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Buy side interviews are a brutal process - preparing for interviews, sneaking out in a suit, networking, all while working 12-16 hours a day is a brutal process. While private equity interviews and hedge fund interviews are for different types of roles, they have many similarities.
They involve a lot of 'fit' interviews, having to know your technical and accounting cold, having to prove you understand the qualitative aspects of business, and both require a significant amount of luck as well.
And of course - the most difficult part of the interview process - the CASE. This is the point of the interview where your alma mater, what bulge bracket bank you work at, who you know, what suit you wear - none of that matters. If you can't handle the case study portion of the interview, you won't get the gig no matter how well you fit in.
Typing up an investment thesis and building a model while at work, hiding Excel and Word windows when your colleagues walk around you, and being completely mentally exhausted yet still having to focus on acing your interviews is not a pleasant experience.
However, it helps to know what to expect. So here is an overview of my own personal experience with the case study (and overall interview process). I keep things in general terms but the main concepts - having a 2 minute intro for your thesis, how to structure the write-up, and how to work efficiently are applicable to any case study. This obviously applies to case studies where the fund gives you the name of the investment in advance. I know many PE firms now do live case studies where you come in and have 3-4 hours to read and write things up..
I was a desk analyst focused on distressed/high yield credit at a bulge bracket. I never did banking, and so I didn't have the opportunity (or desire) to interview for PE roles. And further, even within the hedge fund world, many different interview processes exist. The case study is fairly common amongst most of them, and comparing notes with other people who have gone through the interview process (and having conducted interviews myself), I think the process that I went through was pretty typical, and at the very least will be helpful for people who are beginning the process.
You'll have multiple rounds before the case study
A lot of people use their network or headhunters which effectively pre-screen a lot of candidates. The first round interview is usually much more fit oriented. Sure, there will be some technicals, but given you've done banking or research or something else relevant for 2-3 years, at this point they'll focus on how you'll fit in and how you think, not if you can walk through the steps of how depreciation affects a cash flow statement (this should be second nature by now).
Have good answers during the fit oriented portion of the interview process for who you are and what you want:
- Show how motivated you are in your personal experiences as it relates to your resume (cold-calling alumni to get your first relevant internship, starting student organizations, running a side business in college, etc.)
- Show you clearly understand the role you are applying for and what you want to do. Don't just say 'oh this fund has had +25% returns last year so its good' - know something about the culture and the role and how your personality and goals mesh with what the expectations are.
- Speak POSITIVELY of your experience at your current firm. The last thing you want is for people to think they are hiring a perennial whiner. Everyone has started at the bottom of the totem pole - you aren't special because you pull all-nighters or think you are super smart. Be less negative and more positive.
- Have a reason for why you want to leave - 'my learning experience there has been great, but want to focus more on long-term investing' or 'I think I've learned all there is to learn in my current silo' or something along those lines - but make sure you don't berate people on a personal level. After all, Wall Street is a small community and you don't want to talk badly about someone's friend by accident.
Also have ideas and opinions on the economy and long/short ideas:
- Where you think the opportunities are for investing and what macro themes are relevant to the fund/team you are interviewing for.
- Have a couple of long ideas and short ideas that are outside of your domain of expertise - its better to have 2-3 ideas you know very well, including memorizing specific financials and recent performance, as well as why the securities are currently mispriced.
- Know a few of the fund's SUCCESSFUL investments and have relevant thoughts on them. I wouldn't hassle Bill Ackman about Herbalife for example, but mentioning a high profile win for the fund and how you appreciate their investment approach shows you did your homework.
Most importantly, know your resume cold. This may seem obvious. But if you have something that takes up six words on your resume ('Did due diligence on small E&P company' for example), you should be 100% comfortable speaking about that for 15-20 minutes. Anything is fair game if its on your resume. If you are really good, you'll be able to transition any question they have into broader themes you are familiar with (ie this E&P company company was a good investment...overall, I'm bullish on that region where it is located because of low breakeven economics...here are some other companies I like in that space' etc. Basically, make them realize you know what you are talking about.
Starting the case
After you pass the initial interview stages, you'll eventually get an e-mail or a phone call giving you the case study prompt. It ranges in terms of how descriptive they tell you the case study needs to be. It could be just a ticker, or it should be a template.
For me, it was 'Take a look at XYZ company and tell us what you think, here's the ticker'. Turns out the company I got was an extremely highly leveraged (close to defaulting) company with illiquid equity and a single bond outstanding. I was given one week to prepare - sometimes the window is smaller, but I think 4-5 business days plus a weekend is more standard now. For me, I think I got the prompt on a Tuesday and had to present it the following Monday.
Of key importance: most of the case study assignments are either investment positions the company holds, or they are looking into. As a result of this, you'll want to have a view that doesn't contradict what the firm is already doing. Try to figure that aspect out as you dive into the investment idea.
Also of key importance: they will assign you a case in an industry where they expect you to not have any experience in.
My goal for the finished product:
- Have a 5-10 page written document which presents my thesis in an organized fashion
- Have a completed model with projections
- Have multiple charts/graphs with relevant macro data for the company I was researching
- Have a 2 minute opening statement when talking about my company (after which I would open it up to Q&A).
Here is how I prepared for my case study on a five day schedule:
- Gather materials. Download all relevant documents on the company you can find. Look up research reports. Look up recent news articles, print everything from the company website.
- E-mail that company's IR department. This is HUGE. Getting in touch with the company itself and asking them to provide things such as a bond indenture or latest financials is clutch - even if you don't need them, you'll impress your interviewers with taking it to the next level. Name dropping executives is a good way to do things - if its a top-tier fund, they've likely sat down with management directly and have opinions on them.
- Look for trading runs on the name to get a sense for who trades it and at what levels - you might need to have a friend in fixed income trading if it's a bond security, but if it's a stock you'll have all the data you need from the Google.
- Find industry primers - reach out to your firm's research analysts to try to get this stuff.
- Print everything out and carry it with you at all times in a bag.
- Read everything in your downtime. Form an idea. Figure out the comparable companies and read earnings transcripts from those companies to learn key themes.
- Start your investment thesis - decide if you want to go long or short the name - typically you'll want to go long just because most funds lean long.
- Whip up a basic model (not your final version which I save for later). Don't spend much time on it - make sure everything flows and have your operating assumptions be base case. If it's a credit interview, have a base case and a downside. If it's an equity interview, have a bear case and a bull case. The reason you don't spend much time on the model on Day 2 is that because you are just learning the company, you want to get something on paper but you'll be tweaking this significantly.
- Get more in depth with your reading of the company's financials. Have a piece of paper separate from the rest of your notes where you mark down page numbers of key corporate actions (acquisitions, early debt redemption, dividend, dent issuance) that you can go back and refer to.
- Drill down on the primers and try to have at least 2-3 conversations with people who know the sector
- Get a set of macro data, print it out - you'll be including this in an appendix.
- This is when you focus on the model. Drill down on the financial statements and make the model as simple as possible. I typically have 2-3 drivers, basic income statement (down to EBITDA only for me, given my credit focus). Have a basic balance sheet. Have EBITDA, capex, cash interest, cash taxes, and working capital for the cash flow statement. Have lines indicating funds spent on acquisitions and dividends, as well as debt reduction, among other sector relevant things.
- Start drilling down on your investment thesis as you work on the model. By the end of Day 3, you should have at least 4-5 pages of relatively unorganized notes. Begin to refine this.
- Do some due diligence into customers/suppliers into the company you are looking at to get some additional 'channel check' style data points for your write up.
- Finish your investment thesis (MORE BELOW).
- Review everything.
- Prepare a cover page your for your write-up.
- Review and learn everything you've done cold - be an expert on this company and this sector. Be confident. Know the names of the management team. Know all the details - biggest customers, competitors, suppliers, earnings results.
- Prepare your two minute case intro - this should be a 90-120 second introduction to the name.
The finished product:
How your investment thesis should look when you send it to your interview (you usually can e-mail them ahead of time with it, though I always would print out hard copies as well):
- Intro page: This should be just 1 page, and this will contain the company's name, description, 52 week high/lows along with a a graph of the company's securities pricing, historical financial summary, along with estimates for Sales, gross margin, EBITDA, FCF, or whatever relevant metrics you see fit for the next 24 months. And the most important part: the actual thesis, where you cite what you think the price target is, when that price target is established, and 3 reasons why you'll reach that target.
- Company history: 1-1.5 pages on the company's history (spinout? Founder owned still? LBO? Distressed emergence?).
- Company description: 1-1.5 pages, where you overview each of the business segments, margins for each segment, historical performance, and which segment you would highlight as the key driver for the combined company.
- Thesis: 2-3 pages where you delve into your thesis, backing up your arguments with both macro data, historical data, projections from your model, and reasons why you think the market has largely unrecognized the upside potential.
- Macro/regulatory: Give a macro overview on the company's sector, including graphs with relevant benchmarks. This can be longer or shorter depending on how much macro exposure the company has.
- Comparables - find 3-4 solid public comparable companies, include a comp table, and have some qualitative similarities/difficulties. Your goal should be to use the comparables to further the argument in your own thesis.
- Price target and conclusion - go over different methodologies to triangulate/support your price target, which include things such as yield compression to comps, sum of parts analysis for a recovery, and anything related to technicals. Be explicit with what price range you expect, what the catalysts for this will be (strong earnings due to new product outperforming for example), and be concrete in the analysis you do to come up with it.
Overall, the 5-10 page investment thesis size should be good. PDF it and send it over, and bring hard copies in a bag for everyone as well. Also have 3-4 pages of 'Appendix' where you have relevant charts and graphs from research reports, the company's own documents, and other sources such as the government for regulatory stuff.
The actual interview
I was brought into a conference room where 2-3 analysts and the PM were sitting. I immediately opened my bag and handed out copies of my write-up and began my memorized two minute intro: "This was a very interesting case study...I believe there is significant upside for the following reasons...I think it is mispriced because of this...now we can delve into any aspect of the case that you think is valuable".
Then it was basically 3 hours of Q&A. Mine was a weird experience - after my first hour, it became clear that my current fund was long the name (and ironically, I am now the lead analyst on it), and I was super bullish in my thesis. So I sort of hit the nail on the head during the first part. The second part focused on accounting and the model - this was a weak part for me because I wasn't familiar with the cost structure dynamics of the industry I was working with, but they saw I knew how to build a model and understand the drivers, and at least for my team, they cared more about my qualitative discussion. And the third hour was mostly fit and ideas I had worked on at my current bank.
The key for the interview - if its in a roundtable format, make eye contact with the person asking you a question, but when speaking generically always face the most important person. The second key for the interview - DO NOT BS. Always say 'that is something I would love to look into but haven't looked at' if they bring up a concept familiar.
They will ask you what your research process was. This is where you can 'brag' about reaching out to investor relations, research analysts, reading primers, etc. They will ask what you enjoyed about the process. Always ask questions back. You should have already met most of the team, so act like you are a warmer relationship with them than you did your first time in.
When I was going through the brunt of recruiting I was exhausted and tired on a constant basis. Eat healthy. Eat snacks constantly that up your energy level. Try to not drink too much caffeine. Get enough rest. Slack off at work a little - I always kept a privacy screen on my monitor while I worked during the day so I could do interview prep. Don't drink on weekends when you have interviews coming up. Try to stay in good physical shape. And stay positive - you'll have more chances even if it doesn't work out.
Always send thank you notes and always reach out to people and build your network as well.
I know a lot of what I wrote was very general because I don't want to give away too much about my own process in terms of specifics but will be happy to answer any specific questions. Also, this is what worked for me. I'm sure different people work in different ways, but for me this was a useful guideline.