Hedge Fund Interview

I have an interview coming up with a hedge fund. They have a completely flexible investment strategy allowing them to invest in everything from public markets, private transactions, distressed debt, venture capital etc. From what I can tell I would not have a main focus but would be a generalist for all types of investment analysis. My background is in portfolio management so I don’t really have practical experience in valuing securities other than the concepts I have learned through the CFA program. Anyone have any ideas on how to prepare for such an interview? It seems like this could go in any direction. Also can someone refresh my memory on some of the differences between analyzing distressed securities vs. traditional credit analysis?

Hmm. Depends on what sort of fund this is. In general, traditional credit analysis relies on continuous processes (maybe jump diffusion for special events) since spreads vary continuously. For distressed debt, discrete processes are much more important since default risk is much higher.

^ off topic - How did you get the call from this firm? Recruiter/positing/network?

It was from a recruiter.

Not sure how you can really prepare for this other than to have a few investment ideas you can pitch and generally be up on the news and good interviewing etiquette. There are too many bases to cover. I’m more of an equity analyst than debt, but I do some debt work from time to time. The major, obvious difference in what you are talking about is that “regular” credit analysis involves looking at covenants, cash flows, capital structure, business strength, etc. Distressed analysis looks at all of that as well, but liquidation value of the underlying entity takes on a much larger level of importance. The best distressed investments are ones where because of the capital structure and valuation involved, you get a “free look” – if the bonds recover, you win, and if the company liquidates, you likely win as well given the expected liquidation value of the company. Obviously “sure things” are hard to come by, but that’s what makes markets.