Fund of Funds Interview - What should I know?

Hey

I have an interview coming up for a fund of funds PE firm analyst position. This will be the 2nd round; a 3-4 person conference call. Does anyone have any experience with a FoF? What did they focus most on, what should I really make sure I know? Any suggestions on study material I should look at beforehand?

Comments (71)

Mar 29, 2011

Bump... someone has to have some experience interviewing with a FoF?

Best Response
Mar 29, 2011

Analysts at private equity funds do research on companies that they might invest in.

Analysts at private equity fund of funds do research on private equity managers that they might invest in.

Clients use FOF managers in their portfolios for several reasons: (1) they don't have enough money to invest directly in a PE fund, (2) they don't have access to that fund (its not open) (3) they believe a FOF will give them greater exposure to a larger variety of strategies with less invested capital. Therefore, PE FOFs add value by choosing good managers whose funds do well.

You'll be doing a lot of interviewing managers. Hearing about their companies, their strategies, their process. It would be useful to know the hot areas of PE as well as the different types of funds. Also, talk about how its important to monitor the exposures across the portfolio. The risk. Ask them how they monitor these things. Ask them how they decide to invest in a manager. Ask them what their process is.

    • 2
Mar 29, 2011

Thanks for the response! SB for you!

Mar 29, 2011

just so you know, its going to be very hard to give you more than what NYorker had said--as this business is VERY dependent on exactly what type of FoF they are, what industries they focus on, how they make investment decisions, etc...

i think one way you could really set yourself apart here is to learn as much you can about THIS SPECIFIC FUND...i.e. whats their investment strategy? how do they decide on funds to invest in? im assuming a lot of these FoF places like to hire people who at least in part understand their investment strategy and have many of the same beliefs that the PM's have. i think you could really impress them by having an in depth knowledge of their investment strategy.

Mar 30, 2011

I agree with leveRAGE - its probably going to be difficult to do that if the fund itself doesn't come right out and state what their strategy is on their website. Without access to their materials, you certainly won't be able to get any insight as to what their managers are.

If you can do this great, but if not I would spend more time focusing on things you can know and things you can prepare for. Investors love to talk about how they decide to invest, so any way to get them on a roll about their process, best/worst decisions they've made etc, will help grease the tracks and create robust conversation.

Mar 30, 2011

pm me...

Mar 30, 2011

-

Mar 30, 2011

Should I buy the WSO technical guide for learning an lbo model ?

Mar 30, 2011

FoF tend to take much more time to make investment decisions, so if you have patience and enjoy taking long time to make decisions, then this can be a reason.
Other thing you could say you wanted more challenge in DDs, as DD on a fund is more chanllenging compared to a company, because you needed to assess the team, and investment track records.

Mar 30, 2011

You can say that you want to have a broader understanding of ther PE industry.
This type of role give you a very good understanding of different strategies in PE, what makes good performers, how PE funds raise capital, what are the recent trends, etc.
Also, most FoF also do co-investments which allows you to work on both the direct and indirect side which can be interesting.

I interviewed with one some time a go and one of the users on here - MezzKet - was very helpful.

Maybe you should look up the ILPA's private equity principles - when they releaed that it was quite an event and people are still talking about it (you need to be able to discuss the shift in power between LPs and GPs...).

Mar 30, 2011

I would definitely explain that you know what it means to invest other people's money but in order to get a full and broad understanding of what Private Equity is, you want to understand fund economics and what it's like to be a controlling GP and where investors have leverage... PE funds are only as strong as their LPAs... Say that 99.9% of top Associates at PE funds lack an understanding of how funds really work, how management companies really work and how they get paid... sure carried sounds simple until you get into clawbacks, retained liabilities etc. This is something you'd like to learn to make you fully versed in the PE field. Associates unfortunately (and even VPs) have no real understanding of which fund is allowed to deploy capital after investment periods, restrictions to investments etc. For a Managing Partner to know this off the bat and have deal experience is essential to maintaining a quality mangement company.

Secondly, you think that with so much dry powder available, recent study suggests 15 years, LPs (big LPs) especially are in key positions to renegotiate and pressure GPs into new terms for their existing funds, CalPERS is leading the way on this... Elaborate that it is an interesting time to be in the market...

Highlight the recent BofA deal (secondary FoF) and how for it's record setting size, it is still hazy and you'd really like to know what can force an LP out of a fund generating 3.5x cost...

I would definitely shoot back some intelligent questions to the interviewer:

  • Has the BofA & AXA deal been the spark everyone was looking for to sell off their PE portfolios? Have you seen a dramatic uptick in deals since then?
  • How are discounts looking for top GPs & top funds on Sept. NAV, Dec. NAV?
  • Are discounts low enough where leverage isnt necessary to achieve returns?
  • Are sellers looking for pure cash payouts or are they willing to finance a sellers loan as long as they can divest of their commitments?
  • Can you please walk me through a general process from deal sourcing to purchase agreement to closing? I hear that the former, can be done fairly quickly but the latter process is quite extended, why is that?
Mar 30, 2011

Thank you all!!! Your advice was really helpful. Just finished with the interview. It was mostly fit, but I was able to include some of the above into my answers.

Mar 30, 2011

Some information on the job description would help. A fund of funds could be looking for junior analysts for either of two tasks: 1) assistance with fundraising or 2) portfolio analytics, due diligence etc.

Mar 30, 2011
wonderingkid:

Hi All,

I recently got an interview with a chicago based Fund of Funds Hedge Fund (Grosvenor) and was wondering how to prepare for technical questions for the interview.

What sort of position? How did you get the interview? What's your background?

Mar 30, 2011

Some questions that come to mind...

-Why Fund of Funds?
-Why not direct PE instead?
-What's your 5-year plan? B-school? Stay put?
-Name some GPs that you would consider investing w/. Why or why not?
-What are some of the major traits you look for in a GP, and questions you would ask a GP while conducting due diligence on them?
-What do you think your day to day duties are at a FoF?

I've never gotten any technical questions. Maybe some general market questions (where would you invest in now?) and mostly fit.

Mar 30, 2011

see pe case study thread in the forum. that will give you some insights. assume you have prepared why pe fof compared to your current role. why pe over hedge funds. what would you look for in a fund. given you have previous fof experience, wont be surprised if you are asked to discuss where in the pe spectrum would you invest.

Mar 30, 2011

Some that come to mind:

  • Which GPs are you interested/not interested in and reasons why?
  • Markets you're interested in (by region, industry sector) and general markets discussion on where you see it going
  • Like accan said, what you look for in a fund - so walk through a quick and dirty due diligence process (maybe some things that are red flags in a fund you may spot from your analysis)
  • Why the switch over to PE from HF?
  • Have an understanding of the PE FoF - what differentiates them from the other FoF players... so for example, if it's a biggie like HarbourVest, Hamilton Lane or Adams Street, maybe you can say that they have size to their advantage (greater reach to a wide range of GPs, brand recognition and opportunities to work with respectable LPs like a CalPERS, CalSTERS), maybe some of them have long-term established relationships with VC players like with Mohr Davidow or Kleiner Perkins that other FoFs may not be able to get into if they weren't investing with them since before the boom... So talk about 'access and relationships'
    -If it's a small group, then emphasize why you want to go into their focus... maybe they are strictly PE (some places do PE, HF, other too), some of the bigger places have huge fund sizes... so the larger the fund the more investments they have to make (there's a limit of how many 'top quartile' GP funds there are out there), so large $2 BN + funds run the risk of indexing their returns... You can also throw in the general comments like more responsibility and opps to play more senior roles in a smaller group, if suitable...
  • Maybe research if the FoF spends a decent amount of time looking for the next top GP starting up (emerging players) that are started by reputatble professionals with good prior rep

There's a ton of things really, but for a FoF, you're probably not going to get any quant like questions if you were interviewing with a direct PE shop.

Mar 30, 2011
Kanon:

Some that come to mind:

  • Which GPs are you interested/not interested in and reasons why?
  • Markets you're interested in (by region, industry sector) and general markets discussion on where you see it going
  • Like accan said, what you look for in a fund - so walk through a quick and dirty due diligence process (maybe some things that are red flags in a fund you may spot from your analysis)
  • Why the switch over to PE from HF?
  • Have an understanding of the PE FoF - what differentiates them from the other FoF players... so for example, if it's a biggie like HarbourVest, Hamilton Lane or Adams Street, maybe you can say that they have size to their advantage (greater reach to a wide range of GPs, brand recognition and opportunities to work with respectable LPs like a CalPERS, CalSTERS), maybe some of them have long-term established relationships with VC players like with Mohr Davidow or Kleiner Perkins that other FoFs may not be able to get into if they weren't investing with them since before the boom... So talk about 'access and relationships'
    -If it's a small group, then emphasize why you want to go into their focus... maybe they are strictly PE (some places do PE, HF, other too), some of the bigger places have huge fund sizes... so the larger the fund the more investments they have to make (there's a limit of how many 'top quartile' GP funds there are out there), so large $2 BN + funds run the risk of indexing their returns... You can also throw in the general comments like more responsibility and opps to play more senior roles in a smaller group, if suitable...
  • Maybe research if the FoF spends a decent amount of time looking for the next top GP starting up (emerging players) that are started by reputatble professionals with good prior rep

There's a ton of things really, but for a FoF, you're probably not going to get any quant like questions if you were interviewing with a direct PE shop.

you're completly missing the fact that alot of those FoF you mentioned are huge secondary players... FoF aren't just pick and choose investors into new / early funds on a primary basis... they offer massive liquidity on a secondary basis to alot of overallocated investors... study the reasons why secondary FoF works in this environment and learn how they but portfolios, and understand portfolio terms/dynamics as that's what you'll mostly be doing in this market... no primary FoF exists... ONLY secondary's are getting done...

Mar 30, 2011

Thanks for response Kanon, very helpful.

Mar 30, 2011

I had a couple of PE FoF interviews and the majority of the questions I received revolved around fit (i.e. why do you want to be in FoF, why not private equity, what do you like about our firm, etc.) However, I did receive some technical questions, usually around my transaction experience (came from IB background). I had some case studies (some on-site), but they were straight forward and primarily involved paying attention to detail and following directions. Going back to the fit questions, I had the typical, "what's your 5-year plan" and "how do you see yourself fulfilling those goals here."

Mar 30, 2011

any thoughts on this?

Mar 30, 2011

How to analyse the past performance of Fund Managers;

Ask about their Research processes;

etc.

Mar 30, 2011

i don't ever post here, but is this for a FOF in the OC? if so, PM me, i went through it.

Mar 30, 2011

Hi,
I agreed with you. Any way, your points of view make me thinking about some thing for my project.
Pls try to keep posting. Tks and best regards
Apart from that, you also can ref more resources at: http://interviewquestionsandanswers.biz/account-in... Goodluck.

Mar 30, 2011

Send a follow-up just saying you are still interested. If no response then look elsewhere.

Good Luck !

Mar 30, 2011

Call him.

Mar 30, 2011

I called him and it went right to voicemail. I guess I'll send him one more email on Monday and see what's going on.

Mar 30, 2011

Sent my last follow-up. This guy even said he would email me after the first interview. What a liar!

Mar 30, 2011

Got a reply. He said second round emails will be sent out next week to meet the president. He also mentioned that if he doesn't email me I didn't make it... That last sentence doesnt really make it sound so promising. Oh wells, lets see what happens.

Mar 30, 2011

There's a lot of risk involved in the allocation to several funds, so try to familiarise yourself with how FoHFs manage this risk. Also, look into popular funds within several strategies, what their biggest positions are and what you think will be good alpha generation areas for the new year. Lyxor has quite good pdfs if you can find any online.

The HBS guys have MAD SWAGGER. They frequently wear their class jackets to boston bars, strutting and acting like they own the joint. They just ooze success, confidence, swagger, basically attributes of alpha males.

Mar 30, 2011

Be ready to give a really good answer about why you want to work in FoF and not investment banking or traditional investment management. Also be ready to "pitch" a hedge fund.

"Yes. Money has been a little bit tight lately, but at the end of my life, when I'm sitting on my yacht, am I gonna be thinking about how much money I have? No. I'm gonna be thinking about how many friends I have and my children and my comedy albums."

Mar 30, 2011

On top of what was already mentioned:

- Have a view on what types of strategies you would allocate assets to (i.e.; long-short credit because of XYZ...)
- Have a view on the economy, broad equity market and broad credit market
- Know the levels on the 10Y, SPX, unemployment, etc
- Be aware of any recent headlines and how it affects the markets (I personally got asked about the unemployment report, as it was released the morning of my interview. Knowing this shows your follow the markets)
- Be able to articulate and demonstrate a passion for the markets

Mar 30, 2011

Ask them about their investment strategy, what kind of funds they invest in (growth equity, buyout, venture capital, all of the above), etc.

Ask about what makes a good fund vs. a bad fund from an FoF investment perspective

Take their answers to these questions and just ask follow up questions and get into a conversation about this stuff.

Mar 30, 2011

Ask what the most difficult part of their job is.

What knowledge background do they use most.

Markets affect their work?

Mar 30, 2011

Typically FoF at banks are also involved in other initiatives such as Direct Investments or Providing illiquidity/Secondary investments. Usually a good idea to ask them which of the different types of investments that they do they like the best, and if they enjoy being able to do a variety.

Mar 30, 2011

Ask if it can be difficult to have a hands-off style of approach that a FoF has. Is it frustrating that you have to trust another manager of the PE fund you invest in, rather than be the one actively managing companies?

Mar 30, 2011

name of the firm? if you don't want to disclose, maybe some comparable shops?

Here's the thing. If you can't spot the sucker in the first half hour at the table, you are the sucker.

Mar 30, 2011

I do not know since I applied through a job placement agent.

Mar 30, 2011

There are a ton of threads on FoF. Seems like a very general description. I would talk to the placement agent to figure out more details about the firm.

Mar 30, 2011

So you will most likely be contacting PEGs (private equity groups) to discuss their investment strategies, looking at their management profiles and asking for a track record from previous funds. You might think people wouldn't share this information; however, if your group is going to be injecting 5-10 mil into a PEG you will be surprised at how much information you can get out of them. Let us know if you can get the name of the fund or similar funds...it would help a lot. Also, check out this website: http://ilpa.org/ilpa-private-equity-principles/
The due diligence of a PEG is different than that of a company... Think about why this might be: 1) You need to pay a lot of attention to the track record/companies in the portfolio/management success/failures. 2) You will not be zeroing in on a single product/company/etc.

The biggest benefit I think you can gain from working at a PE FOF is it will show you a multitude of different investment strategies and the way funds operate. This can be beneficial if looking to jump ship or go back to school (or even try to start your own fund). Believe me, you will HAVE to know how these funds operate if you were going to make an investment decision on them. I'll leave you with some advice that MezzKet gave to someone over a year ago (this means some of the info is dated...)

MezzKet:

I would definitely explain that you know what it means to invest other people's money but in order to get a full and broad understanding of what Private Equity is, you want to understand fund economics and what it's like to be a controlling GP and where investors have leverage... PE funds are only as strong as their LPAs... Say that 99.9% of top Associates at PE funds lack an understanding of how funds really work, how management companies really work and how they get paid... sure carried sounds simple until you get into clawbacks, retained liabilities etc. This is something you'd like to learn to make you fully versed in the PE field. Associates unfortunately (and even VPs) have no real understanding of which fund is allowed to deploy capital after investment periods, restrictions to investments etc. For a Managing Partner to know this off the bat and have deal experience is essential to maintaining a quality mangement company.

Secondly, you think that with so much dry powder available, recent study suggests 15 years, LPs (big LPs) especially are in key positions to renegotiate and pressure GPs into new terms for their existing funds, CalPERS is leading the way on this... Elaborate that it is an interesting time to be in the market...

Highlight the recent BofA deal (secondary FOF) and how for it's record setting size, it is still hazy and you'd really like to know what can force an LP out of a fund generating 3.5x cost...

I would definitely shoot back some intelligent questions to the interviewer:

  • Has the BofA & AXA deal been the spark everyone was looking for to sell off their PE portfolios? Have you seen a dramatic uptick in deals since then?
  • How are discounts looking for top GPs & top funds on Sept. NAV, Dec. NAV?
  • Are discounts low enough where leverage isnt necessary to achieve returns?
  • Are sellers looking for pure cash payouts or are they willing to finance a sellers loan as long as they can divest of their commitments?
  • Can you please walk me through a general process from deal sourcing to purchase agreement to closing? I hear that the former, can be done fairly quickly but the latter process is quite extended, why is that?
Mar 30, 2011

Bump...can someone help out?

Mar 30, 2011

Not much you can get beyond what's on the website. LPs will get additional information from the fund's PPM, a due diligence questionnaire ("DDQ"), and whatever other marketing materials that are provided to them and can then ask whatever follow-up questions they want/need.

Mar 30, 2011

Search function my friend, search function.

Mar 30, 2011

Could not find anything on fund of funds

Mar 30, 2011

Bump

Mar 30, 2011

Try "FOF"

Mar 30, 2011

Yeah go ahead..

Mar 30, 2011

I don't know if this needs to be said, but be sure you know about the firm you are interviewing with. I mean really know them. Don't just go to the about section on their website. Familiarize yourself with their team and individual backgrounds, and also their past and recent investments. If you know who your interviewers will be then you already have a leg up. Find a way to incorporate something you learned about them in your conversation. Best way to impress someone on a personal level.

"I'm short your house"

Mar 30, 2011

Thanks. Any more specific interview tips for the FoF industry in general. I am from a banking background, so I understand the technicals but never interview for a FoF before so want to see if anyone out there who has more info for me. Thanks.

  • b
  •  Mar 30, 2011
Comment
Mar 30, 2011
Mar 30, 2011
Mar 30, 2011