Transitioning from IB/ER to HF Series - Part 2: Where to Interview and Behaviorals
Welcome to Part 2 of the Transitioning from IB/ER to HF Series. See Part 1 here. This portion will focus on where to interview and behavioral questions.
You've been anxiously awaiting the beginning of the interview season. You've spent time with headhunters, prepared a long and short stock pitch, and now your first interview is coming up.
Where should I be interviewing?
From my experience, most people go into hedge fund recruiting with a predisposition toward whatever form of investing they know most about. This typically means either value or credit. You're making a big mistake if you go into the process with tunnel vision. Instead, I suggest you approach it with an open mind, as (1) you won't know for sure what style is best for you until you've been in the seat and (2) we have a natural tendency to feel more comfortable with things we know more about. You've never built a cash flow model to figure out whether a company can make payments on a note? That's ok, you'll learn.
If I won't know what I'll like until I'm on the job, how am I supposed to decide?
Meet with as many funds as you can early on. You'll get a rough sense of what you find interesting very quickly. Case studies help push some over the goal line – it puts you in the mindset of that type of investor, and you get to hear how their thought process compares to yours.
But didn't you say that I should be confident with headhunters? This makes me seem fickle and clueless.
As I mentioned before, headhunters will want to know your investing style and industry preferences. I think it's important to select a focus without closing doors to other options. Simply say that you prefer x and supply reasons, but are open to exploring y and z and supply reasons for those as well. You can pick out some key distinctions between credit and equity from my first post.
And what about industry?
If your goal is to become a PM, staying generalist as long as possible is suggested. However, many PMs started off with an industry specialty and branched out later. For example, the founder of my firm got his start in tech. Most roles these days require industry specialization, so I suggest you figure out what industries you're interested in and which ones you can't stand and communicate your preferences to headhunters.
Don't worry if you know nothing about an industry. Even if you spent two years of banking in an industry, we really don't think you know all that much. It's easy enough to pick up a space on the job. I knew nothing about consumer or tech going into my fund, but ended up concentrating in the two.
I have an interview with X fund, but can't find anything on them.
That's pretty normal. Your best bet is to (1) ask headhunters and friends for any feedback on the fund, taking any headhunter commentary with a grain of salt, as they will sell you on any client of theirs and (2) look through 13F filings, which will include long positions for any fund larger than $100m. Also, the EU's short position reporting regulations took effect on November 1, 2012. The regulations impact all investment managers engaged in selling short securities domiciled in the European Economic Area (EEA). Managers are now required to publicly disclose net short positions that exceed 0.5% of outstanding ordinary and preferred shares issued by any company that principally trades on an exchange in the European Union.
These two datasets will give you an idea of how the fund invests and could also be used to start a conversation when interviewing.
Onto the actual interview!
What behavioral questions should I expect and how should I answer them?
I'm not going to provide an exhaustive list of questions, as you've received many of them while you interviewing for your current job. Instead, I'll focus on the most important ones and the general answers I look for.
A concise, compelling story
Concise. Make sure it's concise. My job requires me to take massive amounts of information and consolidate it all into easily digestible thoughts. I could read a primer on the vitamin industry, and would need to boil all the information down into a short paragraph or less. For example: based on my research, I expect increasing consumption penetration and growth in key demographics to lead to mid-single digit growth in the category in the U.S. for the next 5-10 years.
Because my job requires me to be concise, I expect you to be able to convey your short employment history in a timely manner. If you don't, I'll get bored and you'll lose my attention.
Concise means 1-2 minutes, tops, unless you have a truly fascinating story. Most of you don't have to worry about that. The story I told during my hedge fund interviews was shorter than my banking one, even though I had significantly more substantial work to speak to.
What should you convey? A logical reason for sitting across from me. How did your experience lead you here and why? You need to show me that you're hungrier than an Ethiopian and you'll bust your ass working for me, you'll dig deep on companies, and you can barely contain your excitement when you think about investing. You need to demonstrate that you have a solid intellect, understand how to use logic, have great problem-solving skills, are not afraid to think differently, and love to compete & win. You need to have a solid modeling and accounting foundation. You need to convince me that you're really awesome without coming off as humble as Kanye. Finally, be likeable. It goes a long way.
A good reason or wanting to be an investor
Before I get into the above, I'll remind you of this yet again: make sure you tell them that you've been investing a PA for some time, even if you haven't. The only exception to this is if there's some outstanding reason preventing you from doing so, like having to pay down student loans. I'll still respect you after having heard that.
Back to the matter at hand: why do you want to be an investor? You love the markets, you're interested in learning about businesses, you're competition and love to win; you're intellectually curious and are constantly learning; and you're excited by the idea of being able to express a view on how companies, industries, and even the world will change over time, as well as debates that are at the forefront of the public's and investment community's minds (eg AAPL, HLF).
If they ask this first, just rehash some of the points above, combining why you're a good candidate and why you want to be an investor.
What do you want to do with your life? Where do you see yourself in 5-10 years?
If you don't want to be an investor long-term, you're in the wrong place. You need to have a true passion for investing if you want to be a good hedge fund analyst. This isn't the kind of job that you just tolerate and do just enough to get by. There is no getting by. Either you're successful, or you're out on your ass looking for another job.
The only other answer I'd accept is saying that you want to be an investor, but would also consider starting a business of your own at some point in the future. Though, I don't see why you need to tell your interviewer that you'd want to leave them at some point.
They key here is to tell them that this isn't just another 2-year step – you're looking for a place where you can learn and build a career. It was true for me and it should be true for you.
There are some funds that have 2-year programs and in that case just pitch the idea of working hard for them to learn as much as possible before moving on to your next opportunity.
Would you go to business school?
I'd lean to a "no" on this. Most funds look down on B-school and investors think it's a waste of time and money. If you are successful at your job, there's no reason to take a 2-year hiatus. The only reason to go would be to leave the industry.
There are many more questions they could ask, but given how little standardization there is in the hedge fund industry, it'd be impossible for me to compile a complete list. These are the most important ones. If there are any others you're curious about, please just post below and I'll get around to answering your question(s).
Keep an eye out for the next installment, where I'll focus on technicals and the case study.