What You Need To Know To Work At A Hedge Fund

Trying to break into the hedge fund world is notoriously challenging, especially at the larger funds such as KKR & Co. L.P. (NYSE: KKR), Apollo Global Management LLC APO, Blackstone Group LP BX or Fortress Investment Group LLC FIG. 

It’s common knowledge that funds like these will ask you to pitch a stock or investment you like. Many firms may also ask you for one or two stocks you would short. More than anything, however, the one question many candidates struggle with in hedge fund interviews is “What is the fulcrum security?" (Answer: it's the most important security in a company's capital structure that will essentially control the other securities should the company restructure). 

While many smaller hedge funds only deal with long/short equity investments, the larger hedge funds tend to also trade a lot of debt and options across many strategies, including event driven and relative value. They don’t really care where they can make money, as long as the investment thesis is logical.

Because of this, hedge funds expect candidates to demonstrate at least a basic understanding of the entire capital structure and identify whether the best risk-reward tradeoff is in the debt, equity or options. Sounds easy, right?

To give you an idea of the type of analysis that would likely impress your standard hedge fund interviewer, we’ve included a video presentation below from a former managing director of Goldman Sachs Group Inc GS that now runs a multi-billion dollar fund for a family office.

Patrick Curtis is the founder and Chief Monkey at Wall Street Oasis.