PE secondaries interview
I am having an interview with a PE secondaries firm. I was told that there might be questions like "will you invest in a portfolio of companies or will you cherry pick?" Not sure what it means exactly.... I know that the firm does some direct secondaries deals. Will I be given specific scenarios or will I just need to walk through the thought process? How to tackle this kind of questions? Do I need to review the typical PE case study and lbo models? Thanks in advance!
Just had a PE secondaries interview the other day. -For the first question (will you invest in portfolio company or cherry pick) - it depends on the portfolio. The secondaries firm will look at all underlying portfolio companies and if there are bad apples, may not want to purchase the whole portfolio, in which case it will want to cherry pick, or may just bargain the price down of the whole portfolio. -You should know the benefits of the secondaries market to LPs and GPs -Unlikely to get lbo model in the interview because secondaries don't LBO companies, but not out of the question
Do a google search on secondaries articles and the markets, and visit a few of the top secondaries firms' websites to learn more about them and what they do.
Thank you so much. Very helpful. May I ask in terms of the first question, how to assess the companies? Do you need to do a valuation as well as some qualitative analysis? Do they give you any materials?
Will there be some kind of valuation questions as I assume they will need to value the companies one by one?
Thanks again and good luck to your interviews!
PE Secondaries Analyst Interview (Originally Posted: 11/26/2010)
Hi everyone,
I have an upcoming super day interview with a PE secondaries firm (5 billion dollar portfolio). I was wondering if anyone could shed some light on technical questions that may be asked? I am really interested in questions that could be asked in PE secondaries but not in regular PE as those are the ones that are hard to find.
Right now, I'm studying LBOs, DCF, and precedent transactions. I'm also brushing up on basic accounting stuff. Should I focus on something else?
Thanks in advance :P
I'd also be prepared to talk about future opportunity and where you think future deals will come from. From the perspective of secondaries, there are alot of PE deals that have taken place over the last few years where the original equity stakes are now somewhat underwater. I know it seems obvious, but a lot of shops overpaid in the boom time. Hence, there are plenty of opportunities for secondary firms to snap up financially distressed companies that still hold intrinsic value (good management teams, growth market etc).
Secondaries, in the past, have stayed away from this sort of thing becasue not all of them have the turnaound expertise needed for these transactions. However, alot of PE deals that have gone sour have been a product of leverage and not operational/strategic mistakes. Hence, secondaries can now come in and use their capital to restructure etc. and not have to worry about the ops side of the business.
I'd also be prepared to hold a discussion on the changing face of the broader PE market. There is plenty of scope here to have a real good discussion, which is always a good thing at interview. So, be aware of market conditions and offer your opinions on how you think secondaries fit into this.
In terms of technicalities, I'd also suggest that you get up to speed on how to perform liquidation valuations as well, given the conditions of the opportunities listed above.
Also, read this report: http://www.altassets.net/pdfs/avt_secondaries_analysis2010.pdf
Hey Clarkey,
I know this post is kind of old, but the link above doesn't work anymore and I was wondering if you still had access to the article and/or if you have found new similar sources over the past 2 years. Thanks!
Thank you for the excellent information.
Do you think they will ask more questions regarding portfolio management such as modern portfolio theory, or on valuation of specific companies? I'm guessing that PE secondary firms do more research on portfolios as they are purchasing, for the most part, a mixed back of private companies from LPs. How often do PE secondary firms purchase equity from very focused portfolios (maybe even just 1 company) ?
Thanks
To be honest, I would be aware of both. If possible, have a look at the fund's investment strategy and try and find out what their starting point is. Are they a traditional secondary in the sense that they provide liquidity to LPs, or are they a PE firm based on secondary-buy-outs?
Moreover, the sort of valuation method to be employed is determined by the underlying asset - i.e. Lev. Buy-Out, Dev. Cap etc. If you can get a feel of what they like to do then this should inform you of which valuation methods you should be aware of.
Given the size of their AUM, however, I suspect that they are a mixed bag, so you should ideally be able to talk about top-down and bottom-up methods of valuation.
So, you should ideally be able to talk about how you can apply current discounts or premiums prevalent in the secondary market to the Net Asset Value last published by the f. Manager as well intrinsic methods of valuation (DCF).
To answer the last part of your question, I think funds will react to market conditions and may even look at deals on a company by company basis. I know of several funds that have been raised with a sole focus on doing this, but it's not the traditional bread and butter of secondaries. They are there to provide liquidity to LPs.
Thank you for your reply! Any idea what can be in the Real Estate Secondaries case study?
Hey Clarkey,
Thank you so much. The information and the article you provided were extremely valuable.
I now have a pretty good understanding of bottoms up, top down approach, the current state of secondaries, as well as where they are headed. I have a very good understanding of LBO, DCF , different types of structured transactions and a pretty good understanding of the secondaries market in general.
The only thing thats left is to to work on behaviorals and my story.
Thanks again
Know scenario analysis in excel. I remember having to create a data table in excel calculating returns under different conditions, unfortunately that's all I remember. Good luck.
This article is also interesting:
Private Equity Secondaries: Opening the Liquidity Tap - Thunderbird International Business ReviewVolume 51, Issue 6
Let me know if you can't access it and I'll email you a .pdf.
Heya Clarkey! The information you provided is really helpful! However, I cannot access to the two articles you mentioned. Could you please send me the PDF versions of them? Much appreciate!
Hi Clarkey, if you dont mind, could you also please send me the thunderbird seconardies case study? Thank you!!
Can anyone comment further on exit opps from a secondaries fund?
Other Secondaries funds?? Seriously though, if you're looking to do direct PE, the skillset isnt exactly transferable on the LBO level. At the growth stage it might be more applicable, but it would still be tough.
You could also easily move to a FoF if you wanted, but I'd see that as a career regression. You could also work on the LP side at an Endowment, with some of the larger ones paying pretty well.
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