Top hedge fund managers score 10/10. Most “hedge fund” asset gatherers score 0/10. Do you have what it takes?
v) Tell them to contact “sophisticated” investors craving high yield toxic waste “securities” declared “AAA” by clueless ratings firms bribed to do so
2) Risk management: Today if global thermonuclear war, several Richter 10 earthquakes, a new ice age, an alien invasion, several category 7 hurricanes, another zombie apocalypse and a giant asteroid vaporizes your miserable little planet, you:
iii) Ridiculous scenario so I haven’t stress tested for that particular set of factors and my 95{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6} VaR number and the clueless cVar I cooked up tells LPs and their consultants all they need to know
v) Might take an initial hit but make it up trading subsequent turbulent markets. I’ve also been diversifying into Space. Planetary bias is almost as dumb as country bias. Almost.
3) Quantitative analysis: This morning you were thinking about the turbulence and viscosity in the markets when you stumbled onto the full solution to the Navier-Stokes equations. You
i) Publish to worldwide acclaim, a Fields medal and the $1 million Clay mathematics prize
ii) Only a day’s pay? I’d prefer to keep it to myself and perhaps use the ideas in a trading algorithm to gain an edge
iii) Navier-Stokes? Viscosity? What’s that got to do with making money?
iv) Intellectually satisfying but I already solved the specific cases I needed numerically with a large eddy simulation
v) Forget about it. Just not into quant/math geek mumbo jumbo. If it looks cheap I buy, if not I short sell. Fundamental analysis and gut trading work
4) Deductive reasoning: Hint: Googol is 10^100, a tiny number. Googolplex, 10^googol, is also very small. Almost ALL numbers are much, much bigger than little tiny TREE(3)
v) proprietary trader with many years “profitable” experience at bulge bracket Wall Street firms, front running client deal flow and prime brokerage data
6) Portfolio management: Today your ten biggest long positions all went bankrupt and your ten largest shorts were bought out for enormous premia by overcapitalized private equity firms aka failed hedge fund wannabes. You
i) smash your phone, trash the Bloomberg and jump out of the window
ii) write op-eds for the WSJ and FT on “broken markets”, appear on CNBC and schedule several conference keynote gigs
v) shut down my fund, go on a month vacation, then start a new one with a fresh name and high water mark
7) Basic market knowledge:
A) What is your favorite stock on the Armenia Stock Exchange?
B) Is the Bhutan Ngultrum overpriced or undervalued?
C) What price would you pay for Cuban sovereign yen denominated debt?
D) Denmark’s DONG issued a 1,000 year hybrid. At what price would you short?
E) Long Estonia/neutral Egypt/short Ecuador or vice versa?
8) Market outlook: Investors are urged to bet on equities for the long haul. Stock indices in some countries have actually risen over time. In several others they fell to zero, wiping out passive pimps.
A) What is the likeliest price for the Dow Industrials index in one billion years?
B) What is your firm bid today for a Dow 25,000 strike call option expiring then?
9) Forecasting: To make consistent absolute returns at low risk the one thing that is truly necessary is:
i) To be really, really intelligent. Really
ii) To use common sense since it is not so common
iii) To be a brash, brilliant, street smart, genius star trader
iv) To work harder and more effectively than 99.99{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6} of “professionals”
v) To follow closely what the strategists, economists and analysts are saying
10) Experience: From memory what were your ten best and ten worst investments and the exact levels of entry and exit and precise ex ante reasons for the trade? Also from memory what are your ten largest current positions, their average entry price and stop loss point, percentage of total portfolio and what hedges do you have in place?
******** End of Test ********
In the unlikely event you score six sigma above the Minkowski mean we might contact you. If not the examiners wish you all the best for your plan B career in private equity where fees you “earn” will be vastly higher than the manipulated IRRs and hidden beta dependence that you will claim to be alpha.
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To source employees technology companies often use such questions; Google has the Google job test and Microsoft asks people how they would move Mount Fuji. The Hedge Fund Test does similar psychometric analysis for hedge funds.
SOURCE: Hedge fund – Read entire story here.
