Tomorrow I’m getting coffee with the CFO of a Long Short/Equity Market Neutral Hedge Fund. They are working with $1b. I’m familiar with the fund and have a prospectus. What general questions would you have if you were in my shoes?
What is their strategy based on? Fundamentals or other things?
Ask them what skill sets they most need in order to move forward. Get a sense of what is on their minds in terms of what they would like to do better and more efficiently. Ask them what other funds they consider their peers and/or competitors, and how they try to distinguish themselves from those funds. That opens a door into a discussion of how you might be able to help with that. At the very least, you’ll get a sense of what skills you’d need to buff up on to be attractive, as well as who else you can approach.
The prospectus says research is bottom up on liquid securities. I’ll check about technical and macro analysis.
then you gots to OWN the room and wow them with your value investing knowledge Quant Jock.
Thanks bchad. The undertone of this meeting is to find a way in the door once they have an opening. But the big picture is just to learn about the fund. Personally I’m interested in this seasoned CFO’s view on traditional vs. alternative asset management. I want to hear his point of view (off the record) if the returns justify the fees. Also, I’m going to inquire how he invests his own money and see if he eats his own cooking.
You should shoot Bromion a message. I am sure he can provide you with some great questions to ask.
QuantJock_MBA Wrote: ------------------------------------------------------- > The prospectus says research is bottom up on > liquid securities. I’ll check about technical and > macro analysis. you might wanna have the song “bottoms up, bottoms up” playing in the background as you walk up to the meeting.
Nice post bchad. Fees being justified would be a question I’d have but only ask if he seems to be the kind of guy that would be ok asking that question too - bchads post was great, I’ll be using some of that myself.
QuantJock_MBA Wrote: ------------------------------------------------------- > What general questions would you have if you were > in my shoes? i’d ask him how long it generally takes until one can pop both models and bottles. follow up would be technical vs. trending strategies.
I once interviewed with a fund of funds and asked the question of whether the fee-on-fee was justified. Someone suggested to me that that’s an important question to ask when thinking about a fund of funds as a potential investor. It turned out not to be the right question to ask when thinking about a fund of funds as a potential employer.
I also asked a fund of fund about the double layer of fees. He answered pretty honestly, saying that it does turn some people off.
Ask him whether CFA > MBA
Black Swan Wrote: ------------------------------------------------------- > Ask him whether CFA > MBA THIS
bchadwick Wrote: ------------------------------------------------------- > I once interviewed with a fund of funds and asked > the question of whether the fee-on-fee was > justified. oh, definitely wrong question to ask. If it wasn’t justified, your interviewer’s entire business model is garbage. A boss wants their employees to believe in their business, not question it.
thommo77 Wrote: ------------------------------------------------------- > You should shoot Bromion a message. I am sure he > can provide you with some great questions to ask. bchad’s questions are good. Without looking at the prospectus or knowing anything about the fund, here is what I would add: - Lock up periods / high water marks / fee structure / nature and types of investors - %age of capital owned by internal managers - How has the amount of capital changed (grown / shrunk) and why? What do they anticipate in the future? How large (how scalable) could this fund be? - Specific nature of the strategy (are they really market neutral or do they deviate from this?). I am not that familiar with market neutral but am somewhat skeptical of the strategy because it seems obviously inferior to a well timed net long or net short strategy that produces higher alpha. How have they done relative to other market neutral strategies? - Along the same lines, how many positions do they typically hold in the portfolio? n = 10, 30, 100? Why? - How do they expect to generate alpha in highly liquid securities if these are largely efficient? Where does their research edge come from? Ask him where most of the alpha is in the stock market (I have an opinion, which I’m not going to post, but he should have a very clear answer to this question). Why do they think they are better at capturing this alpha than other firms? What are their target returns? - What industries do they / do they not invest in and why? Are there any types of investments that are off limits? Why? What is their target cap range (what exactly is “liquid”?) - What were their best and worst investments in 2009? What would they have done differently? - What sort of research databases / spreadsheets / resources do they have available (are they in the stone age and modeling things by hand or do they have a real system)? This is really important and immediately speaks to the quality of the fund. - What is the tenure of the current employee base and what sort of background do these people have? Are they looking to expand and where? Why? - What is their current view on the U.S. market? - Who is their prime broker and is there anyone you can speak with at their pb to get a thumbs on the legitimacy of the fund (this is an aggressive question and not one to ask until you are close to accepting an offer)? - Personally, I would ask about a controversial issue that I had researched (maybe NFLX or something) and see how they think about investing in that company. This is harder to do if you are not already an analyst. - Ask what the career trajectory might be for you and how they motivate people who prove to be contributors. Ask to speak with references that are no longer at the firm. - If the CFO is part of the investment team (maybe he just runs the admin aspect, it varies by firm), ask him to explain to you how a company could produce shareholder value outside of obvious things like dividends and buybacks – try to suss out how well he understands balance sheets and cash flow application toward value creation (as opposed to being a sell-side type P&L robot). Along the same lines, ask him where he thinks other investors go wrong (as many do not beat the market). - If you want him to play hard ball, ask him to give you a 2-3 sentence description of what a business is (not a specific business, but the concept of a business – you would be surprised how many investment professionals totally flop this question). There are a lot of other questions and a lot of derivatives to these questions, but that’s probably a good start since you’re not going to have that much time most likely and he’ll probably ask you a bunch of questions as well – pick a few off this list that seem relevant to what you want to know.
Thanks Bro. This is helpful, as always.
bromion Wrote: ------------------------------------------------------- > - If the CFO is part of the investment team (maybe > he just runs the admin aspect, it varies by firm), > ask him to explain to you how a company could > produce shareholder value outside of obvious > things like dividends and buybacks – try to suss > out how well he understands balance sheets and > cash flow application toward value creation (as > opposed to being a sell-side type P&L robot). > Along the same lines, ask him where he thinks > other investors go wrong (as many do not beat the > market). i’d hit this pretty hard as i’d want to know what direction the ship is headed. this is probably the key to how the fund is going to be structured and managed over the next 5-10 years as investor’s tastes change and they need to keep attracting capital.
Dude, it’s coffee. The man obviously expects it to be brief and laid back. If you want a job out of this (rather than informational) or the opportunity for followups, your best strategy is to make him like you. While you don’t want to be unprepared, focus on being social / congenial and sounding generally intelligent. These are going to be the key. Make the conversation intelligent without making his coffee time feel like work. Then again, some guys are always in work mode, so if you get one of those, learn to identify them immediately and keep it on strictly business convo, otherwise they’ll think you’re lazy.
Black Swan Wrote: ------------------------------------------------------- > Dude, it’s coffee. The man obviously expects it > to be brief and laid back. If you want a job out > of this (rather than informational) or the > opportunity for followups, your best strategy is > to make him like you. While you don’t want to be > unprepared, focus on being social / congenial and > sounding generally intelligent. These are going > to be the key. Make the conversation intelligent > without making his coffee time feel like work. > Then again, some guys are always in work mode, so > if you get one of those, learn to identify them > immediately and keep it on strictly business > convo, otherwise they’ll think you’re lazy. Seriously. The OP is not interviewing this hedge fund manager to see how well he understands balance sheet analysis.