Hedge Fund Manager Interviews: Meeting Notes and Follow-Up (Part 2)

In Part 1, we watched Travers set up and begin his initial phone call with Jaime Williams from Fictional Capital Management. Now we pick up where we left off, with the conversation getting into the really meaty stuff: asset growth, liquidity, short selling, risk management, and the all-important question of what makes this fund special.

The Interview Continues: Liquidity and Portfolio Management

Here’s the thing about hedge fund interviews. The first half is about getting comfortable, establishing the basic facts. The second half is where you start pushing.

Travers asks Jaime about asset growth and whether managing more money has changed their style. Jaime says no. But Travers pushes back. The holding period was longer at GCH, and the market environment is completely different now. Past performance is not indicative of future results, and the same can be said of processes.

Then comes the liquidity discussion. Jaime explains their policy: 80% of the portfolio can be liquidated within 10 days, the next 10% within two weeks, the next 5% within three weeks, and the last 5% within a month. But in practice, 95% of the current book can be sold in a few days.

Travers notes that he will independently verify these claims later. Asking upfront is smart because you get answers to compare against the hard data.

Alpha Attribution: Where Does the Money Come From?

Travers then switches to performance attribution, specifically how much money the fund makes on its long positions versus short positions.

Jaime admits that most of the fund’s historical returns came from the long side. The short side was profitable overall, but 2008 was the big driver. Makes sense, markets crashed that year. But 2009 and 2010 were rough for shorts because the market bounced hard.

Here is an interesting detail. FCM only shorts individual stocks. They do not short indexes. Jaime’s reasoning: clients do not pay hedge fund fees for someone to short an index. Anyone can do that cheaper on their own.

But there was one exception. In late 2008, they used put options on the S&P 500 instead of individual shorts. Correlations across the market had surged to nearly 1, meaning every stock was moving together. Individual shorts were not worth the risk. Buying index puts was more efficient.

Travers challenges this because FCM invests in small and mid-cap stocks while the S&P 500 is large-cap. Market cap mismatch, right? Jaime counters that with correlations that high, it did not matter. SPY options were cheaper than Russell 2000 options. Pragmatic decision, and it worked.

The Weakness Question

One of the best moments in the interview is when Travers asks Jaime to name one thing that Ted (the lead portfolio manager and his equal partner) can do better.

This is a killer question. People are generally okay assessing themselves or people who work under them. But criticizing a peer or a boss? That makes people squirm.

Travers just sits in silence and waits. Silence is a powerful interviewing tool.

Eventually Jaime says Ted is “a bit too conservative.” He thinks they could take on more risk and more volatility. Clients love the capital protection in down markets but get impatient when the fund lags during strong rallies.

Travers finds this answer revealing. It gives insight into how Jaime thinks, and it opens new lines of questioning for when he talks to Ted. When Travers pushes harder on whether this is a source of conflict, Jaime gets defensive. Travers senses the tone shift and moves on. You can always come back to it later.

Risk Management: Independent or Not?

The conversation moves to risk management. In 2009, FCM appointed Bill (the COO) as the official risk manager. Before that, Ted was handling risk on top of portfolio management duties.

Travers digs into what “independent risk management” actually means in practice. Can Bill actually override a trade? The answer, after some pushing, is no. If a risk limit is breached, Ted or Jaime would instruct the trader to reduce the position. Bill monitors the reports and raises flags, but the portfolio managers make the call.

This is a common setup at smaller hedge funds. True independence in risk management is hard when you only have a handful of people. But it is worth noting because it means the risk manager cannot actually stop the PM from doing something risky. Travers files this away for further investigation.

What Is Your Edge?

Perhaps the most important question in the entire interview: “What is your edge?”

Jaime tries to dodge it. “I think that’s for you to determine.” Classic. But Travers does not let it go. Nobody knows FCM better than the people running it.

After some prodding, Jaime points to their stock ranking system as the key differentiator. It forces objectivity into their process. He uses 2008 as the example: they did not have conviction in any longs, so the system told them to shrink the long book. Value managers always risk catching a falling knife as prices decline, but their ranking system forces them to stop.

That is actually a good answer. A systematic way to check your own biases is genuinely valuable in investing.

Portfolio Transparency: The Push and Pull

Travers asks for full position-level transparency. Jaime says no. But they will show the portfolio in person during an office visit.

So Travers gets creative. How about an old portfolio from a year ago? Since they turn over the portfolio a couple of times per year, the positions would be mostly different by now. He offers to sign a non-disclosure agreement. Jaime says he needs to discuss it with his partners.

This is typical. Some managers share everything, some share nothing. Even if they refuse, you can verify positioning through prime brokers, administrators, and auditors.

Meeting Notes: The Real Work Begins After the Call

Here is where Travers really shines as a teacher. He walks through how to write proper meeting notes after every contact with a manager. Not just a summary of what was said, but a structured document with key questions and a concrete action plan.

His key takeaways from the FCM call include:

Unresolved questions about GCH. Something feels off about their previous firm. Why did the long-only business shut down? What exactly was Jonah’s role? How much of the track record at GCH can actually be attributed to Ted and Jaime?

Decision-making process is unclear. Jaime said both he and Ted make buy/sell decisions. But the DDQ says Ted is the sole decision-maker. This needs more exploration.

The stock ranking system needs deeper investigation. It sounds promising, but they need to see real examples of how it works in practice.

The Follow-Up Action Plan

This is the most practical section in the whole chapter. Travers lays out exactly what to request after the initial call:

1. Monthly attribution data since the fund started, broken down by long book and short book. In spreadsheet format, not PDF.

2. Portfolio transparency, even if lagged. If they refuse a one-year-old portfolio, ask for something older. The goal is to understand portfolio construction and independently verify liquidity claims.

3. Historical 13F analysis. These are public SEC filings that show long positions at quarter-end. Not perfect (managers sometimes adjust positions right before quarter-end to make the filings useless), but FCM has low turnover, which makes this analysis more useful.

4. Prime broker risk report. Prime brokers provide risk reporting to their hedge fund clients. Getting an independent copy lets you verify what the manager tells you. These reports typically include dollar exposures, beta-adjusted exposures, liquidity analysis, VaR, scenario analysis, and stress testing.

5. Trade details for biggest winners and losers. Dates and amounts for the five biggest winners and losers over the last two years. Map their actual trading against stock price movements and major events. Compare what they did with what they say they do.

6. Historical sector and market cap breakdown. Run attribution analysis by sector and check if a “generalist” manager actually favors certain sectors over time.

7. Sample of their valuation model. Model inputs, outputs, and assumptions for an older position. Broken links and outdated data in valuation models tell you a lot about how seriously a manager takes their process.

8. Reference list. And pay attention to who is NOT on the list. If Jonah (their former employer who gave them their start) is not listed as a reference, that is a red flag worth investigating.

9. Beta-adjusted exposures. To run more accurate performance attribution analysis beyond the basic net exposure calculations.

Key Takeaway

The initial interview is not about making a decision. It is about generating questions for the next round of due diligence. Every answer should lead to either confirmation or a new question. The real skill is not in asking good questions during the call. It is in knowing what to do with the answers afterward.

Travers shows that a good due diligence professional is part interviewer, part detective, part accountant. And here is a practical tip: always ask for data in formats you can actually analyze. Spreadsheets, not PDFs. Monthly, not quarterly. Position-level, not summary. The more granular the data, the more you can independently verify what you are being told.

Previous: Chapter 5: Initial Interview (Part 1) Next: Chapter 6: Quantitative Analysis