**How to get through a hedge fund interview with flying colors**

**Reading time:** 2120 words

Warning, this post is a bit unusual. It’s a run-through of a job interview case I used at my hedge fund Futuris.

It takes about five to ten minutes to read, and will teach you *a lot* about what I was looking for when hiring analysts (PMs to be), and what you probably should keep in mind during an interview.

**Executive summary**

Don’t crack under pressure was probably the most important part of the test – the ability to pick oneself up and continue, to try new ways and ideas, after failing one route. Functioning under pressure, keeping communication up, and being able to make decisions, ask questions and *try*, despite having made a few mistakes.

That…

…and keeping neat notes, following a logical order, formulating a plan, communicating, demonstrating an ability to do quick sanity checks on the fly, to combine a bird’s eye view with at least a quantum of sense for details and plausibility in the micro perspective.

**How long is a string?**

(“piece of string” – I know, but I want it to sound a little retarded)

Well, a quantum string is around 10^{-35} meters long, so they’re pretty well defined in terms of length, if that’s what you’re asking.

Huh?

Unfortunately, you never know what kind of string the question is about, so the answer is usually completely arbitrary. What it means is simply “there is no (known) answer to your question”.

I love using it as my turn-around to a lot of questions I get about valuation, timing, subjective judgement calls etc.

-It works for most truly important questions regarding life, the universe and everything:

- How far will the stock market bounce go? What multiple is warranted for this and that biometrics company?
- Is micro or macro most important for valuing this stock?
- Is it different this time or not?

The answer is typically “both” or some variation of that.

**On required skills (measuring strings) for getting a job at a hedge fund**

When I hired people at my* hedge fund, I wanted to know the person could manage switching perspectives back and forth, while being organized and keeping calm enough to keep track of the task at hand. Not least I wanted to see how they handled pressure and (rectifying) mistakes.

I asked them one simple question:

“Does all the physical legal currency (bills and coins) in Sweden fit in the Stockholm Globe arena?”

The question is similar to asking if all the physical money in New York would fit in the Madison Square Garden arena.

The math is quite easy, and the assumptions needed are hardly rocket science either. Without pressure, a person of average intelligence and math skills should manage to do it within 5-1o minutes using just a pen and paper.

- First you need to calculate the size of the arena.
- Then the amount of physical currency.
- Third, how many bills and coins that amount is, and how much space that many bills and coins would occupy
- Fourth and final, you have to remember to compare the volumes of
*one*and*four*, and answer if the bills and coins fit.

You get a pen and a stack of papers and about an hour, during which you’re allowed to ask questions, and supposed to explain what you’re doing and thinking.

*(*my = I was one of three partners, as well portfolio manager and the managing director)*

**Size of the arena**

Is it 10 meters, 100 meters or 1000 meters? If you don’t know, just try to imagine a hockey rink or a soccer field.

Let’s go with 100 meters. It’s obviously larger than 10 meters across, and less than 1000 meters…

The globe arena building is (almost) spherical, but never mind that. Think of it as a cube instead. The volume thus can be estimated at around 100 x 100 x 100=1 million cubic meters.

A few guys tried using the formula for a sphere but got it wrong. Once they got the correct formula from me they couldn’t handle the (very simple) calculations due to stress and inability to use rounding. Worst of all, they didn’t verify the answer against the volume of a cube of the same size. Those mistakes are *not* what you want to see an analyst or portfolio manager make.

You can always go back and refine if needed. FYI: the real answer is 0.6m cubic meters. Close enough. At least it’s not just 1 000 cubic meters or as much as 1 billion cubic meters…

**Money**

Triangulate the amount of currency in SEK:

- a certain percentage (2%? 1%? 10%?) of GDP (4 000bn SEK) is physical money
- assume how much cash all physical
*people*(1000 SEK each?),*stores*(twice as much as the people? Four times?) and*banks*(as much as the stores?) are holding - make alternative calculations based on total national wages or something similar, followed by circulation and accumulation in stores before being shipped to banks daily or weekly.
- make an assumption of the proportion of bills vs. coins… how much do you typically carry of each?

Answer: There is 68bn SEK in bills (8bn USD) and 5bn SEK in coins in Sweden.

When I first did this, 10 years ago, there were 100bn SEK in bills and 5bn in coins. Let’s go with the current number 68+5bn SEK.

By this time, many had already forgotten why they were trying to calculate the amount of money in Sweden, or estimating GDP etc.

Some were so confused they started comparing GDP in SEK to the cubic meter volume of the globe arena.

What?! Comparing GDP to a volume?! What were they thinking? What if an investment decision was made using a similar approach?

They had to be nudged into calculating the physical amount of money needed to drive GDP, people’s wallets, cash registers etc., i.e. how many coins and bills there were and their physical volume requirements.

**How many bills and coins?**

Well, assume an average value per bill or guess the amounts per each type of bill. The answer is the average value per bill is 200 SEK and consequently there are around 68bn/200 => 340 million bills (317m actually). Let’s go with 300 million typical bills.

Do the same for coins. The average coin is worth 2-3 SEK and there are thus 5bn/2.50 => 2bn coins.

**How much space does a bill or a coin occupy**

So, how much space do these slippery little buggers occupy?

Could the amount of money in New York occupy Wall Street? Madison Square Garden?

How big is a bill?

*How long is a piece of string*, some applicants seemed to think and just froze. And, yet, they had a stack of papers in front of them – just like a stack of bills…

Anyway, a typical Swedish bill is around 70 mm x 140 mm x 0.1 mm.

At least it’s not 200 x 100 mm.

Nor is it 1 mm thick (I seem to remember somebody going for 2 mm (1/10 inch) thick for a while. That guy did *not* know the length of a piece of string).

Sure, you’re free to think out loud, but you should always do a quick “in and out” (of micro and macro perspective, to make a sanity check: What would a stack of 2 mm thick bills look like. Just ten of them would be an inch thick! Is that plausible? What if you folded it 5 times, making the equivalent of a stack of 32 bills?)

Anyway, a reasonable assumption, given the time and task was to say a bill had the dimensions 100 x 100 x 0.1 = 1000 mm^{3}, or 1 cm^{3}. However, any assumption within half or twice those dimensions in all directions would have been more than OK.

Some stopped right there.

Some just forgot about the coins (sloppy notes) and went on to do all kinds of crazy things.

Some tried comparing the volume of one single bill to the arena. Some compared the volume of a bill to the volume of a coin. Some tried stacking the bills on top of each other in one single stack 30 km high (300 kilometers in one case) and draw conclusions from that.

OK, a few just took the volume of the notes and compared it to the arena. Pretty good, albeit a bit sloppy. They were asked to repeat the original question (in order to remember the coins), which they *should have written down* neatly on top of the first page. I repeatedly throughout the case urged the applicants to keep neat and clear notes. None of them did.

OK, back to the coins:

A typical coin is about half that size (20mm diameter and 2mm thick), but assuming it occupies the same space as a bill is perfectly ok.

Those lucky enough to get this far, often went right ahead and made a stack of coins 4bn mms high = 4 000 kilometers, and then went through all sorts of trouble trying to fit it inside the arena in various ways (rarely succeeding)

Total volume then comes to: 300 million bills x 1000 mm^{3} each + 2 billion coins x 1000 mm^{3} each = 2.3tn mm^{3}. Scaling it to cubic meters means dividing by 1bn (1000 x 1000 x 1000), or 2300 cubic meters.

**Comparing volumes**

Here and now, you should have a couple of neat notes saying

- “Arena volume=1 000 000 cubic meters” and
- “Money volume=2 300 cubic meters”

Some did (very few – actually *not a single one* of all applicants had such neat notes. However, four of them were at least able to eventually find the numbers, with some barely legible notes attached).

Most had to go back and redo a lot of their calculations, while trying to keep their notes in better order (often stressing and failing again, this time freezing up on simple calculations like 2+3 or 4/2)

And, yet, even those with the two appropriate numbers at the ready still found it somewhat difficult to answer if the money would fit. Mostly because they weren’t entirely sure which number was the volume of the arena and which was the money volume, due to… sloppy notes… and inability to make a simple quick verification of the easiest volume to calculate (100^{3}=1m).

Four finally did answer, trembling and sweaty (they claim to still get shivers down their spines, just hearing about the “Globen Case”), that yes, the money fits.

**Fingerspitzengefühl**

Then I asked them to draw the arena and the money in it (remember it would only would occupy some 0.2-0.4% of the volume), and invariably got way, way, way too big piles on the drawings. By then, however, we couldn’t exclude more people or we would never be able to hire anybody.

I’m sure you are feeling smug by now, thinking the above case was super easy.

Actually, you’re right. It is. The case in itself *is* easy.

It’s just that when sitting down at a job interview for a hedge fund, with me in your face, and not really knowing how long you have and not wanting to look stupid, can give anybody stage fright and freeze up.

And *that* was probably the most important part of the test – the ability to pick oneself up and continue, to try new ways and ideas, after failing one route. Functioning under pressure, keeping communication up, and being able to make decisions, ask questions and *try*, despite having made a few mistakes.

That…

…and keeping neat notes, following a logical order, formulating a plan, communicating, demonstrating an ability to do quick sanity checks on the fly, to combine a bird’s eye view with at least a quantum of sense for details and plausibility in the micro perspective.

Actually, the real lesson here probably is that hedge fund managers can be quirky.

**Bonus: How to write a CV**

If you want to help a friend prepare for a job interview, share this article with him or her. Even if it’s not for a job in finance, they might find it useful anyway. If, nothing else, you could always talk them into subscribing to my newsletter and reading my book about investing.

Read more about applying for a job in finance here (how to write a CV), and why you shouldn’t here (please don’t waste your life in finance), and what you should do instead (robotics).