Hedge Fund Interview Questions

Free sample from the Deskcraft question bank

Hedge fund interviews test a real market view and a clean stock pitch on top of the fundamentals. These questions come from the Deskcraft bank — strategies, valuation and markets — with model answers.

1. What is a long/short equity strategy?

Model answer

Buying stocks expected to outperform and short-selling stocks expected to underperform, aiming to profit on both sides while reducing market or beta exposure. Net and gross exposures are managed, and the goal is alpha from stock selection hedged against broad market moves.

2. What is the difference between sales and trading?

Model answer

Sales covers institutional clients, pitching ideas and taking orders, while traders make markets, manage risk and execute those orders by quoting bids and offers and holding inventory. Sales is relationship and idea driven; trading is risk and execution driven. Together they intermediate between clients and the markets.

3. What is the yield curve and what does an inversion signal?

Model answer

It is a plot of government bond yields across maturities, normally upward-sloping so longer maturities yield more. An inversion, where short-term rates exceed long-term rates, has historically preceded recessions, reflecting expectations of future rate cuts and slowing growth. It is a closely watched macro signal.

4. Why is EV/EBITDA more common than P/E for comparing companies?

Model answer

EV/EBITDA is capital-structure neutral, since both numerator and denominator are pre-financing, and it is pre-tax and pre-D&A, so it compares operating value across companies with different leverage, tax and depreciation policies. P/E is distorted by capital structure and one-time items below EBIT.