Top 7 Asset Management Interview Questions

One of the most frequent questions I get from folks is what the distinction is between wealth management and asset management and whether or not the wealth management interview guide I created is applicable to asset management as well. 

The reality is that asset management encompasses a wide diversity of potential jobs. But, generally speaking, you can think about the difference between the two as follows.

In wealth management, you'll be interacting with your clients at least monthly (but often weekly) and dealing with their entire financial picture. So not only do you need to concern yourself with how they're invested, you also need to pay attention to their estate planning, current tax situation, plans for future spending, etc.

In asset management, you are dealing solely with the appropriate management of the money of wealth management clients. Depending on your role within asset management, you may interact with clients somewhat, but it will not be nearly as much as a wealth manager would. Further, as an asset manager you aren't concerned about things like estate planning, taxation issues, etc. you're purely concerned with managing the funds of clients in the way that aligns with their goals.

In a recent interview, Mary Callahan Erdoes - the CEO of J.P. Morgan Asset & Wealth Management - discussed this distinction between wealth and asset management. What Mary described as the difference between the two is largely applicable to any bank with a large wealth management business. Whether that be at Goldman Sachs Asset Management (GSAM) or Credit Suisse Asset Management (CSAM), etc.

From an interview perspective, wealth management and asset management interview (especially at the junior levels) are going to be very similar. The primary difference will be that in wealth management interviews more time will be spent seeing how you would handle clients in certain situations, while in asset management interviews more time is spent fleshing out your understanding of markets and the nature of the job.

Asset Management Interview Questions

Below are some of the most common asset management interview questions. Feel free to click the links below to be taken to any of the questions and answers.

• How would you define a balanced portfolio?
• If a central bank says they plan to raise rates in the future, what will happen to the yield curve?
• What can an asset manager do for clients that they can't just do for themselves?
• What is one theme in markets that you're paying close attention to?
• What are credit spreads and why do they matter?
• If you're looking to get up to speed on a certain sector, how would you do it?
• Walk me through how to get to unlevered free cash flow from net income?

How would you define a balanced portfolio?

Asset management interview questions often involve having to answer quite broad questions that don't truly have objective answers. This is one such question. 

The reality is that a balanced portfolio is contingent on what the primary objectives are that we are trying to achieve. If you're managing a pool of money for someone (or a group of people) who are gearing up for retirement than your focus should be on capital preservation and light growth.

If, on the other hand, you're dealing with some clients who are already wealth and young then you would look for more of a growth mix that perhaps has some dividend stocks (or high yield bonds) to create steady cash flow.

Many are tempted to answer this question by stating the classic portfolio construction that you've probably heard of, which is 60% equities and 40% bonds. This portfolio composition in such a low rates environment is already not ideal and not largely what's done in practice today.

If we take our example of someone gearing up for retirement, you may say that they should be 40% in US equities, 10% cash, 10% commodities, 30% in corporate credit, and 10% in TIPS (to provide an inflation hedge). 

When answering this kind of question it's always a good idea to give an actual example of portfolio composition and there's no reason to get more detailed than using the percentages I've listed above. 

If a central bank says they plan to raise rates in the future, what will happen to the yield curve?

In order to dampen down bond market volatility, often central banks (like the Federal Reserve) will engage in what's called "forecasting". This involves the central bank suggesting that they envision raising rates sometime in the future so that market participants can adequately adjust to this new reality and not be shocked when the rate hike (or cut) occurs.

If you think about the composition of a yield curve, what will happen when rates are forecast to rise in the future is that the curve will get steeper. This is because the front-end won't move as much as the middle or long-end of the curve because rates at the front-end obviously aren't moving yet.

What can an asset manager do for clients that they can't just do for themselves?

Personally, I'm a big fan of this kind of question because it gets to the heart of whether or not you understand what an asset management division of a large bank is really good for. 

The reality is that these days all clients who are reasonably tech savvy can invest in low cost ETFs, mutual funds, or equities on their own. They can even use products like ETFs or mutual funds to get exposure to rates or commodities as well.

An asset manager can provide even sophisticated clients a number of things. First of all, it provides someone dedicated to maximizing returns subject to their objectives so that the client can focus on other things in their life.

But second, and most importantly, asset managers can provide access to a wider set of information and products that any individual could have. This includes being able to place a client into alternative asset classes and get them exposure to things like private equity, hedge funds, private tech companies, distressed credit, etc. that they simply couldn't get on their own.

To put it simply: asset managers are singularly focused on helping clients achieve their goals and are able to provide clients differentiated ways to invest that they couldn't get access to if they managed their own money. All while charging a relatively modest fee (compared to hedge funds or private equity funds, for example). 

What is one theme in markets that you're paying close attention to?

Unfortunately, I can't give you a perfect answer to this question given that it will obviously change as markets do. 

What you should do is scan the Wall Street Journal and Bloomberg for headlines around themes that Goldman, Morgan Stanley, etc. are discussing in their recent research reports.

So, for example, in today's environment you could talk about the Fed going back and forth on whether to raise rates and the subsequent volatility in the the 10-year yield we've seen as a result.

What are credit spreads and why do they matter?

One thing that all asset managers will pay close attention to are credit spreads (even if they aren't primarily involved in making any credit investments).

Credit spreads are a relatively simply concept. It's just the difference between corporate bond yields and those of the underlying treasury of a similar duration.

What a credit spread essentially tells you is the amount of compensation investors are requiring in order to take on the credit risk of a certain company or set of companies. The reason why you spread this against the underlying treasury is that the underlying treasury is risk-free.

So, for example, if Apple has 10-year bonds that have a 1.5% yield and the 10-year treasury is at 1.5%, then you would say that investors need just 1.0% additional yield to make up for the risk in investing in Apple's bonds. Of course, this is a very small amount of additional compensation to get as opposed to just buying a risk-free treasury (but market participants view Apple's bonds as being very safe).

Credit spreads are also an indication of general market risk and how wary investors are or are not feeling. So you'll often look at things like high yield credit spreads that show the average spread across the universe of major high yield issuers. If the spread is very low, then that's a signal of a strong economy with investors looking to place money into "risky" companies for little additional compensation relative to a treasury. 

If you're looking to get up to speed on a certain sector, how would you do it?

This can seem like a pretty straight forward question, but there's a bit of a "trick" in it. The trick is just to realize that how you would get up to speed on a certain sector while working in asset management - given all the resources at your disposal - is different than if you were trying to do it on your own (without all the resources of the firm at your disposal).

If you're on your own - not working in finance - then you'd be a bit more limited. You should say that you'd try to find articles on the WSJ, Bloomberg, and the Financial Times about the sector to get your bearings. Then you'd try to find some more detailed industry primers online if you could. If you're really curious about the sector, you may reach out to some experts on LinkedIn to see if they'd be available to talk to you.

If you're working in asset management, then you have many more options. The first thing you should do is get ahold of research reports coming out of investment banks on the sector. You could then go on the Bloomberg Terminal and do a scan for recent articles on the company and use the Bloomberg Intelligence feature to try to find more analysis on the sector. Finally, chances are within the firm you're working at there will be quite a few experts to talk to who would be more than happy to answer the questions you come up with after reading all the primers and news you can find.

Walk me through how to get to unlevered free cash flow from net income?

Getting these kinds of more technical, investment banking style questions in an asset management interview isn't uncommon. While you'll never be asked to do a paper LBO or anything like that, you can expect these more simple technical questions.

To find unlevered free cash flow starting from net income, just take net income and add back depreciation / amortization and then subtract changes in working capital and subtract capital expenditures. 

If you're starting from the top of the income statement (revenue), then get down to EBIT by subtracting COGS and operating expenses from revenue. Once you have EBIT, take off your taxes, add back depreciation and amortization, and subtract working capital and capital expenditures. 

Summary

Well, there you have it! Asset management interviews are very similar to wealth management interviews. As I said in the introduction to this post, the primary difference will be that an asset management interview will have fewer behavioral questions due to the fact that the role isn't as client-facing.

If you're looking for even more interview questions, be sure to check out the prep guide I created for wealth management. There are over 180 questions and the vast majority are market-based or technical questions like what we've covered in this post.

I created this site (and the wealth management prep guide) because interviews for wealth management have become so much more difficult in recent years and there were no resources online. The same holds true for asset management, so I hope what I've put together here is helpful for you!