What does financial modelling actually mean in a HF?

Final year undergraduate here, I previously went for an interview with an HF and got asked about how long I would need to complete a financial model. Given my previous experience was more in Corporate Development, I said that I would need a few days to construct a model.

I assumed that everything would need to be created from scratch (e.g. manually pulling out every detail from the annual report), and that there were a lot of considerations and research that needed to go behind every assumption. The interviewer was not impressed and said I needed to be able to complete multiple models a day, and I was ultimately dinged.

I don't really have experience at an HF, but I suspect both of us had very different ideas about what the term "financial modelling" actually referred to - I'm not sure if he was referring to those straightforward "quick and dirty" models, or models similar to those required for those timed 1 to 3-hour 3FS case studies, which I am confident I would be able to do. This gets me to my question, what are hedge funds actually looking out for when they ask about financial modelling?

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Comments (8)

Aug 31, 2021 - 11:09am

It depends on the fund: can be full model (which you did), can be quick and dirty, can be something in between. Every fund thinks their way is the best way. Depends on the thesis too: some are balance sheet plays, need to do three statements. Some are figuring out earnings / cash-gen power a few years out, then you don't need balance sheet modeling. 

That's the frustrating part of getting a HF job or working at a HF: as long as you are not the PM / CIO, need to conform to what that fund is looking for. 

Instagram: @dickthesellsider | Substack: dicktoad.substack.com

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Aug 31, 2021 - 11:33am

What kind of model can be completed in a few hours if it isn't quick and dirty/back of the envelope or tweaking sell-side?

You have to clarify more on exactly what kind of model they wanted.

Further, who would trust a model that was built out from scratch in a few hours with arbitrary hard-coded key drivers/toggles with no granularity? 

Unless it's a very specific sector focus and the fund has done multiple iterations of similar business types, doing a new model from scratch on a new business will take at least 1-2 weeks from my experience.   

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Sep 1, 2021 - 9:14pm

Thanks for being so helpful everyone! I knew that Long/Short places do tend to have a faster pace, but I just can't see how you can make any decisions on a hastily built model built over a few hours. I think moving forward, if asked this question again, I will clarify with the interviewer about their expectations for a financial model. 

Sep 1, 2021 - 9:22pm

Clarification doesn't hurt. Wrong assumption (on how they want things) hurts. 

Instagram: @dickthesellsider | Substack: dicktoad.substack.com

Sep 1, 2021 - 11:33pm

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