I am interviewing for a summer position as a financial analyst at a hedge fund, and I’m wondering what kind of questions to expect. The position is not quantitative in nature, as the fund utilizes a fundamental approach to valuation.
Part of the time will consist of programming (Excel, SQL, etc) and the other part working with a senior analyst on valuation models.
I am interviewing with the portfolio manager, by the way.
So what kind of questions should I be preparing for?
Hmm… if there is an Excel part, sounds like there will be some discounting cash flows, dividends, projecting growth, or that sort of thing. Have you done any CFA tests?
I would downplay my math major-ness if I were you and try to emphasize how much you like finance/econ/accounting. They may need VBA or SQL skills (which you can highlight), but you’re trying to sell more than just your programming skills. You’ll probably get a question about how the balance sheet relates to the income statement relates to the statement on cash flows, or something to that effect. You may get asked to pitch a company’s stock or how you would go about evaluating a company’s stock. Couldn’t hurt to read some of the great qualitative investors (Margin of Safety, One Up on Wall Street, Intelligent Investor, Common Stocks & Uncommon Profits).
Thanks for the advice.
No, I have not done any CFA tests.
The person with which I had a phone interview emphasized the importance of an analytical & programming background. He said that the person who is offered the position will work on the programming aspect independently (and thus needs to have a solid background in programming) but the financial valuation aspect will be done under his supervision and with his assistance. I will basically be trained to construct financial models. So this made me wonder whether or not knowledge of financial statement analysis, DCF valuation, etc., while still important, would be emphasized less than programming skills & interest/desire to learn about capital markets.
The best thing you can do for this role is to brush up on modeling and show your enthusiasm for that kind of work. You don’t need to worry about the CFA program and picking stocks or reading Peter Lynch (although all of the books listed above are definitely worth reading over time). Get familiar with Beninga and Damodaran as well as the basic workings of a DCF. They’re interested in you because finance people can’t usually do the blocking and tackling with programming, so it’s easier to teach a programmer to do finance than the other way around – you could help yourself out by knowing some basics.
Are you 100% sure you are going to be building financial models instead of streaming data through factset? You don’t need to program for most models, but some firms (such as the one I work at) have a dedicated programmer to keep the spreadsheets running 24 / 7. He creates custom stock screens using VBA and factset, among other things.
My advice is contingent upon the idea that you already know a lot about whatever relevant programming things they want you you to know. If not, focus on that first.
Feel free to email me at bromion15@gmail.com if you want to go over your pitch during the interview or ask any other questions.
What I stated in my previous post is what I was told. The training portion would be me working with a senior analyst on financial modeling/fundamental analysis. The programming part is unrelated. They want me to integrate their proprietary database with their valuation models - this is the part in which I would be working independently.
I have Beninga as well as Sengupta’s book and I’ve done most of the examples in those books, but that was a while ago. Recently I’ve focused more on derivatives pricing. So I am familiar with the basics of financial statement analysis and DCF. I was planning on refreshing my knowledge anyways, I just wanted an idea of how indepth the finance questions might be.
Thanks for the input.
I worked at a 1 billion equity l/s quant fund for a summer.
Been a while but I was asked:
What is an eigenvalue?
What is the significance of the largest eigenvalues of a covariance matrix?
How would you value a bond?
How would you write the estimates of beta for linear regression in matrix form? -----> if you don’t know this b_hat = (X’X)^-1(X’y)
They picked out a lot of skills I had on the resume and had me explain, etc. Lot of other things I don’t remember. Was interviewed by two PhD astrophysists and a quant analyst. I didn’t get everything but they were academics and in a few situations we worked through it. Was fairly straightforward.
I think you can be fairly certain that a value fund won’t have PhDs in astrophysics asking you about the first principal component.
Funny that i would only be able to answer. Should ve probably taken that Linear Algebra class
OK CSK.
e= (y-Xb)
So you want to minimize sum of squared errors.
(y-Xb)’(y-Xb) -------------------> b_hat = (X’X)^-1(X’y)
Do the proof. I gave you the first and last lines.
HINTS:
Cap letters are matrices
Lower letters are vectors
Since you haven’t seen grad linear algebra the vectors b’b would be the equivalent of b^2 the variable
I can’t remember how that proof goes, but I was able to follow it when I looked it up. It’s pretty neat.
Expand the first line I gave and then take the derivative with respect to beta. You’ll also have to rearrange a few of the terms.