Why Private Equity

How to answer the question "Why Private Equity?" with confidence

    Author: Andy Yan
    Andy Yan
    Andy Yan
    Investment Banking | Corporate Development

    Before deciding to pursue his MBA, Andy previously spent two years at Credit Suisse in Investment Banking, primarily working on M&A and IPO transactions. Prior to joining Credit Suisse, Andy was a Business Analyst Intern for Capital One and worked as an associate for Cambridge Realty Capital Companies.

    Andy graduated from University of Chicago with a Bachelor of Arts in Economics and Statistics and is currently an MBA candidate at The University of Chicago Booth School of Business with a concentration in Analytical Finance.

    Reviewed By: Osman Ahmed
    Osman Ahmed
    Osman Ahmed
    Investment Banking | Private Equity

    Osman started his career as an investment banking analyst at Thomas Weisel Partners where he spent just over two years before moving into a growth equity investing role at Scale Venture Partners, focused on technology. He's currently a VP at KCK Group, the private equity arm of a middle eastern family office. Osman has a generalist industry focus on lower middle market growth equity and buyout transactions.

    Osman holds a Bachelor of Science in Computer Science from the University of Southern California and a Master of Business Administration with concentrations in Finance, Entrepreneurship, and Economics from the University of Chicago Booth School of Business.

    Last Updated:September 29, 2023

    So, you want to break into private equity.

    By now, we reckon you have mastered LBO modeling and are prepared for the technical interview.

    You have deals to discuss and know how to answer any case-based questions thrown at you.

    However, you are yet to prepare a good answer to the very common “Why Private Equity?” question. This question pops up in almost every private equity interview. It's not something that will get you the offer, but a wrong answer will get you dinged.

    Let’s start by exploring some reasons why you would want to get into private equity in the first place.

    Why work in private equity?

    This section tries to shed some light on PE as a career.  You can also reference our private equity job description article.

    For specific examples on how to answer, please skip to the next section. 

    For those of you undecided on whether you want to work in private equity or not, here are the typical reasons people find PE appealing:

    • The magic word: Carry. It's true that a chosen few make $10-100s of millions through carry in private equity, but this is a reality seen by very few. Here's some insight from our forum member that explains carry and when/how to get it.

    Carried interest is great, but most funds do not pay carry until after they earn 8-10% annual returns over the life of the fund. If your fund does not hit the carry mark, your comp will resemble that of banking, possibly even less.

    via GIPHY

    • The work itself is another major reason many consider private equity as a career, especially in contrast to investment banking. Here are some thoughts on the matter from another forum member, who is a PE associate.

    The bigger shops are definitely transaction geared for the junior folk, but the smaller shops will offer a much more hands-on experience. It also depends on how the PE shop runs its business; some have a clear delineation between origination and portfolio management, some blur the lines, and some will require people to do both.

    • And finally, here are a few more reasons with some wonderful insight into PE, courtesy of another forum member who is a PE partner.
    • Hours are better. Not 9-5, but when you've spent three years coming home every day after 11 pm, working 60-80 hour weeks feels short.
    • Culture is usually much better. Not as much "busy" work - meaning making sure a deal is a real deal before spending a significant amount of time on it (vs. building a model for every pitch). Also, when I was in banking, face time was a pain. I don't think there is any business where you don't have to deal with face time, but I think in PE it is generally laxer.
    • Relationship building. In working in PE, you will build relationships with CEOs, CFOs, COOs, and directors of corporations, at the target, when/if you hire a third-party advisor, and at your portfolio companies. I value this because, when/if I ever decide to leave PE, these are some of my exit opportunities.
    • Working with portfolio companies. I enjoy taking part in strategy sessions and board meetings and working actively with management teams to improve businesses. This combined with the next bullet is two things I think really prepare you for anything, whether it's a consulting role in the future or starting your own business.
    • Knowledge. What I learned is very interesting and valuable. Admittedly at the associate level, you're still doing a lot of work an analyst does in banking (models, presentations, memos), but you're also spending more time learning about different businesses, industries, and most importantly what makes a business successful.

    And these are just a few of the many reasons why people decide to go into PE. The opportunity, work, and compensation are why it is considered the promised land of finance careers. However, don’t let that fool you into thinking it’s the best field for you, since it depends on your personal preferences.

    And now to the most important part of this article, how to answer the “Why PE?” question in your interviews.

    “Why Private Equity?” Interview Question

    First off, keep it brief. Don't go over 45 seconds; ideally, keep it right around 30 seconds. You just need to give a reason why you want to work in private equity and tie it into your background, all in 3-4 sentences. 

    Here are some reasons you might use:

    • You want to learn about businesses beyond the financial aspects.
    • You want to work with companies over the long term to see what makes a great business and to better yourself as an investor.
    • You want to learn about the many operations of a company.
    • You want to invest in the long-term as you believe it is the investment strategy that delivers the best returns.

    How to structure your answer?

    Like we mentioned earlier, try to not go over 45 seconds. The sweet spot here is 30 secs which is equal to about 3 or 4 sentences.

    Don’t start talking about your career in detail and how PE ties into it. This is a checkbox kind of question and not one where you score extra brownie points by impressing your interviewer.

    • If you go too long, you risk losing the interviewer’s interest.
    • It goes without saying that you don’t talk about anything related to pay or how you hate your job.

    Don’t stress too much about answering this question either. There are other more important questions you need to focus on to actually ace your interview.

    It is definitely not easy, but with practice, you should be able to ace it.

    Follow Up Questions to “Why PE”?

    Usually, the next question you receive is something along the lines of “Why not {industry}?”

    Here are some examples of such questions and how to prepare for them:

    1) Why not stay in investment banking?

    Here's a good sample response: 

    While I enjoyed my time in banking and think it really helped me develop solid technical skills around modeling, I feel like my interests are definitely more aligned with principal investing.  Rather than advising a business and moving on after a transaction, in private equity I feel like I would get great exposure to management and be more hands on with strategy and helping them transform the business after the acquisition.

    2) Why not stay in consulting?

    Here's a proven sample response: 

    While I enjoyed my time in consulting and think it really helped me develop strong skills around strategy and analytics, I feel like my interests are definitely more aligned with principal investing.  Rather than advising a business and moving on after an engagement, in private equity I feel like I would get great exposure to management and be more hands on with strategy and helping them transform the business after an acquisition.

    3) Why not hedge funds?

    Here's a proven sample response: 

    While working at a hedge fund would be interesting, I feel like my interests are definitely more aligned with long term investing and the private markets.  Rather than screening for ideas and dealing with the daily fluctuations of the public markets, in private equity I feel like I would get great exposure to management and be more hands on with strategy and helping them transform the portfolio companies over time.

    Your answer can revolve around how you like to not just rely on analysis but also be part of generating value for the portfolio companies which you wouldn’t get at hedge funds.

    4) Why not venture capital?

    Even though venture capital is a subset of PE, the main difference between the two is PE firms work with mature companies that have stable and predictable cash flows while VCs work with early-stage companies that are yet to turn profitable.

    There are two points you can emphasize to your advantage:

    1. PE gives you more exposure to understanding how credit can be used to generate higher returns (VCs usually only invest in equity)
    2. PE also gives you more control over the investments and is arguably more hands-on than VC. (VCs make small investments in a large number of companies while PE firms make large investments in a few companies)

    Interested In Private Equity - Breaking In

    The above examples illustrate how you could leverage your prior experience to answer the question and appear unique. We recommend that you improvise on the answers, or craft a new one keeping the points in mind.

    Are you interviewing for a private equity role? Our PE interview course has an immense library of questions and proven answers to help you ace that interview.

    Additional interview resources

    To learn more about interviews and the questions asked, please check out the additional interview resources below: