Event Driven / Distressed Hedge Fund Question
Have an all day, in person case study coming up for an event driven / distressed hedge fund and wondering how to approach modeling and analysis. Would appreciate insights from folks familiar with the space
- Is modeling done quarterly? How many quarters is typical?
- Should I build a full 3 statement model? Or is PL, cash flow, debt, covenant and liquidity analysis fine?
- Should I be building in both downside and upside cases to the model? Or just downside?
- How much of the thesis focus should be on business fundamentals vs the catalyst?
How do folks generally lay out the exec summary / memo?
Any other advice on what to expect would be appreciated. Going in blind here and have never done one before.
1- How much time are they giving you during the day? That decides whether to include quarterly or just annuals.. you probably do want to look at quarterly regardless just so you know what's driving stuff
2 - again, depends on time but main focus should be operating model and ebitda to lfcf
3 - I've done bear and bull cases and it's been appreciated but not expected.. some places let you know if they need it
4 - business fundamentals matter the most because that will dictate your thesis around the catalyst (each event driven/distressed name will have one anyway)
5 - summary thesis and recommendation up front (nobody wants to scroll through pages to get to your recommendation, then quick overview background of the business and overview of the situation, this is followed by a deeper dive into your thesis drivers, then valuation, catalyst, etc. is how I've laid out my cases
Really appreciate this! And around 8 hours for the case, which I'm thinking is enough for quarterlies and 3 statement. Do you generally show 2 years of historical quarterlies and 3 years of projected quarterlies?
Can do first year or two quarterlies and then annuals. Though tbh once you do one set of quarterlies, tends to be pretty chill to run forward more.
For an event-driven/distressed HF case, focus on P&L, cash flow, debt, covenants, and liquidity—no need for a full 3-statement model. Quarterly modeling is standard, usually 6-8 quarters. Build both downside and upside cases, but downside is key. Your thesis should balance business fundamentals with a clear catalyst. For the memo, keep it structured: key thesis, situation overview, valuation, risks, and catalyst impact. Be ready to defend your assumptions, especially on liquidity and recovery. Also, don’t ignore legal factors—creditor rights and covenants can make or break the trade.
Never understood the fear of a “full 3 statement model” for preserving time. If you’re building a P&L, Cash flow, and debt roll forwards, you also naturally have to forecast working capital and CapEx to get cash flow right, so you basically already have 90% of the balance sheet. Is is really that difficult to link net income or have a line for dividends to roll equity?
Yeah, exactly. If you’re already forecasting cash flow properly, you’re basically building most of the balance sheet anyway. At that point, linking net income and rolling equity with a simple dividends line isn’t some huge extra lift. People act like a full three-statement model is some massive time drain, but if you’re doing things right, it’s really just a few extra steps to make everything balance.
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