different after awhile.

So wrt Q2 & Q3, is pay a function of the fund strategy (besides your own ability & experience)? If so, do you have any info about avg pay for different HF strategies?

Also, what strategies would you say enable you to move into other strategies “relatively easily” after few yrs??

Thanks a lot once again.

Bouncing my Qs — Wrt Q2 & Q3, is pay a function of the fund strategy (besides your own ability & experience)? If so, do you have any info about avg pay for different HF strategies? (even approximate info would be awesome . )

Also, what strategies would you say enable you to move into other strategies “relatively easily” after few yrs??

Thanks a lot once again.

Just checking if someone could answer my Qs. Thanks a lot M&I team :)

Awesome article! I’ve seen from other comments that Part 2 is coming a few weeks after Part 1 – do you have a specific time frame for when part 2 will be published? Obviously no rush, I just really enjoyed this post and I’m anxious to read the remaining sections. Thanks, and keep up the good work.

Thanks! Part 2 should be up this week (week of March 18th) if all goes well. The interviewee is reviewing my draft right now.

Would any fixed income case studies ever be asked? If yes, can you please do a post on that? I have a good understanding of doing equity research but absolutely no clue on fixed income research. Cheers.

I am not 100% sure but fixed income case studies could be asked. We will keep your idea in mind – thank you for your suggestion!

Fixed income is possible if that’s the fund’s strategy. So if they invest in credit or anything related to credit, it could easily come up. I’ll see if we can add this one to the list.

Really liked reading article.

Just wondering when the follow-ups are coming?

Thanks! Each one will be a few weeks apart.

I wonder if you could shed some light on the investment processes for event-driven funds (Merger Ab)? How is the investment process managed in the sense of:

1. How would the fund know the deal’s timeline from when the deal is going to be publicly announced to when the deal is going to be officially completed?

2. What srot of instrument would be used? If they are betting on speculatvie deals, surely it would make sense to use call options to limit max loss? If merger agreements are realised, would the fund just be betting on the spot share price knowing that the deal is definitely going to happen?

3. What are the main risk metrics one would look at for a Merger-Ab fund? (Only risk is if the deal does not work out, but what are the main indicating factors to watch here?)

I’m not an expert on that strategy, but:

1. They don’t – it varies and various issues can derail the process. They have to make their best guess on the close date based on previous experience and deals in the sector.

2. Yes, it’s probably a mix of direct long/short equity and then call and put options. It’s also not necessarily a bet for or against the merger actually happening… it could be something like a bet on a better or worse price being realized (e.g. if someone drops out or another acquirer comes along).

3. Signs of that might be the stock price trading well below the per share purchase price, the buyer’s stock price falling, or possibly external circumstances like regulatory constraints (e.g. if the fund thinks the EU won’t approve of the deal). Even something like the seller’s stock price trading above the per share purchase price might be a risk factor if you’re betting against the deal happening.

Thanks a lot for this and this website. I’m interviewing for a large HF (thing BWater, Greenlight Capital, Paulson & Co.) coming straight out of a non-target in the middle of nowhere as my first job, thanks to this site.

Thanks! Congrats on the interviews and good luck.

I’ve been progressing a lot in interviews. Right now they are having me develop a full blown DCF for a massive conglomerate as a case study. The HF decided to give me one of the largest enterprises in America (think Pepsi, Kellog, P&G) and asked me to develop a three statement model, dcf and investment thesis on it – due in 1 day.

Yeah not too surprising about the extreme time pressure. Split it up into 2-3 parts and try to find a segment that’s overvalued or undervalued and dragging down (or increasing) the value of the rest of the conglomerate.

Hello Jason and Brian. Jason, I also went to a Non-Target School in the middle of nowhere. But I wasn’t able to get an interview with a Hedge Fund. Would you be willing to share what you did to get your interviews? How did they come about?

Brian, any advice for someone such as me, who went to a Non-Target School (top 30’s) and couldn’t break into a Wall Street position (IBD, S&T, ER, or Hedge Fund)? With no experience in the field and a 2012 graduate. Is it possible to break into a Hedge Fund? I’m not sure if Jason would still read this, so is there any way I might be able to contact him for advice?

If you don’t have any experience, I’d suggest you to start trading your portfolio and approach boutique firms – you can cold call/email/message them through LinkedIn. You may want to read this article https://www.mergersandinquisitions.com/hedge-fund-recruiting/ for more info on how to break in; the interviewee was from a non-target and he made his way in.

Brian, does most of this hold true for sell-side fixed income funds as well (as opposed to all-equity funds)?

Yes, it holds true for almost any public markets role.

Thanks for a great post! I understand how important case studies are in postgraduate recruiting, but would you happen to know how much emphasis hedge funds recruiting for summer analysts / analysts right out of college would place on case studies?

Thanks! They’re still important – maybe interviewers won’t expect quite as much depth, but even as an intern or summer analyst you need to be passionate about investing and good at analyzing and recommending opportunities.

Excellent article, looking forward to the next 3 parts.

Thanks! It only gets better…

This was great (as M&I always is). As an incoming banking analyst looking into my next steps, I’ve become very interested in an investing career. This is certainly a timely series, and I thank you both.

That said, I’d like to address one point of the discussion – using equity research. Across my interactions with people involved with these sorts of funds, and especially with the those who have impressed me most, I repeatedly get the same advice: avoid sell-side research. I’ve heard multiple explanations as to why – examples include analysts’ sell-side conflicts of interest, their shortsighted perspective, the fact that they have no skin in the game, and even the observation that “if they were any good, they either would have been hired to work on the buyside already.” And I’m hearing this from everyone – career buy-siders, ex-bulge bracket traders, you name it.

Not to belabor the point, but just yesterday, I was watching an interview with Jim Chanos (http://reut.rs/UKF91P – great watch throughout, by the way). Towards the beginning (1:25), he is asked about his investing process. He answers by explaining how as trains his analysts, paying particular emphasis to both the importance of formulating one’s own views first (i.e., don’t look at ER before you’ve got your thesis), and that an analysis of the disclosures themselves can itself be critical:

“When we train our analysts, we train them to look at source documents first. And by that, I mean the last thing they’re going to be looking at is analyst’s reports or talking to analysts, or even the company. We have them start with the SEC filings, and it’s amazing to me how many investors don’t start with that. Maybe they’ll casually thumb through a 10-Q or a 10-K, but they really don’t do a deep dive and read all the documents.

“It’s a must, because those documents exist for a reason, and companies don’t change language unless their internal lawyers, or external counsel tell them to do so. So, you get a really good flavor of what’s happening to a company, and how a company is changing by actually looking at what they tell the SEC publically.”

Now, I don’t mean this as a criticism of the interviewee, or even of the larger points that he is trying to make. As I mentioned at the outset, this is a great piece, and I expect the upcoming series will be a big help to me as I look forward to these recruiting cycles (just as M&I’s resources have been of tremendous value so far). I mean, his (or her? I guess I’m making a normative assumption here) emphasis on doing a thorough job of researching and presenting (a) catalysts, and (b) risk factors, is beyond spot on.

Just to circle up, think that I, and the broader M&I readership, might benefit from a clarification of the merits of sell-side research. It’s possible that I’m wrong (I like to think that I’m smart, but I know that I’ve got little practical experience), or that I’m not getting the full picture. Maybe the interviewee simply assumed that the M&I readership is aware that, when investing, it might be a good idea to take these research reports with a grain of salt (or two).

But if I’ it’d be a shame if people fell into bad habits here.. in one interaction, an analyst at a sleepy mutual fund manager (of all people, right?) compared the use of equity research reports in forming one’s own investment opinion as “at best a crutch, and more frequently an addiction.”

Thanks. To clarify: the interviewee here (Numi) actually recommends avoiding equity research as well.

In fact, we go through why you should avoid it in Part 2.

He brought it up here more as a *sanity check* that you should look at it. You should NOT rely on it for your investment thesis.

This will be clarified and expanded on in Part 2. (Also added a note on it above right where he mentions it)

Good article,if you can follow up with a post about how to tell the “walk me through your cv” story and make an impact in a Hedge fund interview, that will be very helpful! A good stock pitch vs. a bad one comparison will be helpful too.