Top 5 Goldman Sachs Asset Management Interview Questions

Over the past year, I've been asked increasingly about the differences between asset management interviews and wealth management interviews. The reality is that asset management interviews can be much more variable, because there are so many different kinds of firms that do asset management.

For example, some firms have asset management arms that never interact with clients while other firms treat asset management as being somewhat analogous to wealth management (with just a more limited offering of services to clients, all of which are purely financial). 

Fortunately, asset management interviews within big bulge bracket investment banks - like Goldman - are relatively predictable. Unlike investment banking interviews, you won't get into the minutia of how to deal with deferred tax assets, etc. Further, unlike in wealth management interviews you won't be asked how you'd deal with a troublesome client that wants to do something reckless. 

Instead, you should expect a mix of general technical questions and market-based questions in your interview. What an ideal candidate will look like is someone who can give a coherent, articulate answer to where some aspect of the markets are at present and who generally understands how major financial products work (e.g., how equities can be valued, what nominal vs. real yields are, etc.).

As we go through some examples of Goldman's asset management interview questions, you'll quickly get a feel for what kinds of questions we're talking about.

Goldman Sachs Asset Management Interview Questions

Below are some examples of questions you could face in a Goldman Sachs asset management interview. Feel free to click the links below to be taken directly to an answer.

1. When valuing a company, why do you use Enterprise Value / EBITDA, not Equity Value / EBITDA?
2. What's the formula for enterprise value?
3. Where is the Fed Funds rate right now? Where do you think it'll go?
4. If someone gave you $1,000,000 and wanted to get a constant stream of income from it, what would you do?
5. What would the coupon be for a TIPS if we have a par value of $1,000, 2% CPI, and a 2% coupon?

When valuing a company, why do you use Enterprise Value / EBITDA, not Equity Value / EBITDA?

This is a great question to see whether or not you understand the most basic formulas that underpin equity valuation.

Equity value can be thought of as the residual value of the company after having already dealt with debt holders. However, EBITDA (earnings before interest, tax, depreciation, and amortization) represents the earnings that are available to debt holders and equity holders. 

So, the issue with using equity value / EBITDA is that you don't have a true apples-to-apples comparison. You're creating a multiple that's based on the value left over for equity holders, divided by the earnings available to both equity and debt holders.

With enterprise value, on the other hand, you have a metric that shows the full value of the company to everyone (debt and equity holders). This is why when a company is acquired, you'll speak in terms of enterprise value as the acquirer needs to take over the debt of the company being acquired (or pay it all off) and also payoff equity holders.

So using enterprise value / EBITDA is entirely sensical as both the denominator and the numerator are values that encompass equity and debt holders. 

What's the formula for enterprise value?

While it'll be rare to get asked for too many formulas in an interview, certainly being asked for the enterprise value formula is fair game.

However, the enterprise value formula can get a bit convoluted (dealing with net operating losses, etc.). In almost all cases, you'll be able to just use the more basic formula below:

Enterprise Value = Equity Value + Debt - Cash + Preferred Equity + Non-Controlling Interest

Where is the Fed Funds rate right now? Where do you think it'll go?

The Fed Funds target range is between 0-0.25% (or zero and 25 basis points) at present. Currently the fed is slowing its pace of asset purchases (quantitative easing), which needs to be done before it can raise the target range.

Despite the relatively swift pace of inflation at present, it is anticipated that the Fed will hike by only 25 basis points (0.25%) at each meeting. 

One way that you can get a sense for where the Fed will move its target range is by looking at the Fed Funds futures market. This market allows you to see where traders believe the rate will be at various points of time.

As you can see below, traders are anticipating that we get a 100bps (1%) rise through 2022. However, traders believe that the Fed won't be able to raise rates much more than that. Instead they think Fed Funds will stay flat for longer. This is also borne out in the overall yield curve, where long duration bonds still have very low yields (making the entire yield curve quite flat).

If someone gave you $1,000,000 and wanted to get a constant stream of income from it, what would you do?

This is a classic wealth management interview question, however it's also relevant for asset management interviews. This is because what the question is really trying to do is a get a sense for how much you know about the various kinds of financial products that are out there.

The first thing you should do is note that depending on the client's risk tolerance, your suggestion for them will change.

For example, if they're very risk adverse and want a guaranteed stream of income, then you may want to invest nearly all of the capital into TIPS (Treasury Inflation Protected Securities). This will not bring them in a large amount of money, but it will protect their capital - as TIPS are backed by the full faith and credit of the US Government - and provide a modest return. 

If their risk tolerance is slightly greater, then you may want a more diversified strategy. You could place 20% of the capital into traditional Treasuries, 20% into corporate bonds (to get a slightly higher yield), 20% into dividend paying stocks (e.g., oil and gas companies and utilities), and then 40% into a general S&P index fund.

This would get an individual some guaranteed stream of income - from the treasuries, corporate bonds, and dividend paying stocks - while still giving them plenty of exposure to the broader market (which will result in their initial $1m growing over time). 

As you can hopefully tell in this answer, there is no objective right or wrong answer. Rather, what you should aim to do is show off your knowledge of different products and their merits and drawbacks.

What would the coupon be for a TIPS if we have a par value of $1,000, 2% CPI, and a 2% coupon?

As a reminder, Treasury Inflation Protected Securities (TIPS) are Treasury bonds that are indexed to inflation (via CPI). So, if one is concerned about inflation then one can buy one of these as opposed to a traditional Treasury bond (that is not indexed to inflation).

This is a great question to ask because it requires you to know about TIPS and then be able to technically work through the process of how we figure out what the actual coupon will be based on what the CPI was.

All you need to do is multiple the base coupon amount by the par value ($1,000*0.02 = $20). Then you need to take account of the inflation component by adding the par value to the base coupon amount, and then multiplying it by the CPI rate.

So, in this example it would be $1,020*0.02 (where CPI = 0.02), which gives us $20.40. Therefore, the actual coupon received by someone who holds $1,000 in TIPS would be $20.40 if the coupon rate is 2% and CPI is at 2%. 

Conclusion

If you're looking to get started with a career in asset management, then there is hardly a better place to begin than Goldman Sachs. Ultimately, name brand does matter (especially early in your career) and having Goldman on your resume will open doors both within asset management and beyond.

Hopefully these questions have been helpful in sketching out the types of questions you may face in an interview. If you're just beginning your interview prep, try not to get too overwhelmed. I've put together a longer list of asset management interview questions, and I've also put together a guide covering hundreds of wealth management interview questions (all the technical and market-based questions are applicable to asset management interviews as well).

Best of luck in your interview preparations!