Hedge funds and private equity firms, along with consulting firms like McKinsey, are known for asking difficult, if not nearly impossible, logic questions. Financial knowledge is an important component of a hedge fund interview, but if you have gotten to the interview stage your knowledge is probably adequate.

What they are really looking for are people that exhibit a certain manner of approaching and solving logical problems. Correct answers to interview questions are often less important than the thought process you communicate. These hedge fund interview questions are designed to test your aptitude, rather than knowledge (though some common sense and basic industry knowledge are necessary).

During a hedge fund interview, you will certainly be asked some of the common character questions asked of most professional applicants:

“Describe some leadership roles have you played in school, at work, or in your community.”

“When have you had a disagreement with a supervisor and the result?”

“When have you felt most fully challenged and stimulated in your academic or work experiences? Most frustrated? What did you do about your frustration?”

“What aspirations do you have for yourself over the next 5 or so years, both professionally and personally?”

“What are your passions outside of work and school?”

Of course, your mannerisms, communication abilities, dress, charisma and other personal attributes will be evaluated at all times during your hedge fund interviews.

This goes without saying, but arriving late to an interview will put you at an extreme disadvantage. In fact, many funds will decline to interview you for showing up 5 minutes late. Arrive early, but don’t just show up at reception. You should only arrive 3-5 minutes early. Arrive too early, and you may be an annoyance.

In addition to a personality evaluation, you will almost certainly be asked a variety of market-specific questions. If interviewing with a hedge fund that specializes in fixed-income, you should be proficient in the relevant terminology and understand how yields and prices are affected by events such as ratings downgrades or upgrades, changes in inflation expectations, changes in prevailing interest rates, etc.

If interviewing with a fund dealing with a specific sector such as media & technology, you should be able to articulate industry trends, understand basic technical terms, and know of, and about, the leading firms. Looking up a firm’s 13f filings will enable you to research some of the fund’s top holdings before your interview.

If interviewing for a tech or programming position, research the type of trading platforms the firm is likely to use. Those who are seeking an executive assistant position will still be expected to understand some aspects of the firm’s trading and should be conversant in basic economics and market terms.

All hedge fund applicants can benefit from a basic working knowledge of the Bloomberg Terminal.

Many roles at both hedge funds and private equity funds require basic or intermediate accounting skills. Spend some time reviewing college level accounting principles.

Below are some aptitude / logic questions you may encounter in a hedge fund interview. You might not be asked any of these, but they demonstrate the type of critical thinking that will be tested by many hedge fund interview questions:

### 1. First to Forty

** Q:**For your first hedge fund interview question, you are asked if you would like to play a game. The first person to say “40” wins. The first player starts by picking an integer between 1 and 10. There opponent then calls out an integer that is at least 1, but no more than 10, greater than the last number. For example, if I start with 2, you can choose to say any integer between 3 and 12. Would you like to go first? If so what number would you pick?

**A:** This may not be a question you run into, but it is representative of other questions you will likely receive. It tests your logical skills and game playing ability.

The key to this question is to work from the perspective of the last round. What number(s) do you want your opponent to say to set up the win for you? Since you can add between 1 and 10 to the sum of their number, your opponent must answer between 30 and 39 to ensure your win. If you say 29, your opponent must choose a number between 30 and 39 (but can’t get to 40), assuring you victory. The next step is to determine how you will get to say “29”.

You need your opponent to choose a number between 19 and 28. To ensure this opportunity you will need to say “18”. In order to get to 18, you will need your opponent to choose a number between 8 and 17. Choosing 7 will force this. Therefore, you want to go first and you will choose 7.

Note that this question can use a variety of different quantities and rules so don’t memorize the solution. Instead, understand the thought process and consider explaining it to the interviewer. You will often find that logical questions require working backwards.

### 2.Stack of Pennies

**Q:** For your second hedge fund interview question you are asked to take a single stack of pennies as tall as the Empire State Building. Could all these pennies fit in a closet?

**A:** Your interviewer may have encouraged you to ask questions if something is unclear. In other questions, such as case-studies, you will be required to ask questions of your interviewer to develop your opinion. However, you should always deliberate on questions before you ask them. When you ask a question, in should be targeted and relevant.

You may be tempted to ask questions, such as how big is the closet? Or how tall is the Empire State Building. First of all, you should know the Empire State Building is approximately 1000 feet high or about 100 stories, but you could be off a large margin and still answer the question correctly.

Think of it this way, if the Empire State Building is 100 stories, you could divide the stack into 100, one story tall stacks. Assuming the closet is one story tall, the entire stack of pennies could fit in a closet with square footage of only 10 pennies by 10 pennies (maybe 6in x 6in). So even if you assumed the building was 5000 feet high, and the closet was very small, the pennies would still fit. Asking unnecessary questions in this example may make it appear as if you have not understood the simplicity of the problem.

### 3. Pre-Historic Market

**Q:** Imagine you are in a place where bags of rice are the predominant currency and the following rates apply:

-You can buy 4 chickens, 3 ducks, and 2 pigs for 15 bags of rice.

-You can also buy 1 chicken, 2 ducks, and 3 pigs for 10 bags of rice.

-At the poultry market, you can trade 1 goose for 2 ducks.

How many bags of rice will be required to buy 2 chickens, 2 ducks, and 2 pigs?

**A:** This is a basic algebra question. Unlike other questions you may get, this one is designed to make it obvious that algebra is necessary. Some interview questions that only require basic math will be more carefully worded to make the process more difficult to discern. Let’s start with the algebra:

4 chickens + 3 ducks + 2 pigs = 15 rice

1 chicken + 2 ducks + 3 pigs = 10 rice

5 chickens + 5 ducks + 5 pigs = 25 rice

Since 5 of each animal costs 25 bags of rice, 2 of each animal will cost 2/5 of 25, or 10.

The value of a goose is irrelevant to the final answer. Unlike some more difficult questions, you will be expected to get this type of problem right. Answering incorrectly on a relatively easy question like this one will expose serious mathematical weaknesses.

### 4. The Oldest Question in the Book

**Q:** Why are manhole covers round?

**A:** The most obvious answer is that manhole covers are round because it prevents them from falling into the hole. Squares and most other shapes (Reuleaux Polygons are an exception) can fall through a similarly shaped hole. If you actually get this question, and have an interviewer with a very loose sense of humor, you might also suggest that manufacturing Reuleaux Triangles is just too expensive or that manhole covers are round because manholes are round. This question will likely not be asked in a hedge fund interview, but you never know.

Additional Semi-Correct Answers: Round covers are easier to move by one person by rolling them on edge and are easier to align than other shapes. Just don’t miss the obvious answer above.

### 5. Gas Stations

**Q:** How many gas stations are there in the US?

**A: **The actual number of gas stations is about 168,000. You may be encouraged to ask follow up questions. The interviewer will be paying more attention to your thought process than to your final answer so formulate questions carefully. There are a number of ways to approach this problem. It’s very common for hedge fund interview questions to test your ability to come up with reasonable answers using logic, but you are not expected to know the answer coming in.

Here’s one approach to this interview question: Let’s say you grew up in a town of 10,000 people and there were 5 gas stations in town. Therefore you might assume the typical gas station serves 2000 people. If there are 300 million people in the US, there would need to be 150,000 gas stations. There are all sorts of questions you could ask your interviewer to get a better approximation (how many customers does the average gas station serve per day?). These type of estimation problems are common in hedge fund interviews.

### 6. Freezing Pond

**Q:** Imagine you are in Canada during a severe early-winter cold front. There is a pond with a patch of ice in the center, which expands outwards and doubles in size every minute. It takes an hour to cover the entire pond surface. How many minutes would it take for the ice to cover 25% of the pond?

**A:** This problem again requires you to work backwards. If you do so, it is easy to solve. Since the pond covers ¼ of the pond, in one minute it will cover half, and one minute later it will cover the whole pond. It only takes 2 minutes to go from 25% to 100% frozen. Therefore it takes 58 minutes to cover the surface 25% (60 min – 2min = 58 min).

These are six of many potential hedge fund interview questions. Memorizing answers to the logic questions is unlikely to help you. The key to successfully answering these type of hedge fund interview questions is to be deliberate in your thinking. Ask yourself, “what is the interviewer trying to learn about me by asking this question?” Typically, your interviewer is trying to understand how you think, how you process problems, and whether you can remain calm when dealing with a difficult interview question.