Acing hedge fund case study


Relatively new to hedge fund recruiting and would appreciate some advice on how to ace the case studies.

  1. What are the main reasons a candidate gets dinged during the case study round? And what level of analysis and critical thinking should you be able to demonstrate in the case study / interview to get past the round?

  2. What level of evidence should you have to back your assumptions for the financial projections? For example, if you assumed x% growth of revenue driver 1 in 2021 and y% growth of revenue driver 2 in 2021, do you have to be able to back the x% and y% with concrete citing from research reports / transcripts etc? If so, how would you go about hammering down these assumptions?

Comments (5)

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  • Investment Analyst in HF - Event
Jun 21, 2020 - 9:28am

I view the case study as more of a check in the box exercise. If you've made it far enough to do the case study, the team probably already likes you and its more of a confirmatory exercise to verify you can think critically/analytically about a company and put together a model and some outputs. The model / outputs are pretty straightforward, you can either put it together or you can't. I think where most people run into trouble and get dinged are during the case walkthrough / discussion. A lot of times, the interviewers will use it as a bit of a stress test to see how you respond to pressure. I think in these situations you obviously want to put your best foot forward and be able to answer as many of their questions as competently as possible, but its also going to be impossible to have every aspect of a company memorized in the span of a few hours or even a week. There is value in demonstrating intellectual honestly, and simply saying "I don't know, but here is how I think about it and how I would tackle or handle this question given more time".

To answer your second question, the only model drivers i think where its really critical to be able to really defend your assumptions are the ones that are key to supporting your investment thesis where you are presumably expressing a variant view from the market. You have to be able to explain why are you using a different assumption and why you think you are right and the rest of the market is wrong.

Jun 21, 2020 - 6:49pm

Depends on in person versus an at home case study. For in person case studies, I have seen a ton of bankers who want to break into the HF industry spend way too much time perfecting the model and not enough time reading filings and developing a good thesis. You only have ~6 hours or so when doing an in person case study, so you really need to focus on whether it is a good long or short and not spend all the time working on a model with a thousand assumptions. Nobody cares about having a crazy good model for in person case studies if you don't have a good grasp of what the company does, the main drivers of earnings and a good differentiated thesis.

For at home case studies, you should have a good two to three page written memo that outlines and describes your thesis with a full three statement model built (especially if interviewing at a multi-manager hedge fund). Make sure to spend a lot of time trying to figure out a differentiated view. You will likely get dinged if you just present the consensus view and nothing else that is interesting. Anyone can read sellside reports and outline the consensus view.

For your second question, you should focus less on specific assumptions and more on why you think a company is going to miss or beat earnings over the next year or two. Determine a good thesis that translates into upside or downside to street estimates. Anything around why you think expectations are too conservative or too aggressive is good to note. You should go through filings, investor presentations, transcripts, sellside research (if you have access), and look at what the company puts out there in terms of guidance (as these guidance numbers are usually what most people on the sellside use to model out earnings). Would first focus on building the model using the guidance numbers given by management. Then change the assumptions based on your thesis and compare where and why you are different with the sellside consensus.

Here are some other resources you should use if trying to break into the HF space:

Jun 21, 2020 - 8:48pm

You talk about coming up with a differentiated view like it's easy. For 80% of companies, it's hard to disagree with the consensus, and if you just go contrarian for the sake of it, you're likely to end up arguing for something that sounds ridiculous. Just to sound contrarian and "different". That will surely get you dinged. The consensus has been to be long FAANG for the last decade - needless to say, consensus has been resoundingly right.

Be diligent in your analysis, and be ready to back up your assumptions. Use sound judgement and stick to the facts. Whether you arrive to a thesis that is aligned with consensus or not, it'll be something you can defend convincingly. That is the only thing that matters.

Jun 21, 2020 - 9:38pm

That is not what I am saying. Yes finding a differentiated view is tough, that is the whole part of the job. The best case studies that have been presented to me have some differentiated view or the interviewee brought up an interesting fact that I didn't originally think about. Not saying be contrarian for the sake of being contrarian.

Any analyst can figure out the consensus view by talking to the sellside. Your job as an analyst is to find those situations where everyone else is wrong and you are right. It is extremely tough, but just stating the consensus view for your case study is not going to impress the interviewer unless you can explain in detail why the consensus is right and how there is little chance of blowing up from the position.

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