This question pops up in almost every private equity interview. It's not something that will land you the job, but the wrong answer will get you dinged.
Why Private Equity Career?
This section is to shed some light on private equity as a career. For information on answering the interview question "Why private equity?", 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 private equity 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 @cheese86" 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.
- The work itself is another major reason many consider private equity as a career, especially in contrast to investment banking. Here's some thoughts on the matter from HerSerendipity, a private equity 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 clear delineation between origination and portfolio management, some blur the lines, and some will require people to do both.
- Another difference is responsibility. In private equity (again, opposed to investment banking because that's where most people come from). Here's an impression from Marcus_Halberstram, an industry CEO, regarding responsibility in private equity, even at the lowest level.
- Here are a few more reasons with some wonderful insight into private equity, courtesy of PEguy2011, a private equity partner.
- Hours are better. Not 9-5, but when you've spent three years coming home everyday after 11 pm, working 60-80 hour weeks feels short.
- Culture is 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. in banking, building a model for every damn pitch). Also, when I was in banking, face time was a pain in the ass. 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 more lax.
- Relationship building. In working in PE, you will build relationships with CEOs, CFOs, COOs, 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. For example, I worked extremely well with the interim CFO of a target company. After he left and went to another business, he asked me to come on as VP of Finance.
- Working with portfolio companies post close is great. 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 are two things I think that really prepare you for anything, whether it's a consulting role in the future or starting your own business.
Knowledge learned is much more 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.
These are just a few of many reasons people decide to go into private equity. The opportunity, work, and compensation are why this is considered by many the promised land of finance careers (although don't let that fool you into thinking it's the best field for you, that is a deeply personal matter that varies with who you are).
Interview Question - Why do PE?
First, know to keep it brief. Don't go over 45 seconds; ideally right 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.
Why This Firm? question in an interview
Many times in addition to asking, "Why private equity?", the interviewer will ask, "Why our firm?" This is where it's critical that you do your research beforehand. What does the firm specialize in? What is their investment strategy? What in your background caters to that firm's specialty/strategy? Make sure you do your due diligence and tailor a specific answer to this question.
Interested in Private Equity - Here's What You Need to Break In
Private equity is recruiting is ten times more cut-throat than anything you've ever experienced before. If you want to break into private equity, you need to be well-practiced in the technical aspects of the interview. The package is worth well more than the $299 price; the job prospects you set yourself up for are worth far more than $299.