In our last post, we talked about the first round of a hedge fund interview. This post assumes you have made it to the second or third round of the interview processes (i.e. your hedge fund resume has already been finely scrutinized). I have heard of funds that go five or six rounds and others that go three rounds (first round = intro, second round = more intense, third round = case study). Nonetheless, the rounds following the first “meet and greet” round will be much more intensive challenging both your intellect and your ability to get along with others (along with your ability to think on your feet). It will also be the time where the possible hedge fund ranks you in relation to the other candidates in which you are competing. This is where the fund begins in the quest to secure a hedge fund job.

Generally speaking, in the second round you will meet more people you did in the first round. If the fund is small, you may meet the entire front-office investment team. Each of these people may even be allocated some time to grill/quiz/feel you out. The interesting thing about hedge fund careers is that many people have taken different routes to get to their position. And that will influence how they interact with interviewees. Some may pose highly technical finance interview questions (“Calculate the economic pension expense and relevant adjustments to the cash flow statement”) and some may pose truly “softball” questions that you should, if you have read anything I have written, be able to knock out of the park.

During the second round, you will probably again sit down and talk with your main “contact” at the fund. This should be a friendly meeting and you should call back some of the things you talked about in the first conversation. For example, if the interviewer had told you he/she was working on a particular investment idea, ask for an update. You need to show these people that you live/die/breathe/eat/sleep investing. You want to show that you are curious and like to solve the puzzles that the world of finance in its asymmetric information pose to us on a daily basis.

From here, you then will begin to meet other members of the team. Approach these interviews exactly like you did in the first round – try to get a conversation instead of an interview. Showcase your knowledge of certain investments with logical and clear arguments. They will pose questions, most likely ones that threaten your underlying thesis. They do this because this is how investment committees function – an analyst presents an idea, and the other people try to rip it apart. As they say in sales: “Know how to handle objections” – in this case the counterarguments to your thesis.

Sometimes interviewers will ask technical questions. These should be easy if you have read my other blog or have any practical experience in the field of investing. I have always suspected that these questions were more used to filter people with high levels of educational clout on their resume but little real world experience. That being said, be prepared for them. These questions could be anything from “Calculate Free Cash Flow to the Firm” to “How can you determine a companies’ maintenance capex in a deflationary world?” You should know the answers to these questions – especially as they relate to your case study that you presented with your hedge fund resume. If you were a hedge fund analyst in your past, these are the kind of questions you had to ask on the job and the senior analysts rolled their eyes at and reluctantly answered.

Hedge fund recruiting, especially from an interviewer’s standpoint, is difficult. Think about it: A hedge fund analyst’s salary can range anywhere from $100,000 to $300,000 depending on the years of experience. That is a pretty big nut. And you are expected to make a choice on this person in 3-5 meetings which maybe span 10 hours.

So how do you improve your chances you do not pick a hedge fund analyst failure? You call contacts that you may have at the interviewees past experiences. Let’s say a junior banker at DB wants to jump to the buy-side. He makes it past the first round hedge fund interview (using techniques described in the last post). At the second round the stakes are raised – so the hedge fund starts calling people that they know working in banking at DB to get a sense for their potential new star. The comments they get about you will form the basis for the questions they will ask you in subsequent rounds. If someone tells me this junior DB banker has problems with detail, I will pose questions that will zero in on this, because the last person I want to hire is someone who forgets to carry the 1 in a DCF or comp sheet. Banking careers, or any finance career for that matter, really hinges on networks of people and your value to those people. A hedge fund cover letter or hedge fund case study is not going to benefit you in this stage of investment management recruitment – your network will though.

So, you have met with three or four of the other front office people at this point. As noted above you want to make these more like conversations and not interviews. Definitely talk about the job role that each of them perform at the fund – whether that be industry coverage, or certain products a trader may trade. Exploit what you know.

Remember, after the interview, they will talk about you – they will comment on any little flaw they can if you are not “their #1 choice.” Everyone has a favorite, and at the end of the day, the leader of the pack will make the decision – but the subordinates’ opinion weighs heavily on whoever is making the hiring decision – and thus you want to be every one’s #1 choice. Things I have heard my own coworkers say these complaints about for interviewees:

• “He was nervous”
• “She had a little bit of weirdness to her”
• “I do not think he will get along with XYZ person at the fund”
• “Maybe a little too cocky”
• “He had no idea what he was talking about”
• “She talked in generalities and just would not focus in on the specifics”