Private Equity Interview

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Private Equity Recruiting Process

The lion’s share of the recruiting process for pre-MBA private equity associates truly begins in the first year of standard investment banking and consulting analyst programs. This may surprise some people, but the recruiting cycle is very structured, even though it can start at a moment’s notice (depending upon when the leading firms in the space begin their process). Prospective private equity candidates must be ready for the process early in their investment banking analyst programs in order to be successful in landing a private equity job. That said, recruiting for some other PE jobs will take place year-round. Thus if you happen to miss the main recruiting process for PE jobs, you’re a leg down, but not out. You may still be able to find available opportunities. This chapter will detail this timeline more thoroughly.

The pre-MBA recruiting process for PE positions is truly unique. After banking, exiting to a position as a private equity associate is very prestigious, and PE firms want to make sure that they don’t miss the most qualified applicants. You’ll need to be prepared for the process to start at any time. Once one of the leading PE firms begins its search for the incoming associate class for its firm, the rest of the firms will generally start recruiting directly afterward. For the majority of the firms, the entire recruiting process will be finished within several months once the leading firms start recruiting.

This “leader and followers” pre-MBA recruiting process is primarily driven by the “megafunds” (KKR, TPG, Blackstone, etc.). When they decide to start the recruiting process, most of the other large PE firms, with associate classes ranging from 8-15 professionals per year, will then launch their processes right away. The middle market/smaller PE firms will typically follow shortly after that.

Note that venture capital firms and smaller private equity firms will typically recruit outside of this standard recruiting cycle, and thus the notes above about the process tend not to apply to them. That said, overall most hiring for next year’s summer start dates will be completed by July or August—nearly a full year in advance!

The competition for these jobs is very tough. You’re going to be up against a large pool of talented, driven investment bankers, and will be working against a tight timeline. Therefore it’s very important that you plan out your process well ahead of time.

Even before the official private equity process begins, the initial step for pre-MBA recruits is to meet with headhunters. They are essentially the “gatekeepers” for the interviews with most firms. Headhunters will contact a pre-MBA candidate in the first year of his/her analyst program (up to three months in advance of the start of the recruiting season).

For post-MBA candidates, note that the recruiting process is a bit different. These candidates can rely a bit more heavily on their graduate schools’ career centers, since most PE firms will go directly to MBA program candidates to begin recruiting them. In this respect, post-MBA recruiting is more predictable and standard, as it conforms to the overall MBA student recruiting timeline.

The typical recruiting cycles for pre-MBA and post-MBA associate positions are illustrated below:

pre-MBA and post-MBA

For pre-MBA candidates, after the headhunter interview the candidates go on to meet with the private equity firms directly. The overall process is a lot faster and more intense than investment banking. Candidates in this process truly need to be prepared for anything and everything. The recruiting process can be over very rapidly! A specific firm’s interview process can range from days to weeks, depending on the market conditions, how many firms are recruiting at the same time, and how quickly the firm in question finds prospective associates it wants to hire and who want to work for them.

Some investment banking analysts recruiting for PE firm jobs have encountered first-round interviews called “super-days,” where they meet with 8-10 people in one day and receive full-time offers at the end of the day. If this occurs, the PE firm will expect the candidate to accept (or reject) the offer within a few days! In other cases, the process is a bit slower, with several rounds of interviews spread out over a couple of weeks.

The traditional components of a private equity recruiting process include the standard behavioral and technical interviews conducted by junior PE associates—this part of the process is similar to investment banking recruiting. Where the process differs is in two primary places: the testing for investing acumen, and the testing for superior and LBO-specific technical ability.

Testing for investing acumen can come in the form of a broad 20-minute, consulting-like case study, or a detailed 3-5 hour investing exercise wherein the candidate has to research a company, go through the company’s filings, and write an investment memo on the sample target company. Unlike in a hedge fund recruiting process, PE associate candidates will very rarely be asked to pitch an investment idea. Instead, they may be asked what characteristics they would look for in a good LBO candidate.

LBO-specific technical ability screenings can come in the form of a financial modeling test, such as a paper LBO (in which the candidate must do LBO math in his/her head or on a piece of paper), or in a several-hour modeling test wherein the candidate has access to a computer and Microsoft Excel. Different firms like to administer this portion of the interview process differently, so for example, some will have modeling tests at the beginning of their process, while others may have it as the last stage of the process.

Therefore, you need to be prepared for every possibility if you hope to maximize your chance of landing a private equity associate position successfully. That said, don’t be afraid. The following sections and chapters in this guide will help you navigate the recruiting cycle and also help to prepare you for the modeling tests.

Initial Preparations: Before Headhunter Recruiting Starts

Given the short timeframe of the recruiting process, investment banking and consulting analysts need to be as prepared as possible for the process to start. In addition, no one knows exactly when the recruiting process is going to start until it does!

The first thing to do, then, is to make sure you’re interested in private equity. If so, make sure you understand the industry thoroughly, and know what the firms in the industry are going to be looking for in a good candidate.

The key thing that private equity firms look for is that the candidate is skilled at thinking like an investor rather than just being capable of performing the tasks needed for deal execution, which would mean being skilled at operating like an investment banker. Remember, private equity involves making successful investments rather than cranking out many transaction closings. For the banker, the firm’s revenue and profit are not affected by the post-transaction performance of the clients. In private equity, the firm’s success is heavily dependent upon how the client/target performs after the transaction is completed. Therefore, a successful PE associate will need to be able to help his colleagues make successful transaction decisions.

If this does not sound like something you’re interested in doing, then PE is probably not the right destination for you. If it is, then you will need to know how to best position yourself and market yourself to the interviewer with all of this in mind. Start thinking like an investor now, if you’re not already doing so—it will pay huge dividends for you when the PE recruiting process begins.

The technical and behavioral preparation for the interviews is very similar to the preparation for investment banking interviews, so the preparation process may seem familiar, but remember that the PE recruiting process is much more intense, and the PE firm is looking for something slightly different than the investment bank is (as discussed above). To prepare, candidates should follow these simple steps:

  • Prepare and know your resume inside and out.
  • Think about the type of private equity fund you plan to target:
    • Mega/large fund or middle market fund?
    • Investment style (buyout, growth capital, etc.)?
    • Culture and lifestyle: Do you prefer small or larger deal teams?
    • Geographic location of PE firm or fund: What are your top three preferred city locations?
  • Think about the focus of the position offered: Generalist vs. industry-focused? Do you prefer to concentrate on many industries or specifically on one industry?
  • Use headhunters/recruiters: Many firms hire exclusively through recruiters even if you have personal contacts at a particular firm. Schedule screening interviews early with the top recruiters as their capacity for candidates is limited. Make a good first impression.
  • Prepare to interview extensively by practicing with others. A typical interview process will last 3 to 5 rounds (including the headhunter) with most rounds consisting of numerous individual interviews. Because the competition will be very strong, intense preparation in this phase of the recruiting process will be crucial.
  • Prepare for detailed analytical questions as well as brainteasers.
    • Be able to talk through the stages and return drivers of an LBO model.
    • Prepare by reading up on the relevant industry/industries and learning about what opportunities may be available there, or what transactions are taking place there.
    • Modeling tests range from 4-hour computer based tests to “LBO on paper” exams. Be prepared to excel at all of them.

Private Equity Headhunter Interview

Now that you know how to prepare for the early stages of the PE recruiting process, we’ll discuss what the headhunter interview entails. Recruiters, or headhunters, play a large role in private equity searches. These recruiting firms source top candidates for private equity interviews. Traditionally, headhunting recruiters seek out and work with top-ranking first-year analysts at investment banks and top-tier consulting firms. Recruiters are essentially the “gatekeepers” into the private equity industry, so candidates need to take these relationships very seriously.

A good headhunter interview can make a tremendous difference in the number of PE interview opportunities a candidate will be presented with. It is very important for candidates to realize that headhunters are working for their private equity clients, and will therefore only show candidates that they believe are sufficiently qualified for the client and fit the firm’s criteria. If you do not come across as highly qualified and a good fit for the client, the number of opportunities you will be given will certainly suffer as a result.

Headhunters will often reach out to prospective candidates in their first year as analysts, often within 4-6 months of being on the job, so bankers need to make sure they’re ready early on in their analyst position if they want to do well in PE recruiting. For those who do not receive phone calls from headhunters, it doesn’t mean you are not desirable; it simply means you may have to reach out to the recruiters yourself. Well-known private equity headhunters that you can reach out to include SG Partners, GloCap, CPI, Amity Search Partners, Oxbridge Group, and Search One.

With headhunters, you will be put through a mini-interview, which is very important. Most of these headhunter interviews will consist primarily of behavioral questions, such as:

  • Walk me through your resume and past deal experience.
  • What type of investment banking transactions or consulting projects have you worked on?
  • Do you have excellent financial modeling skills?
  • Why did you choose your particular college and major?
  • Why do you want to work at a private equity firm?
  • What type of private equity investing are you interested in?
  • What size of fund are you seeking?
  • Are there any particular firms you are interested in? In terms of geography, what are the three top locations (cities) in the U.S. to which you would be willing to relocate?

Important! Headhunter Interview Tip: Make sure not to give the recruiter/headhunter any attitude. You are one of many candidates with whom headhunting firms will be working, and headhunters will have no problem never working with you again. They need to feel confident about you being a strong candidate, and just as importantly, being presentable to their own clients. Displaying an attitude of “you will make money off of me” is just not a good way to get the attention you want. Your attitude should be confident, yet humble, thoughtful and gracious.

Here are a few other important tips:

  • Know your story: You need to be able to communicate effectively with headhunters. Realistically, you’ll be giving the same pitch to them as you will give during your private equity interviews. You’ll have to explain where you’re from, why you chose your college, and why you chose your current job.
  • Know exactly what you’re looking for: The last thing headhunters want to do is figure out what positions you fit into. If you’re really interested in private equity, you need to have a reason why, and be able to effectively communicate your rationale. You need to display your passion for private equity and why they should put you in front of their clients.
  • Show your personality: Headhunters meet with dozens of investment bankers every day, so you need to be able to stand out with your own unique personality. Beyond the actual interview, create small talk with all of the people you meet at the headhunting firm and be able to talk about more than just finance. They want to know that you’re personable and someone with whom they could have a casual conversation.
  • Be prepared to pitch your transaction/work experience inside and out:
    • Financials, growth rates, multiples paid, investment theses, and alternative transaction and strategic opportunities are all things to have a firm grasp on as they relate to transactions you’ve worked on.
    • Focus on M&A experience where available, but also know all types of transactions on your resume.
    • Headhunters will want to know that you’ve been given a lot of responsibility by your banking superiors.
  • Practice superior communication: All the headhunters have had experience in some sort of finance, but in reality they’re more removed from that part of their careers. They are most focused on whether you are presentable to the client and less focused on the content. So you need to be professional, concise and confident.

Private Equity Interviews

The Behavioral Part of the Interview Process: If the headhunter is comfortable putting you in front of his/her private equity clients, your resume will be submitted to the PE firm for selection. If selected, you will begin a typical interview process that will most likely consist of 2 to 4 rounds of interviews. On the first round, the private equity firm will host numerous 30-minute behavioral interviews to make sure you have the right background, strong communication skills (for example, to make sure you are capable of engaging appropriately with investment target companies, portfolio companies, bankers, and consultants), and that you have thoughtful, genuine reasons for pursuing a private equity career. Make sure at this stage to describe what sets you apart from the other candidates. That’s how you’ll stick in their memory and stand out from the dozens of other applicants.

Here are some typical, private equity-specific behavioral interview questions:

  • Why did you choose investment banking/consulting?
  • Why do you want to pursue a career in private equity?
  • What characteristics do you think are needed to be a successful private equity professional?
  • How does your experience translate into success in private equity?
  • Do you currently invest, perhaps via non-work-related investing?
  • What is the most recent book you have read?
  • What happened when you worked in a team and one member wasn’t contributing appropriately? How did you respond?
  • What do you feel are your greatest strengths? Greatest weaknesses?
  • Are you risk-averse or risk-seeing? Under what conditions do you seek risk the most and why?
  • If I asked your senior manager, what would he or she say about you?
  • Are you interested in [add private equity firm’s industry expertise]?
  • Where do you see yourself in five years?
  • Give an example of a time when you demonstrated that you were very driven/committed?
  • What motivates you?
  • Why should we hire you?
  • What is the biggest risk you took in your life?
Firm Structure: You need to be prepared for these firm-specific questions before you interview. These can be generally answered by viewing publicly available information on the PE firm’s website or through talking with the headhunter.

  • What is the firm’s or fund’s investment strategy? (e.g. size, geography, industry, type of control, primary/secondary, minimum operating results, timing)
  • What would be the potential responsibilities for an associate at the firm? Is sourcing involved? How so?
  • What is the firm’s hierarchy? Fund investment structure? Investment committee structure?
  • Is there a path to direct promotion within the firm, or an expectation that associates will pursue an MBA? Where have past associates gone?
  • How have the firm’s funds performed historically? What was the typical IRR on previous funds?
  • What is the firm’s history and what are some key past portfolio experiences for the firm?

The Technical Part of the Interview Process: If you receive a second-round interview, you can expect to reach the more technical part of the process. Typical private equity firms look to hire pre-MBA and post-MBA associates who have very strong financial accounting and modeling skills, and an appetite for quantitative analysis and data-driven decision making. Be prepared for technical questions similar to ones you received in the investment banking interview process. One major distinction in private equity interviews, though, is that candidates will often have to complete a financial modeling case study that illustrates his or her proficiency in financing modeling and accounting concepts. Candidates could be tested on this in a variety of ways, including analyzing a full LBO model, a growth capital case study, a paper LBO, or a consulting-like case study. A candidate may be handed one sheet of paper that consists of various assumptions and/or a laptop computer that has a blank excel sheet to build out an investment scenario. These modeling tests will be detailed later in the guide.

Some sample technical questions include:

Private Equity or LBO-specific questions

  • What is an LBO?
  • Walk me through the mechanics of an LBO model.
  • How do you assess credit risk?
  • What are the different types of PE firms?
  • What makes a good LBO investment candidate?
  • What are the different ways to find the valuation of a company?
  • How would you spend a million dollars if it were given to you?
  • Company A has a potential IRR of 23% and Company B has a potential IRR of 30%. What 2 questions would you ask before you decide which one to invest in?
  • What are the 4 main drivers of the change in IRR for an LBO scenario?
  • How do you model in PIK notes?
  • Walk me through the calculation of Free Cash Flow.
  • Why would a private equity firm use a convertible preferred note?
  • How do you calculate amortization of intangible assets?
  • What are the uses of excess cash flow?
  • What makes for a good management team?
  • What 3 questions would you ask a CEO of a company you were looking to invest in?
  • You have two companies with different EV/EBITDA multiples in different industries. What are some reasons why their EBITDA multiples might be different?
  • What is the difference between senior and subordinated notes?
  • What are the key considerations to structuring a carve-out transaction?
  • How would you decide what amount of leverage to use in building a company’s capital structure?
Financial Statements / Accounting

  • Company A has depreciation that is overstated by $10 million. Walk me through the impact of this overstatement on the financial statements.
  • Tax depreciation is $20 million over 10 years, while financial statement depreciation for the asset is $10 million over 10 years. Walk me through the impact of these differences on the financial statements, assuming a tax rate of 40%.
  • Assume that your company bought an asset for $10 million, of which $7 million was financed through debt. Walk me through the impact of this transaction on the financial statements.
  • Assume that your company sold an asset for a loss of $10 million (it had originally been bought for $20 million). Walk me through the impact of this transaction on the financial statements.
  • Your company sells a yearly subscription for $120. Walk me through the impact that this sale has on the financial statements.
  • What is the difference between gross revenue and net revenue?

  • The New York City subway currently costs $2.50 to ride one way. Pretend that tomorrow, the cost is going to increase to $3.00. Assuming you can lock in the $2.50 rate in the future by paying for the future rides now, how many coins would you purchase? What are the key considerations to make?
  • What is the angle (in degrees) formed by the minute and hour hands on a clock when the time is 3:15?

Sample Questions to Ask

During the PE associate interview process, you will have the opportunity to ask the interviewers a few questions that will show them how interested you are in working for the firm. The following list provides good examples of questions to ask to demonstrate this interest.

Examples of questions to ask a junior member of the private equity firm:

  • Can you elaborate on the typical day-to-day activities and responsibilities for this position?
  • How did you get interested in private equity?
  • What did you take into consideration when you chose this firm?
  • What is one thing you like about working at this firm and what is one thing you thing you would improve about the firm? (This question shows that you are trying to get more insight into the reality of working at this specific firm.)
  • What differentiates a good analyst from a great analyst?
  • What’s your favorite deal that you’ve worked on at the firm?
  • Have you completed any transactions while working at the firm?
  • How is the quality of the investment opportunity sourcing at the firm?
Examples of questions to ask a senior member of the private equity firm:

  • Can you elaborate on your past successes that led you to this firm?
  • What are the key characteristics that you expect from an individual that will be selected for this position?
  • In brief, what are the firm’s long-term goals?
  • Is there an opportunity for an associate to build his or her career at this firm over the medium to long-term?
  • What qualities do you have that helped you succeed in private equity?
  • Why did you choose this career path?
  • How do you manage work, family, and community involvement?
  • What part of this job do you find the most rewarding and challenging?

The questions you ask should be selected carefully so that you receive the maximum amount of information about the job. This information will help you select the right firm for your background and personality. You will want to make sure you work with a group of people that you can get along with and will enjoy working with as part of the investment team. You will be spending a lot of time with this group, and making the right choice is critical.

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