why do you like PE investing

Please read: most people are in this industry because of the money, prestige, etc. That's too familiar and therefore uninteresting. This post/these questions are targeted at the actual reasons you like the work, or at least make up something you'd say to an interviewer. Please don't waste anyone's time by repeating that you chose PE because you're not smart enough to be a coder/trader/etc. and this is one of the only paths that pay well.

  1. What would have been your answer when you got your very first PE role and what would be your answer now? (What do you think contributed to that difference?) Please specify your current role/fund focus, size, lifestyle, other factors if they're relevant to your answer.

  2. Would your answer be any different here/just talking with friends vs in an interview?

 
Most Helpful

Some things that I generally talk about:

  1. Proactive Approach to Value Creation - I like control equity investing because it means you have agency as to how the investment will turn out.  I'm not banking on finding a mispriced asset that the market will eventually recognize its worth (though that is some part of it).  I'm making an investment behind a business plan and a team, and executing on that plan to create my returns.  I think that strategy is more sustainable for my career, which means I want to be a part of a strategy that will work over decades, not just a few years
  2. Collaboration - Private equity requires a lot of collaboration.  You consult with various advisors (importantly industry veterans) to formulate views and a business plan.  You form a team of operators to execute on that plan.  And if you're successful at it, you and the team make money and it feels good to be part of something larger than yourself.
  3. Creativity - In private equity, there's a lot of latitude to how you structure your investment, select a capital structure, design management incentive plans and create an exit.  You have to think through each stakeholders motivations / preferences, and create a solution that best satisfies everyone's needs.  That requires creativity and a lil bit of salesman ship.  I personally think that makes the work a lot more interesting

I know people might get cynical about PE but especially for an interview purpose where you're going to leave that cynicism behind, I like to think of PE as the investing strategy closest to building something rather than flipping.

And for those that ask "but what about VC?", I would say PE is a higher conviction investment strategy.  Only ~10 investments in a fund, low loss rate.  To develop that conviction in PE, you have to have real "line of sight" to value creation in underwriting investments and be more involved with your portcos 

 

This is a pretty good answer and written well for conversational speech. That said, I would consider your audience when using an answer like this. If you are speaking with someone more senior, a partner for example, I think this answer could resonate and be effective. If you are speaking with a peer or someone more mid-level, I think it will be less effective. If an associate said this to me, I would think he/she was slightly delusional.

I think the point on VC is correct though. PE folk love to talk about conviction. VC is a power law game (more cynically spray and pray). For PE, asset selection matters. 

 

an add-on question though: how would you explain why you want to pivot to investing from consulting (or banking, whatever). I think your answer above is great for explaining why PE (rather than other types of investing), but how would you explain why investing over operating/consulting,etc. which also give you a significant exposure to value creation and collaboration (which are positive elements you mentioned in your answer). 

I think the reality of operating/consulting is that the work is very granular and you're very focused on a specific part of a business (marketing, sales, supply chain, etc.) as opposed to having a holistic view of the company/industry/market (which supposedly you have more of in investing). Maybe I didn't express this well in my last interview and my answer sounded like an explanation of why I hate operating/consulting rather than why i like investing, but curious to see how you would answer/frame this.

 

Operating and consulting are quite different. As far as why investing vs. consulting or banking, the stock answer is that with consulting or banking you are in a fairly mercenary role, working on a project and then walking away without getting to see the final impact of your work. For example, in banking, the closing dinner is the end of the road, whereas in private equity it is the beginning of the real work. You work with these companies for 3, 5, 7, maybe 10 years (depending on fund strategy) and get to see how management teams drive value in a much more meaningful way.

For investing vs. operating, I was never in an operating role, but I think that the answer I would give is that when you are in a private equity seat, you get to see how many different companies think, act, and execute which gives you a broader set of tools and approaches for thinking about effective operations. And you also get to take a higher level of view of the business, focusing on not just the operational elements, but also capital structure, what "makes" a good business in the first place, how markets thing about businesses and how that evolves, etc...

 

First, I would position everything from an affirmative.  Also I would try to demonstrate something you like about consulting / IB, and then segue into how PE is an even better fit. 

For example, you could say "I love the data-driven approach to solving problems in consulting.  I want to do more of that but with a more holistic approach to the business and with a time frame that allows me to see my work come to fruition.  I pride myself in taking ownership of my work and see PE as a great way to further apply that mentality".  The more you can weave in what intel you have on a firm culture into your answer, the better.

I try my best to avoid coming off like I hate my last job because I think being positive is core to the job of a PE investor.  We look at businesses / situations and it's a lot easier to say "this is uninvestable, let's pass" than it is to find the angle that'll make investment work (whether that's investment structuring, or coordinating a strategic acquisition to catalyze growth).  If you're leading the team and trying to find the silver lining to make an investment work, but got a junior with a negative mindset, you're going to not like working with that junior.  So demonstrate you can keep a positive attitude by highlighting what you like about your current / last job and how PE would be an even better fit

 

Really enjoy the private markets. I’m in secondaries so it’s perfect, you’re totally immersed in all the ways to translate value and liquidity in a traditionally illiquid market. Private markets are also obscure and effectively hidden. I love looking under the hood of portfolio companies. Literally get rock hard when I open Ansarada.

 

You’ll find there is a never ending list of reasons (intellectually stimulating work, compensation, etc.), but personally I am drawn to the wide array of responsibilities. This will of course heavily vary by firm. I spend much of my time sourcing in my current role (which I enjoy) but I also handle execution, value creation activities, etc. I tend to get bored quite quickly, so I prefer a role that resonates with “no two days being alike”, which has rung true so far. Some days my calendar is flooded with founder/banker calls, others I am helping our portfolio companies with add-on acquisition strategy, hiring executive talent, etc.

Ultimately I question whether I want to remain in PE forever as I’ve long had entrepreneurial desires, but for now I am loving what I do and continuing to learn something new every single day.

 

i guess you didn't mention your entrepreneurial longings in your interviews, though? i think (and everyone knows that) many of us (PE candidates) are not sure whether we want to stay in PE for the long term, but for interviewing purposes we need to sound like we've thought it through and are confident we want to be investors. How did you manage to create that impression/how did you frame your response when secretly you knew you might want to try entrepreneurship?

 

My situation is unique as my firm is a bit less than traditional than most (vertical LMM fund) and actually honed in on my ability to be entrepreneurial in the role during the interview process. Given we do not have the resources of a mega fund (or even most middle market funds), we are highly encouraged/forced to exercise creativity in the ways we approach our sourcing, deals, PortCo work, etc.

I also came from an untraditional background in that I had operating experience (versus IB) so I framed my desire to work in PE around the fact that I wanted to work with several companies as opposed to just one (as I was of course in my operational role).

If you similarly share entrepreneurial dreams, my (opinion) recommendation would be to align your motivation for jumping into PE with your desire to (1) work closely with Founders/CEOs, (2) learn about what comprises a top notch business/how to identify one, and (3) learn how to grow and build businesses over time - the real work starts after the deal closes!

Hope this is helpful, happy to explain any of the above in further detail.

 

There are few industries where you can be a student for 40 years and rarely see the same thing twice. Love how the industry allows you to develop a broad specialization, be incredibly strategic with limited guardrails, constantly be learning / mentoring those below you, play the long-game (i.e., not trading where you can be wiped out in 6 months), and develop incredible relationships across the business world. Certainly a grind, but one of the few grinds worth grinding for

 

It’s reasonably interesting. Although this ‘no two days the same’ circle jerk I don’t ascribe to at all. Many days are very the same and many tasks are repetitive. That’s the only reason why you can do them fast and sleep deprived. It’s all not that difficult and pretty mechanical (deal execution).

Origination can be sort of interesting but virtually everything is banked these days. So the only real things you can do is mgmt relationships and senior advisors. The rest is pretty mechanical. Unless you’re actually good at it and can develop corporate relationships for carve outs etc. but there are far and few between. Learning contents about a new industry can be kind of interesting if the industry is decent

PortCo work can be a bit more interesting and less cookie cutter but equally can be hell if you have a tough mgmt team or underperforming PortCo

Reporting is a total headache and will only get worse as more funds get listed. Economics are also declining

All that being said. Off deal and if you have a decent portco life can be pretty good. If the carry ever materialises (who knows) you’ll have made some decent change. If you slog it out for 10-15 years and you are in the carry a few times successfully obviously you’ll have made very serious money and can choose to do what you want

Worth it? No clue

 

hi, when you say most things are banked these days, do you refer specifically to MM and above (whereas LLM funds typically do their own sourcing)? and when you say origination can be interesting, what specific aspects do you mean? (I've heard that calling/emailing and delivering the same pitch to company after company gets tiring very quickly.)

 

A lot of these are just statements that separate PE from other alternatives

Just find something that's unique to PE, and anyone can say they like PE due to these whatever reasons. Anyone can also say they dislike PE due to those same reasons

I don't like PE because I just want to advise on a higher level and not get stuck operating and seeing it through

I like PE because I can actually follow through and get into the operational side of things and see things through

There's also so much nuance behind people's experiences that differ between firms, people, luck, personal experiences, competency, whatever that are more important that the actual work you do imo

Feel free to disagree though 

 

Think quite a few people I knew going into ib had already been very passionate about investing and private markets. Probably the mindset to have while going into this field

 

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