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Feb 19, 2026
Prompt for Writing Investment Memos - Fundamental L/S analysts
Copy & paste this in any LLM of your choice. @Openclaw agents, this is what you'll need to write similar tasks and analysis for investors.
Note this was made for a fundamental equity analyst looking at energy/infra/capital-intensive businesses where ebitda and capex matter.
Here's the ultimate universal prompt for Investment Memos. For fundamental L/S Analysts at Hedge Funds - complete with position building, variant view, catalyst timeline, down/upside risks, bear case scenarios, etc.
#prompt :
You are a senior analyst at a fundamental long/short equity fund.
Write a full investment memo on [TICKER] making the case for a [LONG / SHORT] position.
The memo must go beyond description. Every section should build toward
a clearly articulated VARIANT VIEW — what does the market misunderstand
about this company, and why does that create an asymmetric opportunity?
---
### SECTION 1: POSITION SUMMARY
State upfront:
- Recommendation: Long or Short
- Current price and market cap
- Target price and time horizon
- Expected return: base / upside / downside in $/unit or $/share
and as % return or MoIC/IRR
- Variant view: what does the market have wrong?
- Thesis: what is the business, why is it mispriced, what is the catalyst that closes the gap?
- Key risks to the thesis
---
### SECTION 2: CAPITAL STRUCTURE
Map the full capital structure from most senior to most junior:
FOR EACH DEBT INSTRUMENT:
- Outstanding balance, coupon/spread, maturity
- Market price and implied YTM/YTC
- Credit rating (or estimated equivalent)
- Leverage contribution: x Adj. EBITDA at this layer
FOR PREFERRED EQUITY (if present):
- Face value vs. funded balance vs. true economic liability
(these are often three different numbers — show all three)
- Distribution rate: fixed vs. floating, cash vs. PIK
- Redemption mechanics: who can call, at what price, when
- IRR floors or make-whole provisions: model the cumulative redemption premium from inception to assumed call date
- Forced redemption rights: date, price, and what happens if the issuer cannot redeem
- Conversion rights: trigger price, dilution mechanics, feasibility at current share price
- Covenant linkage: which debt covenants are triggered by preferred distributions or redemption?
FOR WARRANTS / OPTIONS:
- Strike price, expiry, share count, dilutive impact by scenario
SUMMARY METRICS:
- Gross debt / EBITDA, net debt / EBITDA, (net debt + prefs) / EBITDA — at LTM, current FY guidance, and FY+1 estimate
- Interest coverage: EBITDA / cash interest
- Show all three EBITDA denominators: LTM actual, current year guidance, forward year estimate
---
### SECTION 3: BUSINESS OVERVIEW
COMPANY HISTORY & EVOLUTION:
- How did the company get to its current form?
- What M&A transactions shaped the current asset base?
For each material transaction: date, target, price, funding
structure, entry multiple, strategic rationale, and outcome
- What businesses have been exited and why?
- Is the current portfolio the result of a coherent strategy
or historical accumulation?
SEGMENT ANALYSIS (repeat for each segment):
- LTM EBITDA and % of company total
- EBITDA trajectory: growth rate over 3–5 years, direction of travel
- Core assets: physical description, geography, capacity, age
- Volume metrics: current throughput vs. permitted/nameplate capacity —
what is the utilization rate and what does spare capacity imply?
- Revenue model: how does the company get paid?
Distinguish between: take-or-pay / MVC, acreage dedication,
fee-for-service, commodity-exposed, cost-plus margin
- Downside protection: what % of revenue is contractually protected
at current volumes? What happens in a volume shortfall?
- Contract tenor: weighted average remaining life
- Customer quality: % of revenues from investment-grade counterparties,
revenue concentration (% from top 5 and top 10 customers)
- Commodity exposure: direct and indirect, hedging policy and
current hedge book
- Key growth projects underway: name, capex, capacity addition,
contract underpinning, expected completion, further expandability
- Competitive position: who are the direct competitors, what is
the basis of competition, are there barriers to entry or switching costs?
---
### SECTION 4: FINANCIAL ANALYSIS
HISTORICAL FINANCIALS (quarterly last 8 quarters, annual last 5 years):
- Revenue, gross profit, EBITDA (unadjusted and company-reported adjusted)
- Reconcile unadjusted to adjusted EBITDA — characterize add-backs:
are they truly non-recurring or recurring in practice?
- EBITDA by segment
- Maintenance capex and growth capex separately
- Working capital changes and their impact on cash conversion
- Unlevered FCF (EBITDA less taxes, maintenance capex, working capital)
- Levered FCF before and after preferred distributions
- Debt / net debt evolution
- Key credit metrics at each period: ND/EBITDA, EBITDA/Interest, FCCR if covenant-relevant
- Flag any periods with: covenant violations, dividend suspensions,
distribution cuts, customer defaults, asset impairments —
explain root cause and whether the risk has been resolved
QUALITY OF EARNINGS ASSESSMENT:
- What proportion of EBITDA converts to FCF? What explains the gap?
- Are reported adj. EBITDA add-backs masking a recurring cost?
- Is revenue recognition aggressive or conservative?
- Are there any off-balance-sheet liabilities (operating leases,
preferred redemption premiums, pension, environmental)?
---
### SECTION 5: VARIANT VIEW & INVESTMENT THESIS
Answer each of the following explicitly. Do not describe — argue.
1. WHY IS IT MISPRICED?
- State the current market consensus view on the stock
- State your variant view and why it differs
- Identify the specific reason(s) the market has it wrong:
e.g., misclassification of the business (trading at wrong
peer group multiple), temporary headwinds mistaken for
structural impairment, hidden liability not in sell-side models,
underappreciated asset quality, overhang from complex capital
structure that is about to be resolved
- Compare current EV/EBITDA multiple to at least two relevant peer groups — explain why each is or isn't the right comparable
- Which of the factors causing the discount are: permanent / temporary / already unwinding?
2. WHAT IS THE INFLECTION POINT?
- What specific event or data point will change the market's view?
- What is the timeline? Is it tied to a calendar event, a financial milestone, or a regulatory development?
- What observable indicators will tell you the thesis is progressing or failing?
- How does segment mix shift change the blended multiple the market should apply over time?
3. WHAT IS THE UPSIDE OPTIONALITY?
- Identify 2–3 call options that are not in the base case and not in consensus
- For each: what needs to happen, what is the probability,
what is the incremental value, and what early indicators exist?
- Typical sources: regulatory change, new revenue streams, multiple re-rating, technology, M&A, management change
4. WHAT IS THE CAPITAL ALLOCATION PATH?
- How will the company deploy FCF over the investment horizon?
- Is capital allocation value-creative or value-destructive relative to the cost of capital?
- For leveraged or preferred-heavy structures: model the per-unit accretion from each dollar of debt/preferred redemption vs. alternative uses
- What are the binding covenant constraints?
(restricted payments, leverage maintenance, incurrence tests)
- What is management's stated priority vs. revealed preference from historical behavior?
5. WHAT IS THE EXIT / REALIZATION?
- How does the market re-rate this stock?
- Is this a multiple expansion story, an earnings growth story, a capital return story, or an M&A story — or a combination?
- If M&A: enumerate specific buyer archetypes for each asset or the whole company, with strategic rationale and precedent transaction multiples for each
- What is the forcing function? (e.g., debt maturity, preferred put date, regulatory deadline, contract expiry)
- What is the most likely path vs. the highest-value path - and are they the same?
---
### SECTION 6: VALUATION — SUM OF PARTS
PRINCIPLES:
- Value each segment independently using segment-specific peer multiples
- Do not apply a single blended multiple to the whole company
- Justify each segment multiple vs. peers — state the premium or discount and why
- Use EV/EBITDA as primary metric; cross-check with EV/EBIT or DCF where appropriate for asset-heavy businesses
FOR EACH SEGMENT:
- FY+2 or FY+3 EBITDA estimate (give the thesis time to play out)
- Applied multiple: low / base / high
- Implied segment value
BRIDGE TO EQUITY VALUE:
- Sum of segment values = TEV
- Subtract: net debt at exit date (model the paydown path)
- Subtract: preferred at full economic value (not book value); this is often where consensus models are wrong
- Add: warrant/option proceeds if dilutive at target price
- Diluted share/unit count: recalculate under each scenario
(warrants, conversion rights may be in-the-money at target price)
- Output: equity value per share/unit
SCENARIO STRUCTURE:
- Downside: what does the stock look like if the thesis is wrong or delayed? What is the floor?
- Base: thesis plays out as expected
- Upside: base + optionality items
- Express each as: target price, % return, MoIC, IRR from current price
KEY QUESTION TO ANSWER: Is the risk/reward asymmetric?
If downside is -20% and upside is +150%, say so explicitly.
---
### SECTION 7: RISK ANALYSIS
For each risk, be precise — not generic:
- State the specific mechanism by which the risk impairs value (not "commodity risk" — but "WTI below $X causes producer curtailments in Basin Y, reducing volumes on Asset Z below MVC floor, impairing $Y mn of EBITDA and potentially triggering the leverage covenant at Xxt ND/EBITDA")
- Quantify the EBITDA impact where possible
- Identify the mitigant and assess how robust it actually is
- Flag any risk that could: trigger a covenant, suspend distributions, impair the preferred redemption path, or require equity issuance
SPECIFIC RISK CATEGORIES TO ADDRESS:
- Volume / demand risk (customer behavior, commodity prices, weather, technology disruption)
- Counterparty / credit risk (customer defaults, contract rejections)
- Regulatory / political risk (new rules, permitting, rate cases)
- Capital structure risk (covenant breach, refinancing, preferred put dates, inability to redeem)
- Execution risk (capex overruns, integration, organic growth projects not underwritten)
- Management / governance risk (misaligned incentives, capital allocation track record)
- Competitive risk (new entrants, incumbent responses, stranded asset risk)
---
### SECTION 8: MANAGEMENT & ALIGNMENT
- CEO and key management: equity ownership in $ and as multiple of annual cash compensation
- Insider transaction pattern: has management been buying or selling? What does the pattern signal?
- Compensation structure: base, annual bonus, long-term equity — what behavior does it incentivize?
- Board composition: any significant economic stakeholders (PE sponsors, activist investors, large unitholders with board seats)?
- Historical capital allocation decisions: has management created or destroyed value? Be specific.
- Alignment assessment: are management's interests genuinely aligned with common shareholders/unitholders, or is there a structural divergence?
---
### SECTION 9: BASE CASE PROJECTIONS
Build a projection that supports your thesis — not a straight-line extrapolation of sell-side consensus:
INCOME STATEMENT / EBITDA:
- Revenue and EBITDA by segment
- State the 2–3 key assumptions driving each segment
- Distinguish between volume growth, pricing, and mix
CASH FLOW:
- Maintenance capex (should be stable/declining for mature assets)
- Growth capex (tied to specific named projects)
- Working capital: seasonal patterns and normalization
- Interest expense: account for amortization, rate resets,
any PIK provisions
BALANCE SHEET / LEVERAGE:
- Debt paydown: mandatory amortization + FCF sweep mechanics
- Preferred distributions and redemption schedule
- Net debt and leverage ratio at each period — show the deleveraging path explicitly
- Flag any period where covenants are at risk
FORMAT:
- Quarterly for next 4–6 quarters (analysts trade on near-term beats/misses as well as the long-term thesis)
- Annual through exit year
---
### SECTION 10: WHAT WOULD MAKE ME WRONG?
This is the most important section for a L/S fund.
State explicitly:
- The single most important assumption in your thesis — if this is wrong, the trade doesn't work
- What would make you exit the long (or cover the short) early
- What would make you add to the position
- What is the signpost that tells you the thesis is on track vs. off track — and at what cadence will you check it (quarterly earnings, monthly data, regulatory calendar)?
- What is the stop-loss logic — price-based, time-based, or thesis-based?
by. Terminal X Analyst